QDRO Pending?

[austin3515]

When should the trustee prohibit a participant from taking a distribution? Trustee knows an employee is about to be divorced, but no QDRO has been received, etc. OBviouly, participants who know a divorce is coming would have a significant incentive to close their accounts before a divorce...

[GMK]

The first sentence of Post #4 of this link pretty much says it all:

http://benefitslink.com/boards/index.php?s...c=45227&hl=

Until there's a domestic relations order, qualified or unqualified, the plan's loyalty with regard to a participant's account is solely to the participant's interest.

Now, in real life, I might point out to the participant that the distribution won't hide or protect the assets from the soon-to-be ex, who could come after the distributed cash or other assets to get his or her half (or whatever percentage). But without a DRO, the plan has no grounds to prevent the participant from taking a distribution that is available to her or him.

[QDROphile]

The post from BED, post #2, in that string is accurate, and represents the Department of Labor view. Committee reports are not law and the only federal court case came out on the side of a literal reading of the statute -- no compromise of the participant's rights without receipt of an order. That court suggested that the plan, in its written QDRO procedures, could adopt the Department of Labor view (although that view is not well defined), but the plan involved did not; the plan merely recited the statutory language in its QDRO procedures.

I subscribe to GMK's position, but I have written QDRO procedures to allow something other than a domestic relations order to casue restrictions. The problem is to define what it is, other than an angry phone call typical in divorce settings, sufficiently reliable to make the plan believe a QDRO is really in the works within a reasonable time. Receipt of an order is a nice objective standard. "About to get a divorce" is a long way from any understanding of ultimate effect on benefits, and the state courts are not strangers to funny antics with property. They have ways ... .

DB plans have an especially tough time because of the benefit starting date rules. The timing of the order can make a big difference in the form of benefit and the options for dividing the benefit.

Some argue that is is better to hold the money and then be wrong about holding it rather than let the money go and be determined to be wrong and have to chase the money or restore it personally. That argument makes some sense, but a participant can be harmed by an improper restriction, as happend in the federal court case restriction on investment changes in a market crash).

[GMK]

Our QDRO Procedure gives the Plan Administrator the authority to take such actions prior to the receipt of a DRO as the PA deems necessary to maintain the participant's accrued benefit, including suspension of the right to distributions, IF the Plan receives written notice of a coming DRO and IF the participant's benefit is not in pay status.

If the benefit is in pay status, then until the Plan receives a DRO, the PA will take no action to limit distributions to the participant or otherwise maintain the benefit.

To answer the question in advance, the Procedure lists examples of when a benefit is considered to be in pay status. This part is important, because it documents for everyone involved what the Plan considers to be "in Pay Status" in situations that are likely to occur with the Plan. For example, a force out benefit (under $1000) to a terminated employee is in pay status.

Our Procedure releases the restrictions, if any, on the participant's access to the benefits if the DRO is not received within 90 days of the Plan's receipt of the notice that a DRO is coming. The PA has the option to reinstate any or all or none of the available restrictions if a second notice is received (but only if the benefit is not then in pay status).

The rest of the Procedure details what happens after the DRO arrives.

A well thought out QDRO Procedure that fits the Plan takes some effort, but it is a Plan Administrator's best friend when notice of a coming DRO arrives.