QDRO MANY years later - Still not Valid what do about later 401(k) plan

[tsrl01]

We have a situation where a participant divorced in 95, notified us of a QDRO for the pension plan, is getting ready to retire now, sent in the QDRO, it is not valid, so it has to be redone. The question tho is around the 401(k) plan. In 95 when the divorce occurred, he did not participate in the 401(k) plan. Didn't begin until 2003. I don't see a reason to hold the 401(k) money until the valid QDRO for the pension comes through, but I wanted to make sure i wasn't missing anything??? Thoughts? Okay to distribute the 401(k) proceeds? Or should we wait until the valid QDRO is received.

[CADMT]

If the 401K is not derived from the pension in some form (such as a conversion) and as long the participation start date is post final dissolution then it is the participant's separate property and not subject to division by the courts.

In summary, you can pay the man (or woman).

[david rigby]

... and it's OK to advise the (proposed) AP/attorney that the k-plan did not exist in 1995.

BTW, you state "divorced in 95" but be careful that not to confuse "separated" with "divorced". It might not make a difference, but it could.

[QDROphile]

The plan would only restrict distribution of 401(k) benefits if (i) the plan had recieved a domestic relations order that applied to the 401(k) plan benefits, or (ii) the plan were so ill-advised that it set another standard for restriction in the plan's written QDRO procedures and the circumstances fit the standard.

[tsrl01]

The 401(k) plan actually did exists in 1995, he just didn't participate. Not sure if that makes a difference.

[My 2 cents]

Some QDROs seem to be keyed to what is there at point of retirement (such as balance/accrued benefit at retirement multiplied by marital fraction). If this QDRO is worded that way, it could result in some of the 401(k) balance going to the alternate payee. I personally prefer QDROs tied to balances/accrued benefits as of the date of separation or divorce (as adjusted for period married), but that other approach is not, per se, reason for rejecting the QDRO (at least I don't think it is). So what does the revised QDRO say?

[tsrl01]

That's part of the issue - we have not received the new QDRO. The administrative process is that when the pension plan receives a QDRO, we put a hold on the employee's 401(k) plan, just in case... So now that we know there's going to be a new QDRO, should we put a hold on the 401(k) account? The participant wants his 401(k) - arguing he didn't have a balance at the time of the divorce, but I'm a little concerned - could the new, revised QDRO entitle the ex-wife to a portion of his 401(k) even though they were already divorced and hadn't been married for 5+ years by the time he began participating in the 401(k) plan? It doesn't make sense/seem fair, but common sense and fairness don't always come into play...

[My 2 cents]

That's part of the issue - we have not received the new QDRO. The administrative process is that when the pension plan receives a QDRO, we put a hold on the employee's 401(k) plan, just in case... So now that we know there's going to be a new QDRO, should we put a hold on the 401(k) account? The participant wants his 401(k) - arguing he didn't have a balance at the time of the divorce, but I'm a little concerned - could the new, revised QDRO entitle the ex-wife to a portion of his 401(k) even though they were already divorced and hadn't been married for 5+ years by the time he began participating in the 401(k) plan? It doesn't make sense/seem fair, but common sense and fairness don't always come into play...

That is why the participant should have a lawyer to help with the process! It certainly would seem fair to me that the QDRO not touch the 401(k) plan at all (since his balance as of the date of the divorce was $0), but it is up to the participant (with legal help if available) to fight any attempts to either assign part of the subsequently established 401(k) account or otherwise to ratchet up the amount to be assigned under the pension plan to "compensate" the alternate payee for not receiving anything from the 401(k) plan.

How long are you required, by your administrative processes, to put a hold on an account when there is no QDRO in hand? If there is a limit, perhaps the alternate payee should be notified that benefits will be payable under all plans, with no provision for anything going to the alternate payee, unless a suitable QDRO has been received by [date].

Also, please clarify - was a QDRO received back around 1995 and there was no ruling made by the plan administrator that it was valid or not, or was the notice recent and the QDRO only recently submitted for review? Was the laxity on the part of the participant/alternate payee or on the part of the plan sponsor? In what way was the QDRO invalid? Receipt of a proposed QDRO followed by a decade and a half of no objections begins at some point to look like acceptance of the DRO as qualified. Was the plan administrator's rejection of the original QDRO at all timely?

[ESOP Guy]

That's part of the issue - we have not received the new QDRO. The administrative process is that when the pension plan receives a QDRO, we put a hold on the employee's 401(k) plan, just in case... So now that we know there's going to be a new QDRO, should we put a hold on the 401(k) account? The participant wants his 401(k) - arguing he didn't have a balance at the time of the divorce, but I'm a little concerned - could the new, revised QDRO entitle the ex-wife to a portion of his 401(k) even though they were already divorced and hadn't been married for 5+ years by the time he began participating in the 401(k) plan? It doesn't make sense/seem fair, but common sense and fairness don't always come into play...

That is why the participant should have a lawyer to help with the process! It certainly would seem fair to me that the QDRO not touch the 401(k) plan at all (since his balance as of the date of the divorce was $0), but it is up to the participant (with legal help if available) to fight any attempts to either assign part of the subsequently established 401(k) account or otherwise to ratchet up the amount to be assigned under the pension plan to "compensate" the alternate payee for not receiving anything from the 401(k) plan.

How long are you required, by your administrative processes, to put a hold on an account when there is no QDRO in hand? If there is a limit, perhaps the alternate payee should be notified that benefits will be payable under all plans, with no provision for anything going to the alternate payee, unless a suitable QDRO has been received by [date].

Also, please clarify - was a QDRO received back around 1995 and there was no ruling made by the plan administrator that it was valid or not, or was the notice recent and the QDRO only recently submitted for review? Was the laxity on the part of the participant/alternate payee or on the part of the plan sponsor? In what way was the QDRO invalid? Receipt of a proposed QDRO followed by a decade and a half of no objections begins at some point to look like acceptance of the DRO as qualified. Was the plan administrator's rejection of the original QDRO at all timely?

For what it is worth you are looking into the small issue and not looking into the big issue. The issues raised in the part I bolded above should be your real concern. None of these questions would be around if the QDRO had been sent, rejected, fixed and accepted timely. I would be more worried the plan administrator might have some kind of liability around this issue.

[BG5150]

Plus, what happens in the new DRO (it's not, nor ever was a QDRO) now includes something about 401(k)? Unlikely, but you never know.

[GMK]

Read post #4 and check the plan's QDRO Procedures.

The plan is not required to hold back distribution to the participant except when the plan receives the domestic relations order signed by the judge or if the plan's QDRO procedure has other (self-imposed) restrictions on distributions.