Restricted Benefit Payments and QDRO

[Dougsbpc]

We administer a small DB plan that terminated 12/31/2007. However, the client failed to provide us with necessary information to complete the termination in 2008. He was divorced and had medical problems. This also lead to no AFTAP as of 10/1/2008. The plan has only existed for 4 years. We sent the client the notice of benefit restrictions to provide to the 4 participants including his former wife.

The plan would have had a 2008 AFTAP of 98%. However now the plan has lost about 45% and any 2009 AFTAP will surely be less than 80%.

We received a QDRO ordering the plan to distribute benefits to the Alternate Payee as a lump sum. They cannot do this due to the AFTAP < 80%. Has anyone run into this problem yet?

[Andy the Actuary]

Are you certain PPA 436 applies to Plans that terminated prior to PPA effective date?

[Dougsbpc]

Thanks for the reply Andy.

I was thinking that benefits were not distributed within one year of the termination date. Generally this means that the termination did not take place and you had an active plan. However, now that I think about it, his divorce, division of property (including the plan) prevented benefits from being distributed in 2008. So perhaps you are right, PPA 436 would not apply.

[Andy the Actuary]

Note, the pre-termination distribution restrictions of 401(a)(4) -- 110% test -- would still apply to HCEs. Not sure without digging whether or not divorced spouse of HCE is an HCE.

In short, it would seem that NHCEs would get their full benefits and then owner and divorced spouse get to fight over the rest. Better lawyer up!