Earliest Retirement Date

[Guest Spock]

For purposes of determining when the Participant's "earliest retirement date" is, one step in the process is to determine the later of (i) the date on which the Participant reaches age 50, and (ii) the date that is "the earliest date on which the Participant could begin receiving benefits under the plan if the Participant separated from service with the employer"?

Two questions: First, does (ii) mean the participant must actually separate from service for the ERD requirement to be satisfied? In other words, if the Participant separated from service the AP could get the money immediately, but does the participant actually have to separate for that provision to kick in? Is that logical?

Second, a QDRO contains the following language that appears to come from the regs:

In the event that... the AP account balance is less than $1,000…and the AP does not elect to…receive a distribution…, then such Account shall be distributed to the Alternate Payee upon the earlier of (i) the date that the Participant terminates from employment with the Plan sponsor or (ii) the date that the Participant attains age 50.

Is a QDRO required to contain that language, i.e. are we required to track the age of the participant and force a cashout of the AP account when the participant turns 50, or can we rescind that language in our model QDRO so that the AP can remain a deferred participant who can take them money at any time before/after the participant turns 50 (and before age 70½?

Thank you for your insight. May your journey today be free of incident.

S

[CADMT]

1. Whether the Participant actually has to separate and/or retire for the ERD provision to kick depends on the plan. Generally, the AP cannot collect until the P retires, so the ERD provision (where provided in the plan) is used where a P continues to work after their ERD and the AP wants to collect his/her share of the benefit before P retires.

2. A QDRO is not required to contain that language regarding distribution. The QDRO should contain appropriate language that the account (presuming this is a defined contribution account - 401K, 403B, etc.) is to be segregated as of a cutoff date and placed in a separate account for the benefit of the AP. If after division, the account contains less than X amount (typically $5,000) it is distributed directly to the AP regardless of the age of the AP. Plans do not want to handle accounts that are that small.

3. You cannot force a payout of a P's share. You can only force a division of their share. If the P turns 79.5 they must start taking distributions from the account. The QDRO should provide for the division of the account and should treat the AP exactly as if they are a P, once the division is complete, including following the plan rules and the law regarding payouts and distribution.

[QDROphile]

A lot "shoulds" in the last post are the opinions of the poster and not legal requirements. I don't necessarily disagree with the "shoulds" with that understandiing.

With respect to your question about what the plan is required to do under ther terms of a domestic relations order, see section 414(p)(3)(A) if the Internal Revenue Code. We don't have any guidance about how far that goes. The provision is a refuge for victims of Fidelity, J.P. Morgan, and other system-driven administration.

[ForksnKnives]

Why would you want to absorb the administrative burden of keeping accounts under $1000 for up to an addition 20.5 years?

[CADMT]

Shoulds are always opinion and not legal requirements. The correct word for a requirement is "shall" which is why the poster used "should" so as not to leave an impression that they were legal requirements.