Distribution payable to alternate payee and another person?

[Guest]

We have a DRO that requires payment by check made out to the alternate payee and her attorney, with both signatures required for payment. While the order otherwise meets the qualification requirements, we will issue the check payable to the alternate payee only. The attorney is giving me grief. Anyone have a quick citation for our position? Thanks.

[pjkoehler]

You have considerable authority for denying the attorney's request. The simplest response is to tell the attorney that, as required by Code Sec. 401(a)(13), the plan prohibits the assignment or alienation of the participant's benefit other than in the case of a QDRO. A QDRO is a DRO that assigns all or a portion of the employee spouse's interest in his/her pension benefit to a person who is within the class of "alternate payees." Code Sec. 414(p)(1). An "alternate payee" means a spouse, former spouse, child or dependent" of the employee spouse. Code Sec. 414(p)(8). Presumably, the attorney is not within this class of persons. Therefore, the DRO, if interpreted as directing the plan to pay the attorney directly, should be determined NOT to be a QDRO and, thus, unenforceable.

[R. Butler]

I agree with PJK. If the DRO specifies that a payment is to be made to an attorney it is not a QDRO. No payments should be made under the DRO. At a minimum payments made under the DRO "as is" would have adverse tax consequences, it possibly could be an operational failure if there is not some other distributable event.[Edited by R. Butler on 08-16-2000 at 04:40 PM]

[Guest]

I also agree with PJK. I have had this situation in the past. It arises when the attorney is attempting to guarantee payment out of the proceeds. Citing the anti-alienation provision and the fact that the attorney is not a qualified alternate payee usually gets the attorney to back down.

[MWeddell]

I'll also add my agreement.

One way to mollify the attorney and still get the order approved as a QDRO is to have the check payable to just the alternate payee but change the mailing address for the check to be in care of the law firm's address. If the alternate payee has to pick up the check from the law firm, it makes it a bit harder for the law firm to not get paid. On the other hand, I don't know that you really want to suggest this to the attorney and insert yourself in the middle of what might be a conflict.

[Guest Rudy]

PJK is absolutely right in his response, and his cites. We have had this happen a couple of times recently, and both times our legal counsel declined to qualify the DRO because the attorney asked to be a co-payee.

I would avoid MWedell's suggestion even though it does solve the situation. Whether or not an individual's attorney receives payment for services should not be a concern to us.