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QDRO entered just after annuity contracts have been purchased in a standard termination


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A defined benefit plan is being terminated in a standard termination. Recently, the sponsor purchased the annuity contracts for all of the participants' and existing alternate payees' accrued benefits. The sponsor will soon file the PBGC Form 501 certificate.

A few days ago, the sponsor received a entered QDRO for a participant dividing his pension benefit in a separate interest. The sponsor learned of the QDRO only at this time. Other than timing, the QDRO meets the requirements for approval.

Is this QDRO too late to be honored? Must the annuity contract provider honor the QDRO?

I've had no luck with commentary, or DOL/PBGC guidance on this issue.

Thanks.

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I am assuming that the contract has not been distributed to the participant; if it had then from a plan administration perspective I think you would have to take the position that the former participant is no longer a participant in the plan and consequently the QDRO has no effect. Based on that assumption, I don't have a definitive legal answer, and don't know if there is one. However, if I were in your shoes I would try to save myself some aggravation. If I could get confirmation that both spouses and their counsel are in agreement that the benefit should be split (notwithstanding the issuance of the annuity), I would then go back to the ins. company and find out if I can "trade in" the annuity for two annuities. I would proceed from there based on the ins. company's answer. I realize that there are all sorts of clean up questions to be addressed, but I think they are manageable.

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Unless the plan's QDRO Procedure says otherwise, I think the boat has sailed (assuming the sponsor had no clue that this DRO was coming).

If the sponsor wishes to pursue it, maybe the annuity contract provider would agree to replace the participant's contract with two contracts, but I don't think that there is any requirement to do so.

Might be worth reviewing this with the plan's attorney.

edit: I agree with jpod, whose post I didn't see before entering my reply.

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I would start with the proposition that the order is not qualified because the plan is in a position in the termination process that cannot be changed by an order. But if the contracts have not been distributed I would test the proposition with the inquiry to the annuity company as suggested by jpod. If the annuity benefit can still reasonably be divided into two contracts, then the plan should do it. I don't think I would consult with the participant or alternate payee about how to proceed.

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If the benefits were purchased as irrevocable commitment from the insurance company then no one is going to want to change the benefits that are being provided to the employee because of the additional cost that would be entailed unless there is a provision in the annuity contract that allows for benefits to be adjusted in the event of a QDRO entered after the benefits have been purchased.

Also 414p3 provides that a QDRO cannot require that the plan pay a benefit not otherwise provided under the plan. Under procedure for terminating the plan under the PBGC regs the plan administrator is required to purchase an annuity for the participant and spouse in the form required under the plan at the time the plan was terminated.

mjb

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The QJSA regulations issued after REA require an insurance company to enforce the spousal rights requirements. For example, if the plan buys a deferred annuity, when the participant finally retires the insurer is charged with obtaining spousal consent if the QJSA payment option is not elected. I believe the insurer would be on the hook for implementing a QDRO.

Now in this case the estranged spouse may have to return to court for an order requiring 2 checks under the annuity form elected, but some form of QDRO is still possible. The money has not moved to an IRA. It is still subject to qualified plan distribution requirements -- 401(a)(9) minimum distribution & 401(a)(11) QJSA, etc.

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The QJSA regulations issued after REA require an insurance company to enforce the spousal rights requirements. For example, if the plan buys a deferred annuity, when the participant finally retires the insurer is charged with obtaining spousal consent if the QJSA payment option is not elected. I believe the insurer would be on the hook for implementing a QDRO.

Now in this case the estranged spouse may have to return to court for an order requiring 2 checks under the annuity form elected, but some form of QDRO is still possible. The money has not moved to an IRA. It is still subject to qualified plan distribution requirements -- 401(a)(9) minimum distribution & 401(a)(11) QJSA, etc.

But how will the spouse enforce her rights under 414p? The insurance company is not the plan administrator because the plan has been terminated so how is it subject to ERISA?. Is it your contention that the insurance company is the successor to the plan administrator? One thing you are forgetting is that under REA the ex spouse still would have claim to the anuity benefits payable to the employee under state law if the benefits are no longer subject to an ERISA plan. The ex's remedy will likely be in state court.

mjb

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