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DRO Interpretation


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It says the alternate payee gets 50% of the Account Balance Accrued between 12/1/05 and 9/1/16.    The participant has an account balance of 10,000 as of 12/1/2005.  Is it a simple calculation of taking the AB as of 9/1/16 minus the  AB as of 12/1/05 and taking 50% of that?

Or do we separate the Participants AB as of 12/1/05 and the Participant keeps the earnings on that. 

Or do we reject it and have it clarified?

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In my mind, contributions (from whatever source) between 12/1/05 and 9/1/16 are part of the benefit accrued - and therefore the difference between ending and starting date (presumably the dates of marriage) is the start.  Gains and losses after the end date are another issue....

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I have looked at it two ways. 

1.  Taking the Balance at the end minus the Balance at the first date.  (then add earnings to payout.

2.  Otherwise taking the balance at the beginning date and giving that earnings and then a "new" account that includes contributions between the dates and giving that earnings.  Taking 50% of the account that has the contributions to the Alternate payee. 

Difference between the two is the earnings on the Balance as of 12/1/05.  Does the alternate payee have a right to 50% of those earnings?

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30 minutes ago, PFranckowiak said:

Does the alternate payee have a right to 50% of those earnings?

Not sure why you care.  Is your task is to review the draft DRO?  If so, see if you can reasonably interpret it in light of the plan provisions, and advise whether it should be "qualified".  If there are ambiguities, either (a) describe them and reject the draft, or (b) describe what reasonable interpretation/solution you suggest (without re-writing the DRO).

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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1 hour ago, david rigby said:

Not sure why you care.  Is your task is to review the draft DRO?  If so, see if you can reasonably interpret it in light of the plan provisions, and advise whether it should be "qualified".  If there are ambiguities, either (a) describe them and reject the draft, or (b) describe what reasonable interpretation/solution you suggest (without re-writing the DRO).

I agree with David as to the limited extent of the PA's role with respect to the QDRO.  It is a matter of state divorce law whether the ex-spouse might or might not be entitled to the investment earnings during marriage on the balance that was in the account on the date of marriage.  If the QDRO entered by the divorce court is not clear, within the context of federal pension law and the plan's provision, the PA should identify the ambiguity (i.e., the two reasonable interpretations given the vagueness of this particular order--does 'accrual' include investment earnings during the marriage on pre-marriage benefits) and reject it.  

Or, since the QDRO rule is an exception to the general anti-alienation of benefits rule favoring the employee, the exception (i.e., the QDRO) should in my opinion be construed narrowly--as far in favor of the employee as reasonable.  The PA could then explain this position and its effect to both the employee and ex-spouse and let them know how long they have to appeal the PA's decision before it will treat it as final, and that they can get a modified QDRO to clarify otherwise to reflect any different intentions that they might have had.

John Simmons

johnsimmonslaw@gmail.com

Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.

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Guest needhelp2

What Mr Simmons recommends. If it is not clear or you do not understand then have it explained to you and do not sign anything until you clearly understand.

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2 hours ago, PFranckowiak said:

It says the alternate payee gets 50% of the Account Balance Accrued between 12/1/05 and 9/1/16.    The participant has an account balance of 10,000 as of 12/1/2005.  Is it a simple calculation of taking the AB as of 9/1/16 minus the  AB as of 12/1/05 and taking 50% of that?

Or do we separate the Participants AB as of 12/1/05 and the Participant keeps the earnings on that. 

Or do we reject it and have it clarified?

To me the fact that you think there is a question is evidence enough to reject it for clarification. 

 

(Although if I received it I would read and if it is a DC plan I would read it as meaning your first interpretation.) 

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What if, in reviewing it prior to qualification, you just said either that you don't think you would be able to administer it or that you would expect to just subtract the 12/1/05 balance from the 9/1/16 balance and treat the difference as the amount accrued between those two dates?  Do you have access to a computer that can handle parallel universe calculations?  Otherwise, any attempt to apply refinements to carve out, for example, the portion of the account growth attributable to earnings on the starting balance as opposed to new contributions and investment earnings on them, must be at least slightly arbitrary.  I don't know about you, but when I reallocate my 401(k) assets among the available investments, I do not consider when the money was put in - I think only of the amount in each fund and rebalance exclusively based on that.  If the DRO calls for computations you are not prepared to make, you must either say "we cannot do this" or "we're not sure what you want, but this is what we are going to do..." and let the parties deal with it.

Always check with your actuary first!

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PFranckowiak, if a plan's administrator (or its employee or discretionary agent) is evaluating whether to treat the order as a qualified order, one looks to the plan's definition of a qualified domestic relation order.  If the plan follows ERISA section 206(d)(3), the plan likely provides that an order is not a QDRO unless, among other conditions, the order "clearly specifies" the amount to be paid to each alternate payee.

That your originating post describes two possible readings (without considering that yet more interpretations are possible) suggests that the order does not "clearly specify".

If the plan's administrator already decided that the order is a QDRO to be followed, a non-discretionary service provider asked to implement a division might seek protective instructions (and indemnity) from the plan's administrator.

 

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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earnings and losses "adjust" the benefits balance

earnings are "added" to the benefits balance

the word "accrual" does not drive to just one reasonable interpretation

John Simmons

johnsimmonslaw@gmail.com

Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.

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