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QDRO 26 years in the making...


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Plan is a defined benefit plan. Participant had 16 years of service with the Plan, so he is vested. He and his wife were divorced in July, 1987. A DRO was filed with the Domestic Relations Court (state = Ohio) at that time giving Alternate Payee $85.00/month beginning July 1, 2003. That was when Participant would be 55 and eligible to retire under the Plan.

As far as we can tell, that DRO was never sent to the Plan Administrator to judge whether it was a QDRO or not. At least, it wasn't provided to the Administrator until last week. The Participant left the Plan in 1990 when he took other employment. He is going to be 65 this July and is looking to begin his benefit with the Plan.

So, my questions to my fellow board members are as follows:

1) Has anyone ever experienced anything like this? If so, what did you do?

2) Is there any time limit on turning DROs over to a Plan Administrator? I don't believe there is, but who knows if there's some goofy ruling out there saying there is.

3) Assume that the terms in the DRO are acceptable, thereby making it a QDRO. Is the Plan required to make a lump sum payment for all the payments it "missed" since 2003 even though the Plan didn't even know it was responsible for those payments until 2013? My inclination is that, if the DRO is a QDRO, then the Alt. Payee is entitled to all those benefits, not just from this point forward.

Thoughts? Thanks.

You cannot bash in the head of an American citizen without written permission from the State Department.

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Can the plan administrator interpret the order to mean that the AP was awarded a benefit with an actuarial value that is equal to a benefit that would have paid $85 per month for life under the terms of the plan if the benefit payments stated July 1, 2003? I think it is appropriate to interpret the order with consideration of the circumstances, including the late delivery of the order. After all, the QDRO rules require that notice be given of receipt and disposition. If the order was intended to start payment in a specified amount in 2003 without fail, someone should have asked why no notice had been given by the plan.

If that interpretation is unacceptable to either party, they can challenge it and provide the reasons and a proposed outcome (not that what they provide will be feasible).

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QDROphile, thanks for your response. Your suggesting is a very interesting one. The only issue could be that the DRO specifically says that the benefit is to commence July 1, 2003 and the benefit is to be $85.00/month. However, I think your suggestion about the late delivery of the order is one that should be taken into consideration.

Thanks again.

You cannot bash in the head of an American citizen without written permission from the State Department.

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If you believe that the order provides that the benefit will commence in 2003 and the plan is bound by those specifics, then the plan could take a position that, because of circumstances not of the plan's making, the order provides for something that the plan cannot do, and therefore the order is not qualified. That puts the burden on the individuals to figure out what should be done in today's environment and get a new order that works. However, be prepared to respond to an interpretation that requires the plan to take a more practical view of what it could do based on the past date, such as pay the sum of the missed $85 payments (with or with some interest factor?) and then stay on track with installments. All of the payments would reduce the participant's benefit because the participant was equally culpable in the delay that reates the need for some workaround solution. The participant can always challenge and offer a more fair and viable solution (ha!).

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My line of thinking was that the "best" option for the Plan would be to deny the DRO in an attempt to get the parties to redo it (or something to that effect). So, I agree with your suggestion. However, I'm not really sure there's anything in the DRO that would disqualify it. It lists the Plan name, the names of the Participant and Alternate Payee and their addresses.

Thinking about it now, though, I wonder if the situation is similar to one where the Participant walks in on July 1, 2013 and says "hey, I retired July 1, 2003 but never applied. But, I want my retirement benefit payable back to 2003." That obviously wouldn't work because the Participant never applied in 2003.

The difference here is that this is a Court Order, not just an application by a Participant. But, the Plan never had any notice that the DRO was filed. In fact, it seems the Participant never even notified the Plan that he was divorced (he worked within the Plan's jurisdiction for about 3 years after the divorce). So the Plan really hasn't done anything wrong.

It would be great if there was some case law or IRS/DOL ruling that would apply here, but I sure haven't found any.

It seems I can just talk myself in circles here. Thanks again for your response.

You cannot bash in the head of an American citizen without written permission from the State Department.

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However, I'm not really sure there's anything in the DRO that would disqualify it.

IMHO, the second response above from QDROphile is spot-on. You do have something to disqualify the DRO: the reference to 2003. It's not the Plan's job to find a way to make the DRO fit the plan; rather, the DRO parties must find a way to make the DRO fit the plan

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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If you need a hook, it is section 414(p)(3)(A). The plan does not provide for payements to start as of some date before the requirements for distribution are satisfied. The requirements for distribution to an alternate payee include completion of the requirements for qualification of the order, including timely submission of the order for consideration by the plan.

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  • 2 weeks later...
Guest EE Bene

I remember looking at this issue a number of times, with a focus on the plan's obligations when it receives a DRO that might not qualify as a QDRO. I remember coming to the conclusion (with a high degree of certainty) that the plan only has prospective obligations when it receives a DRO. In your case, that would mean withholding $85/month from the primary payee until you can determine whether the DRO is a QDRO.

Even if you determine that the DRO is not a QDRO, you may need to continue withholding the $85/month for a reasonable period of time while the alternate payee attempts to get a new DRO issued. Notice to the plan is really what begins the obligation. So once you determine the DRO is a QDRO, you would then make retroactive payments back to the point in time when you originally received notice of a DRO. In the event the alternate payee cannot provide a DRO that is qualified, the $85/month you were withholding could be paid to the primary payee.

The reference to 2003 is not, in my opinion, a good reason to disqualify the DRO. In fact, if the DRO is otherwise qualified, it may create a lot more work for the plan while it monitors whether a new DRO is being issue within a reasonable time.

Keep in mind that the the Department of Labor has stated, "The order must not require a plan to provide an alternate payee or participant with any type or form of benefit, or any option, not otherwise provided under the plan," as well as "The order must not require a plan to provide for increased benefits (determined on the basis of actuarial value)."

http://www.dol.gov/ebsa/faqs/faq_qdro.html

So, in short, there is no obligation for the plan to make a lump sum payment to cover the period before it received notice of the DRO. That would require the plan to make a double payout (a benefit not otherwise provided under the plan as well as an increase in benefits), which is simply untenable under ERISA. If anything, the primary payee may have an obligation to pay the alternate payee. The plan certainly does not have such an obligation. QDROs are the exception to the anti-alienation provisions of ERISA, so until the plan receives notice of an alternate payee, past benefits cannot and should not be paid to anyone other than the primary payee. If the alternate payee thinks adjustments need to be made to the monthly payment to make up for the past, the alternate payee has the obligation to submit a new DRO which such terms.

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