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Can you QDRO an Alternate Payee Account


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Husband and wife were divorced ten years ago and a QDRO was issued awarding the wife 50% of husband's account. Wife, as the alternate payee, chose to keep the funds in the plan. Husband had primary custody of children and was due child support payments from the ex-wife. Fast forward ten years and the ex-wife has not made any child support payments. Husband obtained garnishment order from the court going after ex-wife's alternate payee account. The order also mandated that the garnished amounts be rolled over to the husband's account under the plan. The only way I see this being accomplished is if a QDRO was issued for the child support arrearages allowing for a rollover to be accomplished. The plan document is silent on the rights and status of alternate payees. With that being said, can you QDRO an alternate payee's account? Also, this is more of a family law question, but can the husband use this backdue child support for his own retirement purposes? 

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17 minutes ago, BG5150 said:

I find it odd that child support would go to a retirement account.  The money is ostensibly meant for the welfare of the children.

Off topic but I don't find this so odd.  Presumably the father in this case spend money out of pocket already to pay the needed expenses.  This is no making him whole after the fact. 

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When a QDRO awards something for child support, the tax liability is the responsibility of the payor, not the recipient.  To me, that sounds like a child support payment (yes, a new QDRO will be required) must be made in cash, not rollover, and the ex-wife (in this case) would get a 1099R.  But I could be wrong. 

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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19 minutes ago, david rigby said:

When a QDRO awards something for child support, the tax liability is the responsibility of the payor, not the recipient.  To me, that sounds like a child support payment (yes, a new QDRO will be required) must be made in cash, not rollover, and the ex-wife (in this case) would get a 1099R.  But I could be wrong. 

While I agree in principle, there really is nothing that says the DRO has to be specific to "pay" for child support.  It could simply be payment in settlement of a an obligation, which in this case, is child support.  I would question why the custodial parent would want to roll over this payment - as it shifts the tax burden - as you say David, when they could simply take it in cash - and if they so choose, invest it otherwise (maybe even take a deduction for a contribution to an IRA).

Money is fungible....

And BTW, once the money is in the name of the AP in the plan, they are, in fact, a "participant" and I can't see why a DRO couldn't be issued against those proceeds.

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I am fascinated by the statement that an alternate payee is treated as a participant.  Is this mandated and supported by legal authority, or is it just a practical administrative stance taken by plan administrators?  ERISA says an alternate payee is treated as a beneficiary.

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And this is not a trivial question, because IRC 414(p) (1) says that a QDRO can assign an interest in a participant's account.

One position to take is that an alternate payee's account is a subaccount of a participant's account, so the QDRO addressing the AP's account applies to the participant's account.

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49 minutes ago, QDROphile said:

And this is not a trivial question, because IRC 414(p) (1) says that a QDRO can assign an interest in a participant's account.

One position to take is that an alternate payee's account is a subaccount of a participant's account, so the QDRO addressing the AP's account applies to the participant's account.

If you were to take this position, could you then rollover the QDROd funds into the participant's account? In other words, is there anything stopping a rollover from a sub-account to the actual participant account (assuming the plan doc is silent on the matter)?

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Sure.  The plan administrator will not allow it on that theory.  It would take a very well-advised and very accommodating plan administrator to facilitate a transfer even pursuant to a QDRO.  When I say accommodating, I have in mind IRC 414(p)(3)(A), which any administrator can stand on to disqualify a domestic relations order that provides for such an extraordinary  transaction.  Plan administrators do not like (or understand) QDRO administration, so they generally keep it as simple as possible. 

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20 hours ago, QDROphile said:

I am fascinated by the statement that an alternate payee is treated as a participant.  Is this mandated and supported by legal authority, or is it just a practical administrative stance taken by plan administrators?  ERISA says an alternate payee is treated as a beneficiary.

I looked into this question a few years ago and agree.  ERISA says an alternate payee shall be considered a beneficiary (206(d)(3)(J)), and the exception to the anti-assignment rule applies only to QDROs with respect to a participant (206(d)(3)(A)).  That said, I don't know if the drafters really intended to limit QDROs to participant accounts, despite the plain language in the statute.  Ultimately, this limitation does result in some unfortunate situations when the parties to a QDRO discover an error after the QDRO is processed and seek to have some funds transferred back via a new QDRO assigning a portion of the AP's account.

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This is an unusual case because the AP left the money in the plan. It would seem to me that if a family lawyer can convince a domestic relations court to modify the existing QDRO to award less to the AP, even $0, then that is not a QDRO against an alternate payee, but just restores to the participant his benefit. I don't see it as a problem under ERISA or the Code, but a family law problem.

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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On 10/13/2020 at 2:04 PM, BG5150 said:

I find it odd that child support would go to a retirement account.  The money is ostensibly meant for the welfare of the children.

1) Money is fungible.

2) As someone who has both paid and received child support, I find your naiveté cute.  Child support's purpose notwithstanding, it operates as an income transfer, plain and simple.

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43 minutes ago, Luke Bailey said:

This is an unusual case because the AP left the money in the plan. It would seem to me that if a family lawyer can convince a domestic relations court to modify the existing QDRO to award less to the AP, even $0, then that is not a QDRO against an alternate payee, but just restores to the participant his benefit. I don't see it as a problem under ERISA or the Code, but a family law problem.

Something to keep in mind when amending or entirely undoing a QDRO is the plan's administrative capabilities and how the formula is structured in the QDRO (assuming the plan would otherwise accept the amended QDRO).  It may be difficult to completely put the parties back into the position they would have been in had there been no QDRO.  For instance, the AP's account post-QDRO may have been invested differently than P's account, and so gains or losses experienced on the funds in the AP's account would differ from what they would have experienced had they instead been invested in P's account during that period.

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The participant is probably hoping for cash in hand.  A revised QDRO can reduce the amount awarded to the former spouse, but it cannot create a withdrawal right for the participant.  A QDRO cannot compel the plan to distribute to the alternate payee.  A court might be able to compel the alternate payee to apply for her distribution.  The trick would be then to have her write a check to the participant based on these funds.  The participant would be better off with a revised QDRO increasing his account and hardship withdrawals for a couple missed mortgage payments.

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