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Secure 2.0 Headaches - Annuities and defined contribution plans.

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Please read.  
The law as it stands today is that a Participant in an ERISA qualified defined contribution Plan can take a distribution from the Plan without giving notice to or obtaining the consent of his/her spouse or former spouse.  But the time when such a distribution can be made has always been defined as the time the Participant terminates employment with the Plan Sponsor (e.g. retires or is fired).  
I have always stressed to my colleagues at the  Bar the importance of getting the QDRO entered by the Court at the same time that the JAD is entered and sending a certified copy to the Plan Administrator ASAP.  I have always suggested that the moment they know that there is a pension or retirement benefit that will be addressed by the parties in an MSA or by the Court at trial, send every Plan Administrator (defined contribution or defined benefit) a Notice of Adverse Claim/Interest - see attached template and cover letter.  Send a copy of the Complaint and a copy of draft QDROs.
Plan Administrators are not required to take any action, but their lawyers usually suggest that, now that they have "actual notice", they don't want to find themselves involved in a lawsuit and should freeze everything in place until the parties have reached an agreement or the Court has entered a QDRO, vel non.    
Now Fidelity has a new product - Fidelity’s Guaranteed Income Direct, now available to Plan Sponsors nationally and applicable to 401(k), 403(b) and 457(b) Plans.  Participants can purchase an income annuity directly through an employer’s plan benefit from a third-party insurer selected by the employer.   The assets Participant's assets leave the retirement plan and go to the insurer for purchase, with monthly cash flow views available through the benefits platform, NetBenefits.   
The article doesn't mention the Secure 2.0 act that became effective on January 1, 2023, but it is consistent with what I have read. 
So let's say that the Participant retires and elects the new annuity option offered by Fidelity.  The parties are still happily married.  No divorce is on the horizon.  But matters deteriorate and somebody files suit for divorce. 
Are the prospective Alternate Payee and the Court bound by the annuity option selected by the Participant? 
Can a QDRO supersede the annuity election and enter a QDRO awarding an immediately payable lump sum?
Will that sponsor of the annuity, e.g. MetLife, Pacific Life, Prudential Financial and Western & Southern Financial Group, be required to accept and act in accordance with a QDRO?
What if the Participant elects a 10 year life only annuity and dies 2 years later.  Are the balance of the annuity payments wiped out thereby destroying what should have been the Alternate Payee's interest in the Plan benefits?  
Will the annuity contain the equivalent of survivor annuity benefits options and be treated like a QJSA in a defined benefit plan?
I don't know the answers to any of these questions. 
But I can say with confidence that whoever drafted and enacted Secure 2.0 had zero experience in family law or in the allocation of defined contribution plans.   
Maybe some answers can be found at: - 

Notice of Adverse Claim-Interest.pdf Notice of Adverse Claim- Interest Cover Letter (2).pdf

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You’re right to recognize a point many domestic-relations lawyers often don’t fully consider:

One can’t divide a right that no longer exists.

Too many people imagine a right under an individual-account retirement plan always is an account balance that can be simply and neatly divided. But what if it isn’t (at least not always)?

Whether the regime for dividing a marriage’s property is a QDRO or other Federal regime or, without Federal supersedure, a State’s law, a general principle is that a court might divide property rights between the current, separated, divorcing, or former spouses, but should not impair the contract rights (or increase the contract obligations) of a third person.

You’re right that a property-seeking spouse should act (or engage one’s attorney to act) quickly and vigorously to preserve one’s interests before some change happens.

And ideally, a spouse would learn (or engage one’s lawyer to learn) a retirement plan’s provisions.

Likewise, if a property-holding spouse made an annuity contract (perhaps without the other spouse’s consent), the property-seeking spouse would learn (or engage one’s lawyer to learn) the annuity contract’s provisions.

If more plans allow insurance-provided annuities and more participants choose those annuities, some of your learned friends in domestic-relations practices might benefit from you teaching a continuing-legal-education course on these points.

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania



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23 hours ago, fmsinc said:

But I can say with confidence that whoever drafted and enacted Secure 2.0 had zero experience in family law or in the allocation of defined contribution plans. 

Amen. Applies to more than Secure 2.0.

Ed Snyder

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I am the moderator of a 1350 member listserv that I created in 2011 as a sort of CLE a teaspoon-at-a-time supplement to the rather meager CLE offerings to family lawyers in the State of Maryland.  Lawyers in Maryland and in 4 other states have no CLE requirement.  The other 45 states and the District of Columbia and the Virgin Island and Puerto Rico and Guam  and American Samoa and the Northern Marianas all require CLE, but we Maryland lawyers are just too superior for that nonsense. 

One of my daughters, a CPA is required to take 80 hours of continuing education every two years to retain her certification.  Real estate professional must take 15 hours every two hears.  The gal that cuts my hair and the guy that checks out my HVAC system and the guy that fixes my toilet must all take continuing education courses.  My cardiologist is required to take his Board Certification exam every 10 years.  He asked me how I would like to take the Bar Exam every ten year and I immediately had a heart attack at the very thought.  See attached requirement in Maryland.     

I have been ranting and raving about various issue for the past 13 years  and have put together a 930 page compilation of what I call Monographs dealing with topics I have encountered in my 57 years of law practice, 38 years of which have been devoted to the preparation of QDROs.  I have spoken to gatherings of state and local Bar association and to groups of Judges.  I have testified as an expert witness in Court many times. 

But in the end of the day I am  beating my head against the wall.  I could make a lot of money testifying against my colleagues for their flagrant malpractice.  The judges are no better, but you can't sue them. 

I feel like a modern day Diogenes, wandering about, carrying my lamp, looking for a man with mind open to observing, analyzing, and reasoning. 

Continuing Education in Maryland.docx

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