QDRO in pay status

[Guest StainedGlass]

We are processing a QDRO under a defined benefit plan for benefits in pay status. The QDRO just says that the Alternate Payee is to get 50% of the accrued benefit, and allows the Alternate Payee to choose the form of the payment. How does that work? What rules apply to a QDRO for a DB account that is already in pay status?

[QDROphile]

What is your relationship to the plan?

[Guest StainedGlass]

What is your relationship to the plan?

Attorney working with Plan Administrator.

[QDROphile]

I advise clients that the only way the plan should allow division of an annuity stream of payments is to divide each payment to the participant in some way (e.g. 50% goes to the participant and 50% goes to the alternate payee). I advise not to allow division of the benefit (i.e. the actuarial value of the benefit) or allow the alternate payee to be paid in a life annuity form. A plan could take this approach, but it is not advisable. An order cannot require a plan to do anything the plan is not designed to do. In other words, the order you describe should not be qualified. Assuming that in these circumstances the plan is designed only to pay certain periodic payments to the participant, the only thing the order can do is to assign some amount of each of those payments to the alternate payee for some time, not extending beyond when the payments to the participant would stop (probably death of the participant). That division might get fancy, but it has to adhere to the principle. If the order does not say so, if the alternate payee dies before the participant, the alternate payee's portion of the payment should be restored to the participant prospectively. The payments should not continue to a non-alternate payee under most DB plan designs.

[Guest Matthew Gouaux]

The DOL recently updated its QDRO regulations, which should answer your question. The type of QDRO you describe is referred to as a "separate interest" QDRO, that is, one which awards the alternate payee a benefit payable over his or her lifetime. In general, after a participant enters pay status, such an order is not be enforceable. Rather, the alternate payee must obtain a QDRO that awards awards him or her a share of each payment made to the participant over the participant's lifetime (referred to as a "shared interest" QDRO).

Here is a link to the regulations: http://webapps.dol.gov/FederalRegister/Pdf...spx?DocId=23949

[david rigby]

This actuary likes the above advice.

One possible wrinkle: Could the plan be "at fault"; that is, did the plan put this EE in pay status, ignoring a known QDRO?

[Guest StainedGlass]

This actuary likes the above advice.

One possible wrinkle: Could the plan be "at fault"; that is, did the plan put this EE in pay status, ignoring a known QDRO?

Nope - the EE has been in pay status for awhile, and the QDRO just got issued last week.

Thank you for all the advice, folks! If you have any other suggestions please feel free to add.