Dealing with QDRO

[Randy Watson]

A terminating plan is scheduled to distribute assets by the end of the year and we just received notice that a participant is in divorce proceedings and that a domestic relations order will be forthcoming. Could the pending order hold up distribution of assets when those assets must be distributed by date X to comply with PBGC and IRS distribution timing rules? What can we do with this participant's benefit?

[QDROphile]

First, align the plan with the law and disregard the information about a forthcoming order. A plan is not required to act until it receives a domestic relations order. The plan terms and written QDRO procedures should be consistent often they are not because the plan has adopted a policy that is aligned with the Department of Labor informal position. That may solve the problem if the order does not arrive before distribution. Next, be diligent in anticipation of receipt of the order and process it immediately if the order arrives before distribution. If the order arrives too late for reasonable processing or correction of any qualification defects, the order is disqualified because it would require the plan to do something that the plan is not designed to do -- hold up the termination process. Best practice is to notify the person who advised of the expected QDRO that the plan waits for no order. That avoids any criticism of deception and it allows the individuals to gear the property division to what will be available when the division is determined.

[david rigby]

The plan terms and written QDRO procedures should be consistent.

Such a simple concept, so often ignored.

Implicit in QDROphile's advice is that actual plan administration should also be consistent.

[mbozek]

A terminating plan is scheduled to distribute assets by the end of the year and we just received notice that a participant is in divorce proceedings and that a domestic relations order will be forthcoming. Could the pending order hold up distribution of assets when those assets must be distributed by date X to comply with PBGC and IRS distribution timing rules? What can we do with this participant's benefit?

There is no requirement that a plan must continue in existance after its scheduled termination date in order to to provide for a distribution under a QDRO. I dont see how a state court could order a delay of distribution of the assets since the plan is not a party to the divorce action and can only act when a DRO is presented. A plan cannot act on a DRO received after the date of termination. I am assuming that the plan wants to distribute all assets by 12/31 to avoid have to file a 5500 for 2011. Also from the facts you do not know when the DRO would be issued by the court. Best thing to do is notify counsel for the participant in writing that the plan will make distributions to the participant by 12/31 under previously approved corporate action to terminate the plan, and that the distribution should be rolled over to an IRA. Once the plan assets are distributed to the participant they are subject to division by the state court. The IRA can be transferred tax free to the ex by court order or property settlement with the same result as a QDRO.