QDROs and IRC 415

[richard]

Husband (H) and Wife (W) own a company with an overfunded DB plan (assets > PVAB) and a DC plan.

Naturally (since this is California), they are getting divorced. As part of the divorce agreement, wife wants to waive all rights to the DB plan and the DC plan (presumably in return for the house, the kids, the dog, whatever).

1. She needs two QDROs, right?

2. His DB benefit for himself and his benefit from his wife (i.e. as an alternate payee?) would be separately subject to IRC 415, not combined. Correct? (What code/reg cites do you have?)

3. Also, the "transfer" of his wife's DC account balance would not count as an annual addition. Correct?

(Let's ignore 415(e) for now since it looks like it will go away in about 10 months.)

Thanks

[david rigby]

let's not mix the issues.

A QDRO is for the wife to waive (or determine) any portion of her interest in HIS benefit. Waiver is probably easier than dividing. If properly written, one QDRO may be able to take care of both plans.

However, this does not have any bearing on HER benefit under either plan. With regard to 415, each has ac accrued benefit in the DB plan and an account in the DC plan. Each is subject to 415, on its own.

[This message has been edited by pax (edited 02-22-99).]

[Wessex]

Section 1.401(a)-13(g)(4)(iv) provides that "Even though a participant's benefits are awarded to an alternate payee pursuant to a QDRO, the benefits are benefits of the participant for purposes of applying the limitations of section 415 to the participant's benefits."

[Guest Do]

Off the top of my head, here's how I see it - In order for W to waive her interest in H's benefit, no QDRO is necessary because H's benefits are not divided. When H receives a distributions (assuming he does not remarry), he gets his benefits in the form payable to an unmarried participant. In order for W to "waive" her benefits and give them to H, a QDRO would be necessary where W is the participant and H is the alternate payee. W's benefit would be payable to H upon a distributable event attributable to W. W's DB benefit would be payable to H upon H's retirement under regular or early retirement (or upon his earliest retirement age (a legal term)). W's DC benefit would be payable to H, typically, upon W's termination of service.

So, to answer you questions:

1. One QDRO for two plans is permissible.

2. H and W have separate 415 limits. H's award of W's benefits are not counted with his benefits when determining whether he exceeds 415.

3. There wouldn't be a transfer in this case. After acceptance of the QDRO, H would be both a participant (of his own benefits) and an alternate payee (of W's benefits). When H can receive a distribution of W's benefits as an alternate payee (e.g., DB benefits at W's earliest retirement age and DC benefits at W's termination of service), H would receive a distribution. H would rollover the DC money to his DC account and the rollover amount would not count as an annual addition. If the DB plan allows for lump sums or the present value amount is under $5,000, then the DB benefits would be rolled over the H's DC account. If the DB benefits can't be rolled over, then H has to receive an annuity. The QDRO should state who the measuring life is because if W dies before her benefits are payable, H may be SOL. Also if the DB plan does not provide for a death benefit to unmarried participants and H dies before he is in pay status, he would again be SOL.