QDRO - Allocation of Earnings and Losses

[Guest CRMowery]

We have had a difficult time with our record keeper in allocating earnings and/or losses to an alternate payee's account between the date of division, e.g., date of divorce or date of separation, and the date on which the alternate payee's account is established. [it is not uncommon that the court will enter the purported QDRO several years after the date of division.]

The record keeper has indicated that few of their clients allow such allocation of earnings and/or losses and reject domestic relations orders that require such allocation. The record keepr would like us to reject domestic relations orders that require allocation of losses and earnings.

Does your plan allow the allocation of earnings and/or losses between the date of division and the date of allocation to the alternate payee? Or does your plan reject domestic relations order that require the allocation of losses and/or earnings?

[LCARUSI]

I don't think the Plan Sponsor has the option of "rejecting" a valid QDRO.

The earnings calculation can be difficult if there has been a lot of activity in the account (especially investment reallocations). But I think you have to do it.

[Ervin Barham]

I'm in the middle of calculating earnings on a QDRO right now. I agree with LCarusi in that the plan cannot reject a valid QDRO and should calculate earnings. It can also be difficult to calculate!

However, if at all possible, since this is a matter of negotiation between the attorneys for both spouses, they should work with the recordkeeper to make sure that the dates, methodology, etc., can be handled by the recordkeeper and also reflects a true and proper allocation of earnings, contributions, and loans to each party.

Sometimes the date chosen is the date of separation, for example and the plan has no value as of that date since it was providing only quarterly valuations is one example that I can think of.

[Guest Robert Collins]

Our organization receives over 200 QDROs a year and many require that the alternate payee's account be credited with earnings from the separation date. We developed a method to handle this calculation. If the current recordkeeper of the plan can not provide this information, the plan should question what other types of information is lacking. I agree with the other person that poor recordkeeping service is not a reason to diqualify a QDRO.

[MWeddell]

I agree there's no reason to reject the QDRO.

Code Section 414(p)(7) contains a provision limiting the retroactivity of QDROs to an 18-month period, but it only applies to when payments are made, not the date used to calculate the portion assigned to the alternate payee. If the QDRO says payment isn't made until it's accepted by the plan administrator as valid (or the "earliest retirement age" if the plan doesn't allow immediate distributions to alternate payees), then it complies with the Code and the plan administrator must accept the QDRO as valid as long as it clearly specifies the manner in determining how much is assigned to the alternate payee.

[Guest RARogers]

The plan should reject an order when the amount due to the alternate payee cannot be determined. If the order does not state how earnings are to be determined, I do not think the order is qualified.

If the plan administrator or recordkeeper takes it upon itself to determine the earnings amount when no method has been indicated, it is subject to challenge by one party or the other that the amount paid was incorrect (alternate payee says "I should get more earnings," and participant says "you paid out too much.")

An order which simply says "and earnings from the date of separation" is sloppy and indicates a lazy or uninformed attorney.