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Weird QDRO Question


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Participant gets to keep 100% of his Plan Account. However, they are planning on having a QDRO indicate that the Participant's only distribution option when he becomes eligible for a distribution is to roll his or her account to an IRA. I cannot explain the rationale, but there it is in black and white in the divorce agreement.

Is it possible to have a QDRO simply state that the participant keeps all the money, but that his only distribution option is a rollover to an IRA? I sure hope not, as that means the plan sponsor needs to remember this in 15 years (potentially).

Austin Powers, CPA, QPA, ERPA

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Maybe a true QDRO expert here feels differently, but it seems to me that the order doesn't meet the fundamental definition of "QDRO" and, therefore, is not enforceable against the Plan.

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jpod, I like you're angle. 414(q) says:

The term “qualified domestic relations order” means a domestic relations order—

(i)which creates or recognizes the existence of an alternate payee’s right to, or assigns to an alternate payee the right to, receive all or a portion of the benefits payable with respect to a participant under a plan, and

Austin Powers, CPA, QPA, ERPA

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I have always understood that a QDRO must provide for some division of the participants benefits under the plan ( I know the Kennedy case allowed a spousal waiver of benefits to be deemed to be a QDRO. but that is a narrow exception). My position is that the plan can reject the QDRO in its current form or accept it if the spouse waives all right to benefits. Parties can put the IRA rollover into the divorce decree which can be enforced under state law.

mjb

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Parties can put the IRA rollover into the divorce decree which can be enforced under state law.

My guess (and it is a guess) is they didn't want to do that for fear that ERISA would preempt any such state ruling or law. I provision like that seems to be a type of alienation of the benefits as you can't take the form you want.

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Under the Kennedy decision if a party to the divorce violates a provision that pertains to benefit rights that were agreed to in the divorce order or property settlement the aggrieved party can sue in state court to enforce their rights because ERISA only requires that benefits must be paid to the party designated as beneficiary under the plan regardless of any contrary agreement under the divorce decree or property settlement. In the Kennedy case the ex-spouse waived all rights to the participant's benefits under the Dupont 401k plan under the divorce decree but the employee never removed her as beneficiary under the plan. ( No DRO was prepared waiving the rights to the 401k benefits). When employee died ex spouse applied for the 400k in benefits which were paid to her because ex was the designated beneficiary. Employee's daughter sued the plan on the grounds that the beneficiary designation was invalid because spouse had waived all rights to the benefits in divorce decree. Supremes held that plan could only pay party designated as beneficiary under the plan but the daughter could sue ex spouse in state court for breach of contract under state law because ERISA has no effect on who has rights to benefits under state law once the benefits are paid.

mjb

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I can only imagine what sort of absurd scheme is behind this DRO.

I can't see how it's qualified. Of all the potential problems that may disqualify the order, the most likely is that it effectively makes an unknown IRA--the account itself--an alternate payee. An account cannot be an alternate payee under ERISA and almost certainly under this state's law as well. If there is no alternate payee because the IRA is owned by the participant then the order cannot be qualified for that explicit reason.

Whatever the bizarre goal here is only enforceable under state law.

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