Child Support/Segregation/18 month rule

[Guest ggbrock]

I'd be very interested to hear others thoughts on this one....

Our DB plan has recently (in the last couple of years) had a dramatic increase in the number of child support QDROs issued with respect to the plan. Most of these QDROs are not handled by attorneys but rather handled by child support enforcement officers and signed by the AG's office of the particular state. Certain of these QDROs call for back child support in a lump sum amount. (We require them to clarify that they actually want a portion of the PPT's accrued benefit which, if converted to a lump sum, would = [blank]). Some of these also call for a future monthly payment that represents what the court deems to be reasonable future support.

The plan has very detailed QDRO procedures that are given to APs (or their reps) upon notice of a proposed QDRO and freezes the PPT's benefit upon any type of notice that we are expecting a proposed QDRO, and we do not release the freeze unless it is 100% clear that no QDRO will be issued, the parties sign a notarized consent to that effect, or of course until the QDRO is qualified and processed. These procedures also clearly state that no payments under any QDRO will begin until (1) the plan issues a letter qualifying the order; (2) sixty days passes, during which time the parties can review the plan's interpretation of the order and object if necessary; and (3) the AP requests and completes election forms from the Plan administrator.

When we are in the stage of reviewing the proposed DRO and giving comments to ensure that it qualifies under the terms of our plan, we always make sure to remind APs of the fact that payments won't be made until the plan's process is complete, so that they can take that into consideration in determining the appropriate amount to be assigned. When an order calls for an "immediate payment", we ask that they change that to "payment as soon as administratively possible after the Plan qualifies the Order as a QDRO". Accordingly, if the June 1, 2009 order calls for a $5,000 lump sum (representing back support), and $500 monthly payments (representing future support), and that language is in the order, the plan will begin to make those payments as soon as possible following the administrative process discussed above (approximately September 1, 2009). Accordingly, on 9/1, AP will get a check for $5,000 and a check representing September's $500 payment.

This recent influx of these types of payments (in most other cases the AP only wants a lump sum) has us wondering whether the plan should be segregating the "future" monthly payments as of the date of the initial DRO under the 18 month rule. This is due to the language in IRC Section 414(p)(7)(A) (paraphrasing) "During any period in which the issue of whether a domestic relations order is a QDRO is being determined by a plan administrator, by a court or otherwise, the plan adminsitrator shall separatelyu account for the amounts which would have been payable if the order had been determined to be a QDRO " In that case, the $500 monthly payments should have been segregated as of June 1, 2009, and as of September 1, 2009, the AP would get the $5,000 lump sum, a payment of $1500 representing the three months of monthly payments, and a check for $500 for September. However, this seems inconsistent with my understanding of the 18 month rule, and perhaps more importantly (given the ambiguity regarding the interpertation of QDROs) contrary to the precise language of the order. If the language of the order contemplates the plan's review process and therefore payments are not "required to be made under the order" until that review process is complete, does the plan still have a responsibility to segregate those three months and pay it out, notwithstanding the terms of the order?

Sorry for the long post, and thank you for any thoughts.

[J Simmons]

* * * * * If the language of the order contemplates the plan's review process and therefore payments are not "required to be made under the order" until that review process is complete, does the plan still have a responsibility to segregate those three months and pay it out, notwithstanding the terms of the order?

Under the QDRO you are considering, would those 3 months payment during the QDRO processing payment be payable as arrears once the order is determined to be a QDRO? If so, then yes, the 3 months payments would need to be segregated.

If no monthly payments begin to accrue until after the order has been determined to be a QDRO, then you would not need to segregate for payments for the 3 months that QDRO processing is expected to take.

[Guest ggbrock]

Thanks for your response.

The order is clear that monthly payments will not begin until "as soon as administratively feasible following the plan's determination that this order is a QDRO" and makes no mention of a payment of arrearages. I think the plan's general process is appropriate, but it was the language of Section 414(p) regarding the 18 month rule that gave me pause:

During any period in which the issue of whether a domestic relations order is a QDRO is being determined by a plan administrator, by a court or otherwise, the plan adminsitrator shall separately account for the amounts which would have been payable if the order had been determined to be a QDRO.

That said, my understanding of the purpose of the 18 month rule is to ensure that benefits are not paid out to the participant during the time it takes for someone to make their way through the family court system and get a signed QDRO; not to include catch up or retroactive payments not contemplated by the order.

[david rigby]

When an order calls for an "immediate payment", we ask that they change that to "payment as soon as administratively possible after the Plan qualifies the Order as a QDRO".

No attorney I, but here is a thought:

You (as PA) have requested the above change to the order, apparently for administrative ease or clarity. That is not the same thing as saying "... no mention of a payment of arrearages..." since any retroactive payments have been (effectively) removed (by you).