QDRO

[Madison71]

Client received a QDRO permitting the A.P. to receive a distribution or keep the money in the account. Client is close to the large plan audit requirement and does not want to permit A.P. to keep her money in the plan as an option We are reviewing the DRO. Any grounds to require them to take that language out?

[Madison71]

Client received a QDRO permitting the A.P. to receive a distribution or keep the money in the account. Client is close to the large plan audit requirement and does not want to permit A.P. to keep her money in the plan as an option We are reviewing the DRO. Any grounds to require them to take that language out?

....oh and this is a defined contribution plan and the distribution options are lump sum only. Thanks.

[GMK]

First thing that comes to mind is that you cannot participate in the Plan if you are not eligible, and persons generally have to be employed by the company at some time in order to be eligible to participate.

The AP will have distribution rights like a participant, but unless otherwise eligible through her/his own employment with the company, I doubt that she/he will have a right to participate (maintain an account) in the Plan.

Unless the Plan Document somehow provides for such AP participation, the DRO is requiring something outside of what the Plan normally offers, and that would prevent qualification of the DRO.

I'm interested to hear what others say.

[Madison71]

Excellent point. I am pretty certain the A.P. will want her money out of the plan, but we don't want to keep language in the QDRO opening the possibility that she may keep it in if we can help it.

[QDROphile]

Please explain how you can force an alternate payee to take a distribution even if the QDRO does not expressly provide that the alternate payee can defer distribution. I don't buy the argument that the alternate payee can be forced out because the alternate payee is not an employee.

[Guest jims]

The DRO isn't a QDRO until you qualify it under the terms of your plan. It may be late on this one, but maybe you want to work on your plan to prevent APs from sticking around. However, you may run into some restictions around cash out limits.

[Madison71]

Please explain how you can force an alternate payee to take a distribution even if the QDRO does not expressly provide that the alternate payee can defer distribution. I don't buy the argument that the alternate payee can be forced out because the alternate payee is not an employee.

I guess if it is under 5K (which this is not) you could roll or cash out if low enough....not sure, but a good question. My biggest concern is having the language in the QDRO. The AP will most likely take her money....I'm just wondering if it is something that the plan administrator can request be removed and have an argument for AP's lawyer on why it should be removed. Not compliant with the terms of the plan?

[david rigby]

Client received a QDRO permitting the A.P. to receive a distribution or keep the money in the account.

Does this conform to the plan document?

[QDROphile]

If a domestic relations order is not asking the plan to refrain from doing something the the plan is entitled to do, there is no basis for resisting the terms. I am suggesting that the plan cannot kick out the AP, therefore the provisions in the domestic relations order saying that the AP can defer distribution are not improper. If you can find some basis for the plan's ability to require the AP to take a distribution immediately, then you can think about objecting to the provision in the order. There are limits on the AP's ability to defer. A generally accepted (but maybe not correct) idea is that a benefit below the mandatory distribution amount can be forced out.

[Guest Sieve]

Instructions for Form 5500 indicate that alternate payees are not to be considered participants for purposes of line 6. So, the assumption in the OP that an alternate payee remaining in the Plan will count towards potential audit status appears to be an incorrect assumption.

[GMK]

Instructions for Form 5500 indicate that alternate payees are not to be considered participants for purposes of line 6.

Isn't this because the benefit is being paid from one participant's account, and the AP isn't another participant with a separate account. Recognizing that for record keeping purposes separate balances may be determined, the total benefit still only comes from one participant's account. And, therefore, you are not required to get an audit solely because you had some AP's that year.

QDROphile know this stuff better than anyone, so I am conflicted. I see the term Alternate "Payee" as defining someone who receives a payment from the plan. I do not see it as someone who can become an "alternate participant" in the plan. I would greatly appreciate any comments on this.

[Guest Sieve]

ERISA considers an alternate payee to be a "beneficiary" for all purposes (ERISA Section 203(d)(3)(J)), which gives that individual certain rights (e.g., receipt of notice of blackout, notice to interested parties, 204(h) notice re: reduction of future accurals, maybe the SPD & SAR, etc.).

