DRO--Value fluctuations

[Guest SWH]

Plan has "pooled" investments which are valued and allocated twice a year. Participant has option of electing to self direct and open up a brokerage account, if they want. We issue statements showing assets by money type twice a year -- earnings are allocated to the different money types at this time.

Reviewing a Domestic Relations Order for a terminated participant. DRO says to give one-half of the value of vested interest in plan as of the last valuation. While normally that would send me into a giggling fit because it's doable, I find myself in a quandry.

The account has lost value since the last valuation (which was almost 6 months ago) due to market decline and is just a little over half the value that it was 6 months ago.

Do I reject and ask for clarification, since the account can be valued due to a distributable event since it is in a brokerage account and that value fluctuates daily? If he were in the pooled account, it wouldn't amtter, because value assigned to him would not have fluctuated.

Should i even address this?

Does this make sense to anybody else but me?

[Below Ground]

I think you need to define what the last valuation date is for this purpose. Does this mean the last valuation immediately before payout, or a specific date? You should carefully review language of both DRO and Plan. Is there language in either that can come back and "bite you"? If so, I would ask for clarification.

If the Valuation Date is deemed to be each day, which it seems to be, you probably need to tell ex-spouse a value now for purposes of making elections. You should first note that account is subject to daily valuation. I would then say something like "you will receive 50% of the vested account value as valued on the date payment is made". Then you can say "the vested account was lasted valued at $$$$".

And yes, this does make sense to me. Hope this helps.

[GMK]

There is some discussion of this under Retirement Plans > Qualified Domestic Relations Orders (QDROs),

for example, the topic "QDRO - market loss"

I would insert the link, but it looks like I need advice on how to insert a topic link (yes, I read the Help). Thanks.

[JanetM]

If the value changes daily than I would treat is like any other daily valued account. AP gets 50% of balance as of date, those assets are subject to gain or loss between the date of award and the date of distribution.

[david rigby]

The original post is unclear. First paragraph implies earnings allocations twice a year. Fourth paragraph implies daily valuation. As advised above, make sure the correct answer is clear in any communication.

[Steelerfan]

The original post is unclear. First paragraph implies earnings allocations twice a year. Fourth paragraph implies daily valuation. As advised above, make sure the correct answer is clear in any communication.

The fourth para said the value fluctuates daily, not that it's valued daily.

[Kimberly S]

The value of MOST investments fluctuate daily. But the original post specifically says it is in a self directed brokerage account. That sounds like a daily valued account.

[Mike Preston]

GMK: Try this. Go look above at your post. In the upper right hand corner you should see an underlined "#3". Click it. A box will open up with the link. Copy that into the clipboard (highlight it and press cntl-C). Now, insert that which is now in your clipboard into a reply (or post) and it will be a link to your message.

[GMK]

Thanks, Mike. I think I have it now. I appreciate your reply.

I also found the How to Use These Boards board and learned about a few more good features.

http://benefitslink.com/boards/index.php?s...st&p=160936

and this one

Thanks again.

[Guest SWH]

Wanted to clarify since there was some confusion.

First, plan has two options for participants -- pooled account and/or self directed brokerage account with earnings being allocated in a balance forward method.

The accounts are not "daily valued" in that earnings are not assigned to money types on a daily basis. They are only assigned to the money types twice a year -- unless there is a reason for an account to have a valuation made on it in between those dates, i.e., distributions, loans, etc.

If the participant were in the pooled account and a DRO comes in that says to give as of December 31st, then no problem, because thats a valuation date. If it says to break out as of Feb 15th, then we need more clarification on the DRO. We make them spell out Split as of December 31st plus one half of deferrals from Jan 1 to Feb 15th. We have to do this because it is a pooled account and we can't "value" an individual's account on any other day than a valuation date without valuing the entire plan.

However, in this situation, the participant is in a self directed brokerage account (think IRA account with a 401k FBO account title).

The DRO says to give as of a valuation date; however, the investments of this participant (because it is basically an IRA account) has dropped drastically since that date. I think that I need more clarification on the DRO. The value of the account has changed since then (regarldless of whether I go in and do an allocation of earnings). I think that I need at least a "give 50% of assets as of " rather than the current "give 50% of value as of." This would allow me to split and assign the underlying investment shares (which we don't track) so that the assets that alternate payee gets is the same as she would have gotten on the valuation date -- regardless of payout date.

Does that make better sense?

[GMK]

I would go with 50% of assets, but it may not matter whether you say assets or value.

Click here for one of the discussions of this on the QDRO board.

[dmwe]

IMHO I would reject the DRO and ask them to supply a specific date at which the assets should be valued for the purposes of establishing the transfer to the alternate payee and also make sure the DRO states that the account for the alternate payee will be adjusted from that date for gains and losses.

Since the brokerage account fluctuates on a daily basis, you're taking on market risk that will probably make one of the parties upset and you shouldn't be put in that position. Have them specify the valuation date. I've never had a problem requesting/demanding that language in the DRO.