Partial distribution before QDRO

[Monica Barnard]

Dr. A and Dr. B are married and jointly own practice, and both are trustees of Dr.A & B 401(k) Plan. Dr. B advises that he no longer works in practice and will not be returning even though he is still a partner in practice. CPA for the practice advised that Dr. B had not received pay in a couple of months. Dr. B requests a partial distribution from his account balance, which I submitted to Insurance Company on his behalf.

Confirmation of distribution is mailed to practice. Dr. A's attorney files an emergency motion of contempt due to pending divorce. Based on this, I know that no other distributions can be made to Dr. B. Insurance Company has also been notified.

Attorney has requested that I provide (under threat of subpoena) evidence that Dr. B was terminated from employment and therefore able to take a distribution. What proof do I need other than the good doctor's word? What else should I be aware of?

[Peter Gulia]

If your firm is engaged by the plan or its administrator, and that administrator has both A and B as its shareholders, members, or partners (and both A and B are trustees), get your lawyer's advice about whether your service contract obligates you to furnish information to both A and B (or, even if that is not obligated, whether doing so might help you protect yourself).

Likewise, look to your service contract (and the insurance company's contract) to consider what is or isn't a proper instruction.

Perhaps a subpoena is not much of a threat, because even if it is valid and commands you, a subpoena can't require one to furnish a document that does not exist.

This post isn't legal advice. If you want advice (which I won't bill for), feel free to call me at 215-732-1552.

Don't let A's difficulty with his or her spouse become your problem.

[My 2 cents]

Just wondering as a non-lawyer - against whom was the "emergency motion of contempt" filed? Couldn't have been the plan. Couldn't have been the service provider. Couldn't even have been the plan administrator or the trustees acting in their capacity as trustees. None is a party to the divorce, and the court handling the divorce proceedings should not have the reach to declare anyone other than the parties to the divorce as being in contempt, at least until the court has issued an order to non-parties requiring or prohibiting some action. Was it actually an order to not distribute any portion of the accounts to anyone pending resolution of the divorce?

[Monica Barnard]

I am the TPA for the plan. The motion of contempt was against Dr. B.

I appreciate your replies, which confirmed my thoughts. Hopefully, this will be a non-issue for my firm.

[QDROphile]

I am curious about you conclusion that the plan cannot distribute anything more to Dr. B. Unless the plan's QDRO procedures have an earlier trigger, the plan conducts business as usual until it receives a domestic relation order. Then it depends on the terms of the order wether or not distributions are allowed and how much. It is possible that the contempt proceeding has generated a domestic relations order that has been delivered to the plan, but I don't take it for granted. The person who should be concerned is the plan administrator, who can be liable for consequences of improperly interfering with the rights of participants. Given the complexity and potential nastiness of the situation, you should be very careful about reaching any conclusion about what should be done and should look to instructions from the plan administrator unless somehow it is your job to be providing advice about distribution eligibility and QDRO administration. If it it your job, you might consider buying some advice; the details and nuances may be very important in this matter.

[My 2 cents]

I would presume that Dr. B, under threat of contempt, would not be seeking immediate payment of benefits at this time and would have by now withdrawn any previous request for payment.