But, the rules re: forcing an AP out of a plan are different from forcing out a death beneficiary, because the MRD rules control in the event of a participant's death .

Because some plans do not permit distribution to an alternate payee prior to the distribution event for the particiant, and because many QDROs also are worded that way, I've seen many plans hold & invest alternate payee assets separately from the participant after the QDRO has been effectuated.

[GMK]

Because some plans do not permit distribution to an alternate payee prior to the distribution event for the particiant, and because many QDROs also are worded that way, I've seen many plans hold & invest alternate payee assets separately from the participant after the QDRO has been effectuated.

Thank you, Sieve, for the example I should have remembered.

So, if a Plan wants to require AP's to take their distributions as soon as practicable, can this simply be an administrative decision or must it be in a Plan Document amendment (and listed in the QDRO Procedure in either case), or is it just plain not allowed (except to the extent that the Plan allows/requires force outs of participants)?

[QDROphile]

I don't see the conflict with recognizing that the AP's interest is only derivative of the particpant's interest, and therefore not really a separate account for many purposes, including section 401(a)(9), and requiring some authority for forcing a payment to an AP. In fact it is consistent. You can't force payment to a participant except under limited circumstances, so why would we assume that a different rule applies to the assigned portion of the participant's interest? Looking at it another way philosophically (which is dangerous in ERISAland), REA was supposed to provide better rights for women and get Ronald Reagan reelected, so allowing the interest to stay safely in the plan, where it was pre-divorce, makes sense. Or if you want to look at REA in yet another way, you shouldn't force payment on the little miss because she can't manage her financial affairs by herself. In other contexts, an AP can't get paid before the participant is eligible for payment, so we have a statutory provision about payment at "earliest retirement age" to allow AP's to pry benefits from a plan. Evidently the law anticipates APs hanging around in the plan rather than expects APs to be banished.

[Guest Sieve]

I agree with QDROphile, and do not believe an AP can be forced out unless the QDRO, by its terms, clearly requires it.

Here's my reasoning . . . It is true that the regulations under Code Secton 411(a)(11) talk in terms of requiring the consent only of a "participant" before distributions can occur. Those regs also speak, however, to the traditonal beneficiary (i.e., at the participant's death) by saying that consent is not required after the death of the participant (Treas. Reg. Section 1.411(a)-11©(5))--obviously the participant can't give consent after his/her own death, so the potential requirement of consent after death must mean the consent of the participant's surviving beneficiary. So, absent this participant death exception, the regs contemplate that the beneficiary's consent would otherwise be required under the same terms that would apply to a particiapnt. And, since the AP's payment is not (generally) after the participant's death, I think the AP, as a beneficiary under ERISA, would therefore be treated as a participant for consent purposes, and, as a result, an AP's consent prior to distribution would be required (at least if the AP's balance exceeds the Plan's involuntary distribution ceiling).

[Madison71]

I agree with QDROphile, and do not believe an AP can be forced out unless the QDRO, by its terms, clearly requires it.

So Sieve, does this mean that if the plan administrator requires a change in the DRO to remove the "leave it in the plan language" and requre distribution as soon as administratively feasible that they can then force AP out? If account is over 5k and AP does not turn in distribution paperwork, it seems like there is not much you could do. Of course, if you remove the "leave in plan" language, then it would at least appear to the AP that there is not that option. Would like the AP out...even if not counted for audit purposes. A per account is charged to the company.

Thank you all. Thanks for all of your comments.

[GMK]

Many many thanks, QDROphile and Sieve, for your replies.

As a criterion for DRO reviews, it appears that an AP with an account in the Plan has all of (but no more than) the same rights as a former employee participant with an account in the Plan (subject to any restrictions of the AP's rights specified in the QDRO). or is this too simplistic?

[Madison71]

Thanks GMK - I think I am going to just suggest they leave it in there. AP will most likely take the distribution anyway....

Thanks again all.