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QDRO - Do I need one?


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I was legally separated from my spouse in 2009. We agreed on our legal separation (filed in court) to split all retirement 50/50. The value of my 401k/IRA was worth about the same as his Municipal pension + IRA at that time. The intent was that he got 50% of my 401k/IRA and I got 50% of his Pension. We never got or filed a QDRO.

Fast forward to last year. He could start collecting his Municipal pension. Since no QDRO was ever filed we filled out the paperwork together. I signed off on him getting his full Pension during his lifetime and I get 50% after his death. He signed off his rights as beneficiary on my 401k/IRA & Pension (all of the Pension was earned after 2009) and I sent that in and it was approved. 

Do we / should we still get a QDRO or is the the paperwork we sent in to his Municipal pension plan and my 401k/Pension plan enough?  

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I think you have done something that is contrary to your separation agreement.  That might not be bad, but you may wish to get feedback from your attorney.  (BTW, if your attorney is not very familiar with QDROs, keep looking.)

You may have given away more than you got, and your statement "...signed off his rights as beneficiary on my..." might be ambiguous.  If your goal is to make sure someone else is your beneficiary, then (probably) the only way to accomplish that is by you completing a new beneficiary election.  

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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On 12/31/2020 at 4:19 PM, Holliday said:

 

First, did you agree to split 50/50 the total amount, or just the amounts that had accrued as of the date of the separation agreement?

Second, are you asking whether what you have done (you keep the 401(k) and he keeps the pension) is likely to approximate the 50/50 split under the separation agreement? (As a practical matter, maybe, but it depends on the actuarial value of the two retirement benefits.) Or are you asking whether a QDRO would provide you with meaningful additional rights? 

Third, what did you do with the 401(k)? Did you take a full distribution? Did you roll it into an IRA? Are you leaving it there until distributions are required by law? Did you file a beneficiary designation naming a child or someone else as your beneficiary, and did your spouse consent using a spousal consent form that was provided by the plan and accepted by the plan once completed? 

A QDRO would allow the pension plan to split each pension payment in half and send a separate check directly to you. Or, it might allow the plan to split the actuarial value of his benefit in two and send you a completely separate benefit election packet. However, if his benefit has already commenced, then it may be too late for that approach. If you trust him to send half of each payment to you, or if you don't care about potentially getting less than what you are entitled to, then maybe you don't need a QDRO. Without a QDRO, you might be able to sue him in state court to enforce the separation agreement and force him to pony up half of the pension payments, but the pension plan is not required to actually send payments to you directly unless you have a QDRO. 

Note that a 50% survivor annuity is probably worth much less than 50% of the total actuarial value of his pension. For example, if you both die on the same day (or if you die first) then he gets 100% of the pension, and you get nothing. You have to outlive him for a long time in order for the survivor annuity alone to be worth a decent chunk of the total pension. Even then, he's receiving immediate payments (that are twice as big as the payments you will eventually receive that he could theoretically invest in the stock market at 5% or more for decades while you are waiting to receive a single penny, which makes the payments he receives much more valuable even though they are only twice as big dollarwise. 

However, if you are actually getting the full benefit of the 401(k), and he is only getting the life annuity portion of an unsubsidized QJSA (assuming the actuarial value of the pension was actually the same as that of the 401(k)), then you would actually be getting a better deal because his lifetime pension payments are being reduced (probably by about 10%, but it varies) in order to fund the actuarial value of your 50% survivor annuity, and he isn't getting any such benefit with respect to your 401(k).

And, by the way, spousal consent is not required to elect a 50% QJSA--that's the default. Spousal consent is only required when spousal default rights are being waived. If he waived his right to be the death beneficiary of your 401(k), but you waived nothing with respect to his pension, then that might be a bit one-sided (although, again, it depends on what your intent was, what the actual actuarial values of the two benefits were at the relevant moment, and whether I understand correctly what you have done). 

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Holliday, I don't know whether you need a QDRO, but you need an attorney familiar with QDROs who is qualified to practice in your state.

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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