Participant Distribution & QDRO

[Guest davsun]

I have a question regarding a participant distribution in a typical 401(k) Profit Sharing plan that is completely participant directed:

If a participant comes to the plan sponsor (plan administrator) requesting a distribution, files the necessary paperwork, and receives the distribution, but the plan sponsor (plan administrator) later receives a QDRO notification, does the plan sponsor have any liability for allowing that distribution? What if the plan sponsor routinely asks participants upon requesting a distribution whether they are married or not and the participant lies to them and says "no"?

I cannot find any specific language in ERISA, IRC, or other regulations that address this issue; however, I would suspect that as long as the plan sponsor did not know (or had reason to know), the liability would fall on the participant who lied. Any thoughts? Any idea if this situation is addressed in an Interpretive Bulletin or elsewhere?

[QDROphile]

"If a participant comes to the plan sponsor (plan administrator) requesting a distribution, files the necessary paperwork, and receives the distribution, but the plan sponsor (plan administrator) later receives a QDRO notification, does the plan sponsor have any liability for allowing that distribution?"

-Not unless the plan administrator has gone the extra distance to create unnecessary obligations and included them in QDRO procedures.

"What if the plan sponsor routinely asks participants upon requesting a distribution whether they are married or not and the participant lies to them and says "no"?"

-Same answer, but a plan administrator that asks the question without having a plan purpose other than QDRO concerns is on its way to creating unnecessary obligations.

You start with the terms of the statute (both ERISA and the tax code) that speak only to what happens if a plan receives a domestic relations order. Then you disregard the completely unsupported (in fact, contradicted by a federal court decision)informal statements of the Department of Labor concerning what the plan administrator knows or should know about whether or not the plan might ever receive a domestic relations order. You probably will not find any authority that states the conclusion as directly as you might wish.

[Mike Preston]

Federal law is quite clear. No QDRO presented to the plan means the plan has no obligation to modify its normal procedures (in fact, it has an obligation NOT to modify its normal procedures).

Where things get dicey is when a state court proceeding joins the plan. Many state law judges think that they are able to ignore Federal law. Hence, if joined, it is probably best that the QDRO procedures include a rational way to handle that circumstance, even though, technically, the Plan has the right to refuse to be joined. Most lawyers will tell you it isn't worth the time and trouble to argue with a state court joinder.

Reminds me of a case I testified at in the 80's. I told the Judge that the terms of the plan controlled the determination of the benefit of the participant and that the Judge had sole authority as to how to divide the benefit up. The two sides had a disagreement about what the benefit was and again, I told the Judge that the burden of determining the benefit rested with the Plan Administrator and was subject to challenge in Federal Court, not State Court. His opinion was published with a sentence something like: "This court declines to exercise its authority to determine the benefit of the participant under the plan and rules..... blah, blah, blah". So, the Judge listened to me in one sense (he didn't rule on what the benefit was) but didn't in another sense (he was convinced he could have modified the benefit had he felt like doing so). Had he done so, the Plan Administrator was quite willing to go to Federal Court to have the state court's ruling nullified to the extent it modified the participant's benefit.

[david rigby]

davsun, it appears you may be new to these Message Boards. Welcome.

There is a Board whose focus is QDRO's, http://benefitslink.com/boards/index.php?showforum=89

Reviewing that Board will provide 100% support from the advice given by the other comments above.

[Guest davsun]

Thank you all for your insight, I appreciate your time. I will look at the QDRO boards and ask follow up Q's if / when they arise. Thanks again and hope to see you around on here!