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Effect of Assigned Separate Interest on Death Benefit


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Assume the following:

(i) a QDRO for defined benefit assigns 100% of the participant’s accrued benefit to the alternate payee,

(ii) the DB plan provides as a death benefit the qualified preretirement survivor annuity but no ancillary death benefit,

(iii) the QDRO fails to treat the alternate payee as the participant’s surviving spouse, but it does provide that the death of the participant will not have any affect on the alternate payee’s assigned interest, and

(iv) the participant dies before benefits commence to be paid to the alternate payee.

Is the alternate payee entitled to anything (i.e., that is, doesn’t the alternate payee forfeit the assigned interest because only the survivor portion of the QPSA is now available to be paid as a benefit and the alternate payee failure to be treated as the participant’s surviving spouse leaves the alternate payee with no right to the survivor benefit)?

If the alternate payee is entitled to something, is it the entire accrued benefit (which doesn't seem right because if they were still married, the alternate payee would only be entitled to the survivor benefit under the QPSA) or the actuarial equivalent of the survivor portion of the QPSA?

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How did the plan administrator interpret "the death of the participant will not have any affect on the alternate payee’s assigned interest" when the order was detmined to be qualified? To me, that language would award the QPSA to the alternate payee under the circumstances and nothing else unless the plan or QDRO procedures provide for something more. It would be nice if the QDRO procedures specified that if the participant dies before the alternate payee starts benefits, the only benefit to be paid to an AP is the spouse death benefit to the extent the QDRO expressly assigns the death benefit to the AP. Under that standard, the language of the order is sufficient to assign the QPSA despite being rather indirect. If the plan administrator did not think the order assigned the death benefit, the plan administrator should have confronted the issue at the time of review for qualification.

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It would be nice if the QDRO procedures specified that if the participant dies before the alternate payee starts benefits, the only benefit to be paid to an AP is the spouse death benefit to the extent the QDRO expressly assigns the death benefit to the AP.

IMHO, no QDRO should be qualified unless it includes clear definition of what happens upon death of participant and/or AP.

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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Was this a separate interest or a shared interest QDRO?

Your description seems to imply shared interest, and if so, I would lean towards the AP being SOL. However, if it was a separate interest, could you argue the benefit was converted to an annuity on the APs life and therefore the death of the participant would have no impact since 100% of the AB is now completely assigned to the AP?

Just something to think about.

The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.

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I see the description as specifying that the assigned benefits become the separate property of the alternate payee (especially item (iii) in the original post). If the QDRO makes the benefit the separate property of the alternate payee (with, of course, the benefit amount being adjusted up or down to properly reflect the age difference, if any, between the participant and the alternae payee), then it becomes contingent on the survival of the alternate payee, not the participant. Of course, there would be no provision for a QPSA in the event that the alternate payeedies before commencement and is survived by a spouse, and the alternate payee could only elect a joint benefit if the plan does not restrict joint annuitants to spouses, but otherwise the alternate payee would be treated as though he or she were a participant eligible to commence receipt of benefits based on the age of the participant.

Example: Participant is 52, AP is 48. Entire benefit is assigned to AP. Plan's NRA is 65. Monthly benefit is adjusted down actuarially to reflect that payments start in 13 years to a 61 year old instead of in 13 years to a 65 year old. If AP dies before payments start and plan only offers a QPSA, then the entire benefit is forfeited (unless there is some sort of reversion specified in the QDRO, which while it may complicate the math would seem to be permissible). Death of participant would generally be disregarded.

Always check with your actuary first!

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Guest EE Bene

If one of the alternatives you noted above is not available under the plan, you have your answer right there. A QDRO cannot create an obligation under the plan that is not otherwise permitted...even if the plan administrator accepted it as a QDRO. It would be a wonderful world if any ambiguities could easily be cleared up when receiving a DRO but before the plan administrator determines it is a QDRO, but that is simply unrealistic.

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  • 2 years later...

I have a related situation.  50% Separate interest QDRO that was approved as qualified (David I agree with you) but it does not address what happens if the AP dies before benefits commence.  Guess what, the AP died before benefits commenced. 

From the QDRO "The Alternate Payee's award is a separate interest payable for the duration of the AP's lifetime".

Is there some law or regulation that says the AP's benefit reverts to the participant absent any other language?

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The QDRO procedures should cover the circumstances expressly and give you the answer.  I would advise that the QDRO procedures of a plan that only has a death benefit for a spouse (a QPSA) should provide that for a "separate interest" QDRO (for those who presume to use that term, correctly or not), the pre-distribution death of the alternate payee extinguishes the interest and the participant's former interest (what was assigned to the AP) is not restored. If the QDRO procedures are incompetent and fail to address, I would advise the same result by interpretation and by application of the statutory language (more on that below).  If the plan provides for a death benefit that is not restricted to a spouse of the participant, then the answer is not so clear, and neither is the law.  It is even more important for the QDRO procedures to cover the circumstances and for the fiduciary not to approve a sorely ambiguous QDRO (as the post describes -that "separate interest" language is trouble).  One can argue that the accepted (shame on the fiduciary) language means that the AP's interest included the related death benefit, so the AP's beneficiary (and who is that?) gets the related death benefit.  Personally, I see in the statute lots of language about the need for express award of death benefits in order for an effective assignment of death benefits, as though there is a presumption against the implicit award of death benefits under any circumstance.

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