QDRO -Calculations

[Guest UKH]

When the QDRO states the ex-spouse gets a percentage of the participant's account do we calculate that percent on the whole account balance or just the vested portion?

[Richard Anderson]

Calculate on the whole account balance, but the alternate payee then has the same vesting as the participant. If the alternate payee wants (and the document allows) an immediate distribution, the distribution is for the vested portion of the alternate payee's account. If the participant further vests in his account, so will the alternate payee in his or her account.

[Kristina]

"If the participant further vests in his account, so will the alternate payee in his or her account." On what basis was this determined?

Shouldn't the QDRO state the % as being applied to a given account balance on a given date? If it does not, is it a QDRO? Shouldn't the QDRO be specific without requiring something the plan does not allow? In other words, if you have to ask how to calculate the payment to the alt. payee, do you really have a QDRO?

Practically speaking, I would be really honked off if at the time of my divorce and the QDRO I was only 20% vested, my total balance was split with my Ex and every year that I increased on the vesting schedule, my ex got more money. I think I would challenge the DRO, first, of course.

[MWeddell]

The DRO should clearly provide whether the percentage applies to the vested account or the whole account and if it's the latter whether any nonvested monies are prorated between the participant and alternate payee or whether the alternate payee's money comes first from the vested portion. It it's unclear, it should not be accepted as a QDRO.

A QDRO cannot allow the alternate payee an option that other participants don't have, such as having the AP's vesting percentage increase depending on whether the participant earns more vesting service. If the AP wants the advantage of continued vesting service, then the QDRO should not subdivide the account yet. Also, check with the plan's recordkeeper before promising anything that might be impossible to administer.

[Kristina]

Yeah. What MWendell said.

[QDROphile]

The plan's written QDRO procedures should cover how vesting and account division is handled in absence of express provisions in the QDRO, and QDROs seldom cover these details. The alternative is to disqualify the order because it cannot be interprested or adminstered without more information.

If you feel you have to choose without the ability to do this properly, the most conventional way to go is divide the vested and unvested account proportionately. The unvested portion of the AP's subaccount continues to vest as the participant accrues service. Depending on what the plan document says, the vested portion may be distributed to the AP. If the plan does not have special provisions for the AP, and if it provides for lump sum only, the AP can get no distribution until the account is fully vested or the participant separates from service. Essentially I agree with Mr. Anderson. I don't understand why Kristina is honked off. The unvested portion of the AP's subaccount does not affect the participant, nor does the incease in vesting. The alternative is to give the AP all vested money. Then the participant would really be honked off.

[Kristina]

QDROphile! I wondered when you would shine your light of reason on this discussion.

My problem is that I, as a divorcing spouse, would try like the dickens to split only my vested account balance with my soon to be ex spouse. After all, they are only my spouse up to that point in time and I would not want them benefitting from my future labors, or lack thereof. Its a personal issue, I guess. As a divorcee I would be willing to go halfsies on what I own, but that's my line. Of course, now that I think of it from the other side, i.e., his account balance, I would want every cent I could get my hands on, especially if there are kids and I have custody.

Your point is well taken.

[Richard Anderson]

Kristina,

The account balance at the time of the QDRO is an accrued benefit, that was earned for prior service to the employer (service while married to the ex-spouse), although it may not be fully vested at the time of accrual. It is doubtful that the ex-spouse's attorney would agree to a QDRO that limited the ex-spouse's benefit to only vested benefits.

[Guest wendyb]

My experience with this issue has been on the side of the plan administrator. Simply resolved - the plan administrator would not accept any DROs until a paragraph was added stating that the division was to occur on a particular date and as a percentage of the vested balance as of that date. It simply is a hassle (and an expense to the plan) to require continuing monitoring of the AP's account. To be honest - never ran into a single attorney that would not agree to this provision - most never even questioned it.

[QDROphile]

Wendy: The plan administrator holds the best cards. But when the day comes that the drafter calls you on it and does not back down, you should consider your course of action very carefully. An order can be drafted that awards unvested benefts to an alternate payee.

[Guest Sparky]

Thanks so much, this thread has been very helpful.

We would appreciate further clarification as to when an Alternate Payee can receive a distribution of her interest under a plan when she receives both vested and nonvested amounts under a QDRO.

This is the situation:

* The QDRO provides that a Particpant's partially vested account--both vested and nonvested amounts--is to be divided between the Particpant and the Alternate Payee.

* We plan on segregating all of the Alternate Payee's interest into a separate acount at the time that the QDRO is implemented. Accordingly, the Alternate Payee will receive both vested and nonvested amounts. The Alternate Payee will continue to vest in her account based on the Particpant's service. We assume that this is the conventional way to handle this--an alternative would be to leave nonvested amounts in the Particpant's account until they are vested, and then move them to the Alternate Payee's account at the point in time that they are vested. Under this scenario, amounts would be moved each year as the Participant continues to vest.

* The plan provides that an Alternate Payee may receive a QDRO benefit "immediatley in a lump sum." The plan does not define lump sum.

* The plan does not permit a terminated Particpant to receive a partial distribution. Inservice withdrawals are only for hardship or after attainment of age 59 1/2, provided that the account is 100% vested.

The question is this: Will the Alternate Payee have to wait until she is 100% vested in order to receive a distribution (assuming, of course, that the Particpant does not separate from service before this time?) Or, can the Alternate Payee withdraw the vested portion of her account immediately, and continue to take withdrawals as she "vests"?

Thank you in advance for any comments.

[QDROphile]

Your plan terms present a problem. You can't distribute the entire alternate payee interest immediately in a lump sum. You could interpret the plan to provide for a distribution of the entire interest in a lump sum at the time the alternate payee becomes fully vested (or when the participant terminates and is eligible for distribution of the partially vested account).

You could interpret the plan to mean that "lump sum" applies to the vested portion of the interest and distribute the vested portion. After all, you would do the same for the participant when the participant terminates employment and becomes entitled to a distribution. You would have a "lump sum" distribution of the remaining vested portion when it vested. You might have several years worth of annual lump sum distributions, depending on the vesting schedule.

Your interpretations would best be memorialized in the plan's QDRO procedures. Or you could amend the plan to state the rule you want to use, and avoid the need to interpret the plan terms.

Remember to read the QDRO very carefully. Will you be followig its terms if you follow any of these suggestions?