child support levy

[pmacduff]

Our client received a child support enforcement levy letter from the State against a former employee's vested balance in the Plan. Balance has not yet been paid out.

Should the client refer this back to the participant to obtain a DRO or does the State have the authority for this request without a DRO?

The levy references "section 5232(a) of the Civil Practice Law and Rules" & the client is in NYS.

The client will consult their attorney, however I'm curious what others have done in practice in these matters.

any input appreciated.

[QDROphile]

This may be pursuant to a law enacted under 42 USC 666(b). However, I recall that such orders are enforceable only against retirement benefits that are in pay status (don't trust me on this point).

The order might be issued under the state's domestic relations law. It would be processed for qualification as any other order. It is a common misconception that domestic relations orders are issued only by courts.

[mbozek]

Our client received a child support enforcement levy letter from the State against a former employee's vested balance in the Plan. Balance has not yet been paid out.

Should the client refer this back to the participant to obtain a DRO or does the State have the authority for this request without a DRO?

The levy references "section 5232(a) of the Civil Practice Law and Rules" & the client is in NYS.

The client will consult their attorney, however I'm curious what others have done in practice in these matters.

any input appreciated.

See DOL opinion letter 2001-06A where the DOL determined that income withholding notices issued by the NY Division of Child Suport Enforcement or a county enforcement agency to collect back child support owed by an individual covered under a pension plan are enforceable if they meet the requirements for QDRO's other than being issued by a court. Under 42 USC 666(b)(8) pension benefits are subject to seizure under state enforcement proceeding for payment of back child support if the benefits are "due" to the individual, e.g., are in pay status.

If the employer does not comply with a valid court order to withhold income from the employee after receipt of a proper notice, the employer must be held liable to the state for the amount. 42 USC 666(b)(6)©.

[pmacduff]

Thank you both for the information. This particular plan requires a two year break-in-service before payout. However the participant in question is due to be paid out at this plan year end (which was 10/31).

[pmacduff]

I have another question...if the levy is determined to be acceptable and the balance will be paid out to the State - does the plan have an obligation to inform the participant that the account is being forwarded to the State for payment of arrears child support per the levy?

[mbozek]

I have another question...if the levy is determined to be acceptable and the balance will be paid out to the State - does the plan have an obligation to inform the participant that the account is being forwarded to the State for payment of arrears child support per the levy?

Good Q.

As noted previously under DOL opinons, state child support orders under 42 USC 466 are subject to all rules for QDROs which would include obligation to inform participant of action taken.

[david rigby]

... does the plan have an obligation to inform the participant that the account is being forwarded to the State for payment of arrears child support per the levy?

I can't imagine why the Plan would not want to inform the participant.

[pmacduff]

I completely agree that the "right thing to do" is to inform the participant, I was trying to get a sense of whether or not the Plan was obligated to do so.

mbozek answered that for me...

[pmacduff]

ok - 1099-R question on this child support payout...The the 1099-R form will be issed to the participant - is it coded with a "2" so that the participant does not have to pay the 10% exicse tax for under 59 1/2?

I know the when the payment goes directly to the Alternate payee that code can be used, but this $$ is going to the State.

[mbozek]

ok - 1099-R question on this child support payout...The the 1099-R form will be issed to the participant - is it coded with a "2" so that the participant does not have to pay the 10% exicse tax for under 59 1/2?

I know the when the payment goes directly to the Alternate payee that code can be used, but this $$ is going to the State.

Under 72(t)(2)© payments made to an alternate payee under a QDRO are exempt from the tax. Dol opinion 2001-06 states that child support orders are enforceable as QDROs. According to the DOL opinion, the state agency is authorized to receive the payment as the agent for the child who is the Alternate Payee so by inference the payment is being made to the AP.

[QDROphile]

But now you have to deal with income tax withholding. The distribution is not rollable, so the 20% withholding does not apply. The best solution is for the the participant to waive withholding. Without an election by the participant, the withholding is 10% of the distribution. I can't find any special rules for escape from the general rule for withholding on amounts that are not rollable.

[pmacduff]

It's time for the 1099-R on this one and I just want to confirm that the 1099-R goes to the Participant and I believe the IRS Code is "2" so that the 10% excise tax does not apply, agreed?

[QDROphile]

Section 72(t)(2)© is up for interpretation, but I think the intent is that the 10% additional tax does not apply. No comment on the specific code for the form.

[Guest EXTREMELYCONCERNED]

Has anyone ever thought that maybe acknowledging CHILD SUPPORT QDROS (ahead of retirement) may interfere with the Plan's investment objectives? If you think about it, maybe there is a reason that the Plans discriminate against child support QDRO before pay-status. Child Support QDRO's are unpredictable - they could show up at any time and take large amounts from the "pool" of assets. Perhaps this is why the Plans try to ward them off until retirement. This way, the 'projections' stay in tact. Your family may suffer, but the 'projections' and the Plan wins in 'appreciation.' Is it just me, or does it seem that UNEXPECTED withdrawals or PAYOUTS could TANK the Plans!!!