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Hardship to Alternate Payee


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I'm not sure if we understand QDROs all that well. It's my understanding that if the QDRO doesn't specifically state that the AP is to take out their share of the money right away then the AP must follow the terms of the plan and can only take it out. 1. when the ex-spouse (the participant) is terminated or otherwise eligible to receive a distribution or (2) upon AP attainment of age 59 1/2 or NRA. This is what our document states about QDRO's:

All rights and benefits, including elections, provided to a Participant in this Plan shall be subject to the rights afforded to any alternate payee under a qualified domestic relations order. Furthermore, a distribution to an alternate payee shall be permitted if such distribution is authorized by a qualified domestic relations order, even if the affected Participant has not separated from service and has not reached the earliest retirement age. For the purposes of this Section, the terms "alternate payee," "qualified domestic relations order" and "earliest retirement age" shall have the meaning set forth under Code Section 414(p).

They way i understand the paragraph above is if the QDRO doesn't say that the AP can take the money out right away - the AP must follow the terms of the plan. That being said my questions are:

1. Are we correct in assuming this?

2. If this is the case is an AP eligible to take a Hardship distribution?

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If you copied your document correctly, it specifically authorizes distributions to an alternate payee before earliest retirement age. If the order says to distribute now, your document says you can -- just as soon as the distribution paperwork is completed. The alternate payee may have better income tax results if she/he waits until 59 1/2, but that does not prevent the person from electing a current distribution.

IF the QDRO provides that the alternate payee can exercise rights under the Plan like a participant, the alternate payee could take a loan. There is no clear guidance on hardship -- your plan will tell you that if the participant, spouse, dependent, or primary beneficiary suffer such and such hardship, a distribution can be taken. The alternate payee is none of these people, but can you treat one as if he/she were the participant for this purpose? The 401(k) regulation does not say so. It is silent.

The more twisted question is whether the alternate payee can take a hardship withdrawal if the participant (or the new spouse) has a qualifying hardship. :blink:

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