benefit option now available, but wasn't then....

[Bri]

Background:  DB plan is terminating, I've just begun the PBGC application.  Traditional DB plan was frozen 30+ years ago.  Two participants, vested terminees, remain as they'd been awaiting age 65.  Plan never had a lump sum option, only annuities.  As part of the decision to terminate, the company that now administers the plan (bought the prior company, which is no longer in business) decides they should just offer a lump sum option, so it's been written into their final PPA restatement as of 1/1/2020.  The lump sum option also helps so the plan doesn't end up with maybe 5,000 in residual assets, too.

Now, one of the two participants immediately returned his form for a lump sum.  (Although he hadn't asked for early retirement benefits, he's past the plan's ERA of 55 and so he's eligible to be paid now, independent of the PBGC review.)  Anyway.  he scanned over a QDRO for an unrelated plan.  But that had me thinking, and I reviewed the prior TPA's distribution files which we have.  I found a QDRO from 2006 signed by a judge.

Or, at least it was meant to be a QDRO.

I'm concerned when I read it, because the order assigns 50% of the participant's account balance as of some date in late 2005, with all the earnings thereon, to his ex-wife.  Seems normal enough except that the plan did not offer a lump sum option at all, and so technically there's no account balance to speak of.

Now that there is a lump sum option, there's at least some substance to the request to assign 50% of the lump sum value to the Alternate Payee.

What's the actual legal rule for something like this - The order indicated a form not authorized by the plan.  At the time.  But now the plan does authorize such a payment.

I am suspecting that a revised Order will be needed, if for no other reason that there never really has been an "account balance" to divide and assign.  But I also want to learn the legal standing of something like that, where it's as if a would-be QDRO suddenly flips to being legitimate after the fact, so to speak. 

(In other words, the "account balance" terminology notwithstanding, would an order like this be acceptable, now that the plan was amended in such a way that the original order now is properly compliant with the terms of the plan as they now are.  Something like, well, it wasn't Qualified when it was written, but it is now.)

thanks.

--Bri

[david rigby]

1 hour ago, Bri said:

Or, at least it was meant to be a QDRO.

Sure, many things are meant to be a QDRO, but fail.  Just a hunch, but you may need to determine what, if anything, was done when that draft(?) QDRO was submitted.

[CuseFan]

Unless the plan is a cash balance plan, the term account balance is meaningless and, unfortunately the attorney who drafted the attempted QDRO didn't know the difference between a DB and DC plan. It boggled my mind over the years to continuously see that "splitting the account balance" language in a QDRO for DBP and even more ridiculously see the Majauskas formula to split the accrued benefit in a DCP. Also, that a TPA would have this from 2006 and not questioned it or flat out tell their client to reject it is inexcusable, IMHO.

I don't know how you comply - there is no account balance at said date nor earnings thereafter, there is only and accrued benefit and a present value at particular points in time. Maybe going back to the parties to make it right and able to administer/comply but I have no other insights, sorry.

[fmsinc]

It is not clear from your narrative what happened to the QDRO when it was received by the TPA.  They would normally have responded and rejected it. 

But whether that was done or not, I would contact the attorneys and the parties involved and tell them what has happened and suggest that they need to submit an Amended QDRO that conforms to the current options available under the Plan and the terms of their Agreement.

I have never seen any law providing that a defective QDRO can suddenly become acceptable when there is a change in the Plan, especially when 14 years have elapsed from the date of the QDRO.  There are many states where the Court lacks jurisdiction to issue an Amended QDRO, so the matter may be moot.    

I think that pursuant to  29 USC 1002(8) you have an affirmative duty to act as a fiduciary toward the Alternate Payee/beneficiary as well as the Participant, and you must make reasonable efforts to resolve the matter.  

[Larry Starr]

5 minutes ago, fmsinc said:

It is not clear from your narrative what happened to the QDRO when it was received by the TPA.  They would normally have responded and rejected it. 

But whether that was done or not, I would contact the attorneys and the parties involved and tell them what has happened and suggest that they need to submit an Amended QDRO that conforms to the current options available under the Plan and the terms of their Agreement.

I have never seen any law providing that a defective QDRO can suddenly become acceptable when there is a change in the Plan, especially when 14 years have elapsed from the date of the QDRO.  There are many states where the Court lacks jurisdiction to issue an Amended QDRO, so the matter may be moot.    

I think that pursuant to  29 USC 1002(8) you have an affirmative duty to act as a fiduciary toward the Alternate Payee/beneficiary as well as the Participant, and you must make reasonable efforts to resolve the matter.  

I agree; that old DRO was NEVER a QDRO and can't be one.  A new proper DB QDRO will be required if the parties want to or intended to divide that benefit.

[fmsinc]

No, Larry.  The original DRO called for a lump sum and that was not an option.  It seems that the only option NOW is a lump sum.  But in all events a NEW QDRO will be required.  

[Larry Starr]

15 hours ago, fmsinc said:

No, Larry.  The original DRO called for a lump sum and that was not an option.  It seems that the only option NOW is a lump sum.  But in all events a NEW QDRO will be required.  

Huh? No WHAT? I agreed with the long statement you made that I quoted.  And I added "that old DRO was NEVER a QDRO and can't be one". That is true; it required a distribution that was not offered by the plan, so it failed to meet the statutory requirements for a QDRO.  What do you disagree with?

[Bri]

I gotta dig some more, try to find out if the attorney is still practicing even.  (Not finding a website for the firm, but do see a search result for her LinkedIn profile.) It looks like the former TPA owner mentioned the issue to her about the lump sum issue, but after he'd received a copy of the already-executed signed-by-the-judge order (which even has the word Qualified in it....sigh). 

But no sign of a revision to the Order.

 

[Bri]

Got a follow-up here.  PBGC premium for 2021. 

The participant took his 50% benefit as a lump sum in spring 2020.  I reached out to the ex-wife to indicate she needed a legitimate QDRO.  She found her old attorney, who was able to put one together.  But the courts were closed for several months.

It was finally signed in January 2021, and she took her "half" in late May, essentially finishing the plan off, as hers was the only benefit remaining to be paid. 

The question is, since alternate payees don't count as participants, unless the participant was deceased, the PBGC instructions indicate she doesn't get counted.

Is it the date the QDRO is signed which makes her officially the alternate payee?  Or is it enough for an Order to be pending?  In other words, does the plan sponsor owe 1 month of head-count premium ($7.17) for 2021, or none?  Or does "pending" as of 12/31/2020 hold any status in this sense?

(Seems odd that her benefit wouldn't have to be protected via premiums through May, but the instructions seem to indicate they're not.  There's still $40 in plan assets which could be used.)