Can overfunding be transferred in a QDRO?

[Richard Tate]

Moderator - My multi-part story/question got deleted from the forum, I guess because I posted it in 3 different forums as it has multiple topics to it....I will keep this question limited to the QDRO issue, so hopefully you can keep this post active in this forum

Situation -  Pending Divorce, and QDRO has not been filed yet.  Husband owns 100 percent of company with 4 employees in pension plan.  Husband (age 70) owns about 90 percent of pension plan's total vested benefits.  Employee #2 has about 10% of vested benefits.  Employee 3&4's shares are nominal.  A dollar amount about equal to Husband vested benefits is owned by the pension plan that is not applied towards anyone's share, which is the "overfunding" (this number is substantial, in the 7 figures).  

Question - Does anyone know if any portion of this "overfunding", whether in cash or pension plan assets can be transferred to the wife via her QDRO?  Can it be done either voluntarily by the Pension Plan trustee or by court order?  

Any help or thoughts are much appreciated

-Rich

[david rigby]

IRC 414(p)(1)(A)(i) allows a QDRO to assign "... all or a portion of the benefits payable with respect to a participant under a plan...", so I’m gonna suggest "No".

 

I know this is unusual: have you given any thought to using up some excess by making her a participant in the plan?

[david rigby]

BTW, it is acceptable to post a question in more than one forum, if it's appropriate.  However, because other users might find the Q&A via search, it's useful to have all the answers in one place.  To that end, putting in a cross-reference helps.

[Richard Tate]

David,

If the situation was cooperative, then yes, making the wife a participant in the plan would be an excellent way to soak up the overfunding.  However,  wife is divorcing husband, so this is an adversarial situation where husband is trying to avoid giving wife as much as possible.  He is soaking up a significant portion of the overfunding by having the pension plan buy term life insurance policies for himself and employee plan participants.  Wife has requested that he make her (or her heirs) 1/2 beneficiary of death benefits of his policy, which of course he has refused.   Bottom line is the pension plan has significant overfunding, that overfunding has some value to it and I am trying to think creatively to see how wife can capture any of that value in the context of divorce proceedings.  Another poster suggested that there is a value to the overfunding and ultimately that value is part of the company valuation.  The tricky part is A) how to come to a value that is presentable to a court of law and 2) how to transfer that value to the wife

-Rich

[david rigby]

One way to consider the value is a hypothetical plan termination.  This forces the overfunding out, where it becomes taxable and (potentially) subject to the reversion tax (50% or 20%, depending on what is done with the excess).  Thus, the net after-tax excess becomes its "value".

[Peter Gulia]

If a QDRO would pay the alternate payee 100% of the participant’s benefit, how close would that come to the value your client would negotiate for her marital property interests in her spouse’s pension right and the company’s right to a reversion from the pension plan’s surplus?

 

Could your client be better served by negotiating for a payment from property other than the pension plan?  Could doing so get a quicker payment?  Might it get a no-worse or better tax treatment?

[Dave Baker]

See

https://benefitslink.com/boards/index.php?/topic/64367-overfunded-pension-in-a-divorce/