NQDC and QDRO

[Guest Eric.]

Client received QDRO directing 1/2 of a participant's Options in the Co,'s NQDCP to be repapered to his (now ex) wife's name. Client asserts that because their Plan Document says Options can't be assigned, they do not have to comply. I would think the document is speaking to a participant's ability to assign his/her Options, not a court's ability to do so.

I also heard a comment from another party that ended like this "oh, that's right, it's a non-qual Plan, so the QDRO can't dictate".

Really? Does anyone know - Can the Plan Document actually supercede the court order and is it true that the fact it is an NQDCP really make a difference??

[david rigby]

Possibly relevant?

http://benefitslink.com/boards/index.php?showtopic=29101

[jpod]

1. Clearly the QDRO rules of the IRC are inapplicable.

2. Unless it is an ERISA pension plan subject to part 2 of Title I of ERISA, the ERISA QDRO rules are inapplicable.

3. Assuming it is not an ERISA plan at all, and therefore there are no issues of ERISA preemption, the issue boils down to a State law issue of whether the court has the ability to do this. Assuming the order looks valid on its face, and there is no indication that the court was hoodwinked into believing that the plan is something other than what it really is, the client has to decide whether it is worthwhile to contest the order if the participant himself is not interested in contesting it.

[Guest Eric.]

Possibly relevant?

http://benefitslink.com/boards/index.php?showtopic=29101

Thanks David. Interesting posts that have good citations in them. You pointed me in a useful direction. Much appreciated.

jpod - Thank you for your response as well. Both your and David's posts hit so quickly after I posted my question - it is great to see the Forum bearing fruit so efficiently!

[QDROphile]

Generally NQDC plans are merely promises to pay something at some future time. There are no assets in which the participant has an interest, so there is nothing to "repaper" as far as the assets (which belong to the employer) are concerned. To the extent a state court can require an employer to participate in the assignment of a particpant's property, the court still has to take into account what the property is. At some time in the future, the employer will be required to give the participant something (although it might have zero value at the time), but other than an intangible contract right to that something (in accordance with the terms of the contract), there is nothing to divide or re-register today. Consider an assignment of pay, or a lien on pay. Nothing happens to any asset until pay day. Payroll does not set up the creditor as a payee the same as an employee. The employer identifies the pay on pay day, then looks at the terms of the assignment/lien and carves out the part of the pay that is subject to the assignment/lien.

The employer can set up the terms of the plan to handle it differently.

[jpod]

QDRO: The facts are very vague here. On the one hand Eric described the plan as a NQDCP, which would suggest that there might be an ERISA preemption issue, but on the other hand he was talking about an assignment of the participants "options," which if he means stock options are generally not part of an ERISA plan and, therefore, no preemption. For what it's worth I think that in many jurisdictions stock options are considered property which can be split in a divorce, notwithstanding anti-assignment language (or why else would IRS have ruled on the tax issues a few years ago)

[Guest Eric.]

QDROphile - the repapering would be the drafting of Options Agreements to the spouse's name. The original Participant would also receive an Addendum to his Agreements reflecting the modified Options (his remainder portions, as each individual Option would be split in half, in his case).

[QDROphile]

So what about the NQDC plan terminology you used?

[Guest Eric.]

QDRO - not really sure what you are asking me about the "Plan terminology" I used.

I basically said the (NQDC)Plan has a QDRO to give 1/2 of a participant's Options. (ie: I specifically worded it "...directing 1/2 of a participant's Options in the Co,'s NQDCP to be repapered to his (now ex) wife's name" ... ie: restate the Options [as appears on the participant valuation statements] and repaper the Option Agreements/Ammended OA's so that 1/2 are his and 1/2 are hers) and that they are taking the position that they don't have to because the Plan Doc says Options (and logic follows that this also means portions thereof) can't be assigned.

... so what exeactly are you asking me about the Plan Terminolgy that I used?

[jpod]

I can't speak for QDRO but if by "Options" you meant stock options we are a little confused as to what type of arrangement we are dealing with here, and that could be pertinent to our efforts to be helpful. Normally, we don't think of a stock option as a component of a NQDCP.

[Guest Eric.]

I can't speak for QDRO but if by "Options" you meant stock options we are a little confused as to what type of arrangement we are dealing with here, and that could be pertinent to our efforts to be helpful. Normally, we don't think of a stock option as a component of a NQDCP.

I handle over 100 NQDCP's that use Options written on Mutual Funds. But I understand what you are saying. Perhaps I was unwittingly on the defensive, referencing the earlier post, thinking the question was really trying to imply that my use of the word "repapering" was referring to the physical assets - which, as pointed out, doesn't occur here - and that I therefore had no clue what I was asking.

"Defensiveness": see what 20 yrs of marrage can do to a guy?

