Distribution involving after tax contributions

[Dennis Povloski]

Cramming at the last minute for C-3 tomorrow...This is actually a sample question from the C-3 study guide, but since there hasn't been a post in the C-3 board since 2005, I thought I might get a better response here...The question does involve a QDRO, but my concern doesn't involve the QDRO piece of it.

Question:

"Participant A's interest in the plan as of December 31, 2001, is $800,000. The administrator received a QDRO that awards 25% of Participant A's interest in the plan as of December 31, 2001, to Participant A's child. Participant A's interest in the plan consists of $700,000 attributable to employer contributions and $100,000 attributable to after tax contributions. Participant A's child elects to receive a cash distribution of $200,000. How much must Participant A include in income?"

Answer:

$200,000

I understand that since the QDRO awards payment to the child that the distribution is included in the participant's income. BUT, I thought that there must be some kind of recovery of basis since the account contains after tax contributions. Shouldn't part of the $200,000 distribution be a return of after tax contribution, and therefore not included? Am I on the right track?