QDRO submission after Participant Retirement

[RSG15812]

Mr. Green is a Participant in a Defined Benefit retirement plan. Mr. Green was previously married, but this ended in divorce about 11 years ago. In the Settlement Agreement with his first wife she was awarded 50% marital share of his pension as well as the option of the Survivorship Annuity of his pension if she would pay for it. He subsequently remarried about 9 years ago.

 

When Mr. Green decided to retire he checked with the retirement plan administrator and was told that his former wife had neither filed a QDRO nor had she even contacted the plan. He then filed for retirement. He and his current spouse decided to choose a Single Life Annuity (SLA) to maximize his pension payout. His current spouse then signed a waiver of her right to the Joint Survivorship Annuity (JSA).

 

A couple months after Mr. Green entered into retirement and was in pay status his former spouse submitted a QDRO to the plan administrator. In the QDRO she askied for 50% of the marital share of his pension AND the JSA she was awarded in their Settlement Agreement. According to ERISA law she has a right to the 50% marital share under a Stream of Payments methodology. In the Stream of Payments, the Alternate Payee (former spouse) will receive a percentage of the Participant's payment stream. When the Participant dies, however, the payment stream will cease.

 

 

What is not clear in this situation is if the Alternate Payee has a right to the JSA that was waived by the current spouse. In the case where the current spouse chooses the JSA, the Alternate Payee does not have access to it because it is vested with the current spouse. What happens in the situation where the former spouse wants the JSA that has been refused by the current spouse, after the Participant is already in pay status?

 

[QDROphile]

Do not bother asking that question. It is meaningless in the current circumstances. The benefit has changed. it is now a stream of payments for the participant's life. A domestic relations order can assign some or all of the payments to an alternate payee. That is all.

[StaceyHelton]

The former spouse is out of luck regarding a continuing survivor benefit. Once the participant is in pay and has received his first payment, the election is irrevocable and cannot be changed. She should have gotten a QDRO *and filed it with the Plan* when the divorce happened. The plan is under no obligation to enforce something they have not been made aware of. However, if she can *prove* that she filed the QDRO and it was previously qualified, that's a different story.

I have had to explain this to multiple APs and Participants over the years. They are generally not happy about it, but there's nothing they can do to change it.

[Mike Preston]

The portion of the current payment stream that is directed to the ex-spouse can be enough to make the ex-spouse whole if it is the sum of the expected payment during the life of the participant plus a monthly amount sufficient to purchase a life insurance policy on the life of the participant with the proceeds intended to provide a lifetime annuity to the ex-spouse.

A judge could easily order this if it is determined that the ex-spouse bears no responsibility under state law.

[jpod]

Perhaps not a practical solution, but if it is Ex-Mrs. Green could just collect a monthly amount from Mr. Green for the rest of his life tax-free rather than getting a QDRO which would result in the plan's payments to her being taxable to her.

[Mike Preston]

Interesting. I've never seen a domestic relations order require gifts. It usually takes the form of support, which is deductible to the payor and taxable to the payee. I'd consult with tax counsel!

[jpod]

Alimony, as defined in the Code, is deductible/taxable. This may not be considered alimony.

[StaceyHelton]

Even if it is considered alimony, the plan should be giving the AP a 1099-R, so she will be taxed on the income. Since the participant is *not* being taxed on the income, it is not deductible for him. With "normal" alimony, the recipient would not be receiving a tax form and the income is not reported directly to the IRS.

[jpod]

the plan reports nothing to her if there is no qdro

[My 2 cents]

the plan reports nothing to her if there is no qdro

I think it is being assumed here that there now is a QDRO, even though benefits had commenced before one was issued and supplied to the plan. If there is a QDRO providing something to the ex-spouse, there will necessarily be something to report.

[Mike Preston]

This is a very confusing thread because jpod's #5 suggested a solution that did not include a QDRO. All the comments after that which presumed he was talking about a QDRO based solution just muddy things.

[My 2 cents]

This is a very confusing thread because jpod's #5 suggested a solution that did not include a QDRO. All the comments after that which presumed he was talking about a QDRO based solution just muddy things.

Trust but verify. The only way the ex-spouse can be sure of getting at least a piece of any further payments would be to obtain a proper QDRO. The court that had jurisdiction over the divorce ought to be willing to issue a proper QDRO now, based on the divorce decree's division of the pension benefits. The biggest question is whether anything can be done to negate the recent election and enforce an election consistent with the divorce agreement (which, after all, places an undeniable burden on the participant with respect to the plan benefits). Perhaps, if the election cannot be undone, the ex-spouse should obtain the services of an actuarial consultant to determine a fair value for the benefits to which she was entitled under the divorce decree that she will not receive and sue the participant for restitution. The participant, having learned that the ex-spouse had not filed a QDRO with the plan, and then proceeding to file for payments that cut the ex-spouse off, was committing fraud against her. I speak here as someone who is not a lawyer.

[david rigby]

The participant, having learned that the ex-spouse had not filed a QDRO with the plan, and then proceeding to file for payments that cut the ex-spouse off, was committing fraud against her. I speak here as someone who is not a lawyer.

Fraud? It may be hasty to use that (very strong) word. Mr. Green could argue that he did nothing wrong in asking if a QDRO had been filed, and the fault (if any) lies with ex-Mrs. Green for failing to obtain a valid QDRO.

I suggest the most important pieces of advice above are found in Post #2 and #3. The rest is applesauce.