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Does "interest" in QDRO language include losses?


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A QDRO assigns an Alternate Payee a dollar amount "plus interest on that amount." Should "interest" be interpreted to include losses? How should "interest" be interpreted?

Does the "segregated amounts" requirement mean only that the plan must be able to separately account for the segregated amount? Or does this requirement mean that the dollar amount specifiec above should by physically separated from other assets? If it has to be physically separated, are there requirements on how the segregated amount should be invested?

Is there guidance on these issues in the law, from the DOL, and/or from court cases?

Thanks!

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I can't provide a reference to case law or regs, etc. But I can give you my perspective.

Unless there is specific language in the document that says that the alternate payee is entitled to $X as of (say) the date of dissolution, plus y% from date of dissolution to date of distribution, then as a plan administrator, I would interpret interest as investment gains and losses. And if it does define interest, I would obviously view only the ultimate amount as relevant to the process.

And segregated amounts means that you separate the alternate payee's funds from the particpant's funds in the same way that you separate participant A's funds from participant B's funds. So if the funds are invested in collective funds and the recordkeeper does the allocations, and no shares have individual ownership, then that's what happens with the alternate payee. If on the other hand the only option is individual brokerage accounts, then you'd have to set one up for the alternate payee.

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Not so fast.

If the plan is a DC plan, I would agree that "interest" probably refers to investment earnings, whether positive or negative, but it might not, so getting input from QDRO drafter might be appropriate.

If the plan is a DB plan, it seems likely that "interest" does not refer to investment earnings.

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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That would be true, but why would a DB plan, where the alternate payee's entitlement is to a portion of the accrued benefit and its lump sum value, include a dollar amount plus interest?

Any way, I should have made it clear that I was talking about DC plans.

And that makes me think that I'm happy that all our plans that I review QDROs for does not include a Cash Balance plan.

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My apologies - I should have specified that it is a DC plan in this case. The problem of course is that the plan has substantial market losses from the date that the dollar amount was assigned to the AP.

In this case, the QDRO specifies the dollar amount as of a date during which the funds were employer-directed.

In the meantime, the funds have become participant-directed.

Did the employer have any fiduciary obligation to invest the "segregated amount" for the AP any differently than other assets of the fund?

Was the participant limited in any way as to what investment choices to make due to the DRO?

Would the AP have an argument that the Plan Administrator and/or the participant should have invested the segregated amount in a more conservative investment?

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When I’ve worked with attorneys on DC plan QDROs and they initially come to me saying something to the effect that a certain dollar amount plus interest form a certain date to the dissolution date should be the amount distributed to the AP I ask them to make the calculation and give me a specific dollar amount. It’s usually best to get both parties to the QDRO to agree to a specific dollar amount. We don’t calculate that amount for the AP. It’s worked so far.

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A QDRO could assign a dollar amount. Does not have to be a percentage.

As far as John's specific situation, it looks like this plan needs to have some good legal advice by someone who knows QDROs. The change from employer-directed to participant-directed is likely not trivial to the QDRO issue.

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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  • david rigby changed the title to Does "interest" in QDRO language include losses?

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