[QDROphile]

Stock options can be a component of an NQDC plan, but when they are, they have a very different character as a property right. If someone has stock options awarded directly, that is another matter altogether, and I would not use NQDC terminology for such an arrangements, although I understand that there is an element of deferred compensation involved.

[QDROphile]

I go back to my original response. Whatever it is you are using to measure some ultimate payment, if it is an NQDC plan, the participant does not own it, so no one can get to it through the participant until the day it is payable/paid to the participant.

[Guest Eric.]

Stock options can be a component of an NQDC plan, but when they are, they have a very different character as a property right. If someone has stock options awarded directly, that is another matter altogether, and I would not use NQDC terminology for such an arrangements, although I understand that there is an element of deferred compensation involved.

Thankyou Q. The Plans are most ceratinly NQDCP's. AND, the participants of the Plans receive Options under the Plans. No direct stock awards here. Hmm, that's pretty much 100% of what this Plan does. You can reference KEYSOP if you want Deloite's product's name and you'll find a number of variations from the other "big-names".

And, I've work on numbers of plans - with almost identical PD's and OA's amongst them - that used Options written on items such as parcels of land instead of Options written on Mutual Funds. Theoretically, you can write an Option on almost anything you want to - car, house, whatever.

In fact, I guess then that you will be stunned to learn that several years ago these plans were all the rage with Hospitals/NFP's because they didn't have many similar type opportunties to use/offer for attraction and retention. Like wildfire.

Then again, I've only been involved with the first of these varieties since it's CONCEPTION. Oh yes, that's right, and handle Plans from the coast to coast. What do I know. I suppose I need to alert the trustees and Benefits Attornies that I am on the phone with everyday, that these are not "really" NQDCP's and we need hurry up and construct a new vocabulary/unique terminology. Oh crap - we all also need to retool all the SPD's PD's, presentations, articles ... my g-d, I better get busy. I'll be sure to tell them they are all wrong too, because QDROphile "would not use NQDC terminology for such an arrangements". Thanks for straightening this out for us before we all look foolish in front of our clients.

As a moderator, I've always found you knowledgable - abrassive - as you've been told in past posts - but knowledgable. This response just blows me out of the water ...

PS - do me a favor, please don't respond with the words "property rights" again. I never used the words, you did. I know where you were going, but I think you assumed the question is about the assignment of property, not of rights under option. Is the whole terminology discussion a red-herring to distract from that fact?

I'll check back after I'm done playing with my Lego's.

[Guest mjb]

Client received QDRO directing 1/2 of a participant's Options in the Co,'s NQDCP to be repapered to his (now ex) wife's name. Client asserts that because their Plan Document says Options can't be assigned, they do not have to comply. I would think the document is speaking to a participant's ability to assign his/her Options, not a court's ability to do so.

I also heard a comment from another party that ended like this "oh, that's right, it's a non-qual Plan, so the QDRO can't dictate".

Really? Does anyone know - Can the Plan Document actually supercede the court order and is it true that the fact it is an NQDCP really make a difference??

I think that you need to distinguish between rights of a court to determine maritial property to be divided in a divorce and the rights of the plan participant's spouse to receive retirement benefits determined to be marital property under the terms of the retirement plan. It is recognized that state divorce courts have the right to determine whether stock options are marital property, e.g., DeJesus v. DeJesus, 90 NY2d, 643, In re Marriage of Hug, 154 Cal.App.3d 780, Wendt v. Wendt, 255 Conn 918. However, the rights of the ex spouse to such benefits can be no greater than the rights of the employee to the benefits. For example, in some states (FL?) even though retirement benefits are included in the martial estate, ex spouses of public employees cannot receive any retirement benefits from the public retirement plan because under state law the benefits are not assignable. The ex can only receive a payment of his/her share of the retirement benefits ordered under the divorce decree from the employee after distribution of the retirement benefits begins because public plans are exempt from ERISA which provides for assignment of retirement benefits under a private employer plan to an ex spouse. Similarily if a NQDC plan provides that stock options of a participant are not assignable in accordance with IRS reg. 1.83-3(d), I dont see how a court order to transfer the options to the ex spouse can be enforced because a NQDC plan is not subject to Section 206d of ERISA which provides for pension benefits to be transferred to an ex- spouse under a QDRO as an exception to the non alienation rule of ERISA.

[Guest Eric.]

Thanks mjb.

Much appreciated.

[GBurns]

I do not recall Deloitte marketing their KEYSOP as a NQDCP, I recall it being simply a NQ Stock Option Plan used for Key employees.

I do not recall them calling it a NQDCP of any sort even in the opinion letter that they used to use.

I recall Deloitte stating that their KESOP was under section 83 which I think means that it was not a NQDCP.

In any case, didn't they pull it from the market just after they killed their patent application ? This suggests to me that there were some tax/legal issues with the concept.

Here is one of the previous discussions on this Board:

http://benefitslink.com/boards/index.php?showtopic=1577