Negative QDRO

[IRA]

Can a DRO that says a participant's spouse will receive no benefits (and will not be considered a former spouse or surviving spouse) be a QDRO, assuming all the other requirements are met (e.g., name of alternate payee, address, name of plan, etc.)? The idea is to allow the participant to name a different beneficiary before the divorce is final.

[My 2 cents]

May be a problem with that!

Even if you wanted to have a QDRO offering the ex-spouse nothing to formalize the absence of any rights, it wouldn't have any authority until the divorce was final, would it? And when the divorce was final, absent a QDRO granting the ex-spouse any rights, the ex-spouse wouldn't have any rights anyway.

How final does a divorce have to be before the soon-to-be-ex-spouse loses rights to be the plan's beneficiary? The negative court order would not solve the problem. If the question dealt with the participant marrying someone else, the answer would be "not until the divorce is final". Why should the answer to "when can the participant drop the soon-to-be-ex-spouse as a plan beneficiary" be any different?

Maybe the plan allows the participant to name a non-spouse beneficiary with spousal consent. If the soon-to-be-ex-spouse agrees to do so, no need to wait for the divorce to become final. [and if the soon-to-be-ex-spouse doesn't like that idea, why wouldn't he or she seek permanent rights to some of the pension benefits as part of the divorce proceedings?]

Note that if the participant had already retired under some sort of qualified joint and survivor annuity with the soon-to-be-ex-spouse as joint annuitant, that would be irrevocable and the joint annuitant would always be the soon-to-be-ex-spouse. Any new spouse would necessarily be out of luck, empty QDRO or not.

[MoJo]

"Even if you wanted to have a QDRO offering the ex-spouse nothing to formalize the absence of any rights, it wouldn't have any authority until the divorce was final, would it?"

I don't agree. I don't believe there is anything that requires that a QDRO be issued incident to a divorce. The only requirement being that it is made pursuant to state domestic relations law. Indeed, I've seen DROs issued (that were Q'd to become QDROs) that provided for support payments when no divorce was ever granted. Rare, yes, but the effective date of the DRO is independent of the date of divorce.

To that extent, I could see a DRO being issued that, if it complied with all the requirements, would be effective in granting ZERO to the spouse/soon to be exspouse. My only qualm would be, is it truly within the purview of the issuing court to do so, and that is dependent on state law. BUT, to the extent that everyone is in agreements (and I assume the spouse is, or the court probably wouldn't grant such an order), why no just have the spouse irrevocably consent to naming the other beneficiary?

[ESOP Guy]

To me you have two questions here: 1) Can a QDRO give nothing to the Alt Payee 2) the question about the changing the beneficiary.

I am going to stick to just #1 as I am confident I know the answer.

Yes, a QDRO can give zero benefits to an Alt Payee. I have seen it happen. You might ask why it would happen. It is simple. in the case I saw the wife wanted the house as the kids were going to live with her and her needs were more in the her and now. The husband was willing to give her the house free and clear in exchange for the retirement benefits.

For what it is worth it seems Mojo is right if the idea is merely to change beneficiaries why not just have the wife sign a beneficiary change election form?

[BG5150]

if the soon-to-be ex-spouse is okay with receiving no benefits from the plan, he or she should have no problem signing off on a beneficiary designation that names someone else.

[QDROphile]

For all the practical value of awarding a zero interest, I am not so sure it meets the definition of QDRO: "creates or recognizes the existence of an alternate payee's right *** to receive all or a portion of the benfits ***. Can the portion be zero? Is nothing sacred? Certainly if there is no domestic relations order, the alternate payee gets nothing. Does that phenomenon completely occupy the "nothing" space in the law, or can an award of a zero portion come to the same result throught the definition of QDRO?

A more pertinent part of the law might 414(p)(5). Does that suggest that a QDRO can only divest a former spouse of surviving spouse rights (being the benficiary unless consent to another?). That is My 2 Cents's question. Except for that question, most of the time it will not matter if a zero award is treated as a QDRO or not. It is just a confirmation of what the absence of a domestic relations order leaves uncomfortably uncertain for some amount of time and causes the Department of Labor to look stupid in its failure to read sections 414(p)(6) and (7) correctly.

[IRA]

Thanks for all the responses. Just to further the conversation, here are some additional thoughts. First, I agree you can have a QDRO without a divorce being final. Second, I agree that a state court can provide that the spouse will take none of the pension. Third, for BG5150, this is a DB plan and the plan does not allow a participant to elect a form of distribution prior to retirement, so your statement that the spouse can sign off on the beneficiary designation really relates to the spouse waiving the QJSA before the participant has a chance to elect any other form of distribution.

My issue is the statute says a QDRO must "create or recognize the existence of an alternate payee's right to, or assigns to...." Does that encompass recognizing the existence of no right to benefits? The person who has seen QDROs that award zero probably didn't have an issue because once the divorce is final everything is OK.

I thought there was a case on this, but maybe not. Finally, as to BG5150, good catch. I mentioned beneficiary designation because I was tying to keep it simple, but there are other things going on here.

For QDROphile, the statute says for all purposes of 401(a)(11) and 417, so that covers it.

[My 2 cents]

Does the plan provide for pre-retirement death benefits if there is no spouse? If not, the only effective action in a QDRO would be to preserve status as a spouse. There could be nobody else to actively designate as beneficiary unless benefits were to commence right now.

Does the plan permit the participant, with spousal consent, to designate a non-spouse beneficiary, whether for pre-retirement death benefits or under an annuity option involving survivor benefits? Some plans only permit life annuities or qualified joint and survivor annuities.

I persist in asking at what point in the process does a soon-to-be-ex-spouse lose the automatic designation as the person covered by the QPSA and as the person to be the joint annuitant in the absence of an election to the contrary?

And, again, is the divorce taking place before or after the commencement of benefits? The annuity form (including the identity of a joint annuitant) is usually irrevocably locked in when payments start.

These may all be relevant questions, of greater significance than of a pro-forma "QDRO".

[IRA]

Thanks for the responses. To $0.02, the cases are clear that spousal status is determined as of the annuity starting date.

[Peter Gulia]

If a plan's administrator were to decide that the "nothing" DRO is NOT a QDRO, what unwelcome consequence (if any) would follow from that decision?

[IRA]

Peter,

If the nothing DRO is not a QDRO, the spouse would continue to be the spouse until the date of divorce. The "nothing" DRO would say the spouse is not a spouse (or former spouse) before the divorce is finalized. In other words, the spouse gets nothing, not even spousal survivor benefits.

[david rigby]

Just for clarification: it appears (to me, at least) that the original question and all responses assume the benefit payment(s) have not yet commenced.