QDRO alterative payee-Cancel payment.

Hi Everyone,

Here is the situation. Alternate payee Ms. M does not want the fund distributed to her, because it will affect her Medicaid benefits. She requested that the fund to be returned to her ex-spouse. She will send in the documents to cancel the QDRO. 

Is it possible to?

I would like to find out what are the steps or things that need to be watched out for.   Are there guidelines that we need to follow? This is something that I have never encountered before.

Thanks in advance for everyone's info. 

The plan will respond to the receipt of a domestic relations order and implement the terms of a domestic relations order that the plan determines to be a qualified domestic relations order (QDRO). Can a domestic relations order that modifies an existing QDRO to reverse essentially reverse the QDRO out of existence? It seems like one should be able to do this if the state court will issue the modifying order. I do not know if this has ever been adjudicated, but a negative answer would be based on the text of the statute:

The term "qualified domestic relations order" means a domestic relations order— (i) which creates or recognizes the existence of an alternate payee's right to, or assigns to an alternate payee the right to, receive all or a portion of the benefits payable with respect to a participant under a plan, ***

The modifying order does not do any of that. The modifying order would either (1) strip the alternate payee of an interest in the benefits that the alternate payee has under QDRO #1, or (2) recognize the participant's right to or assign to the participant an interest in the plan that the alternate payee has/owns under the plan pursuant to the QDRO #1. 

But to paraphrase a lyric from Fiddler on the Roof,  "Would it spoil some vast eternal plan to implement such an order?" Who is going to complain? If the plan keeps appropriate boundaries on how it engages, it won't be part of the conspiracy to defraud Medicaid. 🤐

Thank you.

We have been trying to get Ms. M to get her form and document in for the QDRO payment. but she didn't want to. I don't know what Ms. M can do to modify the QDRO, I guess I will wait until she sends it the document to see what it will be. I believe she is afraid it will affect her Medicaid eligibility if she receives the payment. 

I am assuming you are talking about a defined contribution plan.

I am assuming that the divorce is final, and that the QDRO was signed by the Court. and that a certified copy of the QDRO and was sent to the Plan Administrator, and that the Plan Administrator approved the QDRO, and that no appeal of the Divorce Decree was filed by either party.  If I am incorrect in any of these assumption, let me know.    

A timeline is essential.

Some states provide that the court will lose jurisdiction to modify (including a recission) a QDRO within a certain number of days after the entry of the QDRO (e.g. after the time to revise a Court Order has expired), or after the expiration of the applicable statute of limitation that can be many years down the road.  Res judicata will apply.     

Some states will not permit a modification (including a rescission) of a QDRO under any circumstance if it changes the terms of the underlying Divorce Decree.  Res judicata will apply.

Some states will permit a modification (including a rescission) of a QDRO even though it changes the terms of the underlying Divorce Decree but only if the Court has reserved jurisdiction in the Divorce Decree to do so. 

Some states view a QDRO as the source of the obligation to transfer pension and retirement assets from one party to the other.   Other states view a QDRO as a tool, like an attachment or a garnishment, to enforce the Divorce Decree.  The ability to modify it or rescind it will differ depending how they view it.  

I found this online: 

"The question of whether retirement savings plans, such as IRAs, 401(k)s, and pensions, impact Medicaid eligibility is complicated. There are no federally set rules on these plans and Medicaid eligibility; each state sets its own rules. Adding to the complexity are other variables, such as the type of retirement savings plan, payout status, payout amount, one’s other income and assets, and marital status.

"The bad news is that it is likely an applicant’s retirement savings plan will be considered by Medicaid as either income or an asset when determining eligibility for long-term care. The good news is that most candidates can still gain Medicaid eligibility and preserve some or all of their savings for a spouse or another family member.

"In states that consider a Medicaid applicant’s retirement savings account as an asset, it will count against Medicaid’s asset limit for eligibility. Some states will exempt one’s retirement account if it is in payout status, and therefore generating income. However, the payments are considered as income and will count against Medicaid’s income limit for eligibility. While this does not automatically mean the candidate will be Medicaid-ineligible, this is common because Medicaid’s income and asset limits are so low."

You need to check with the eligibility requirements for Medicaid in the jurisdiction in which she resides. It may not be as onerous as she imagines.  It may be that she can elect to take her 401(k) as an annuity.  The payments will count as income, but the total amount will not impact Medicaid eligibility.  And it may only impact long term care eligibility.   See - 

https://www.medicaidplanningassistance.org/medicaid-eligibility-401k-ira/#:~:text=California%2C Florida%2C Georgia%2C and,payments are counted as income.

Good luck,

DSG

I think you can honor the contemplated second QDRO, if a state court is willing to issue it. 

The QDRO regulations specifically provide that a QDRO does not fail to be a QDRO merely because it alters a prior QDRO to reduce the amount of the benefit that is payable. 

29 CFR § 2530.206(b):

(b) Subsequent domestic relations orders.

(1) Subject to paragraph (d)(1) of this section, a domestic relations order shall not fail to be treated as a qualified domestic relations order solely because the order is issued after, or revises, another domestic relations order or qualified domestic relations order.

(2) The rule described in paragraph (b)(1) of this section is illustrated by the following examples:

Example (1).

Subsequent domestic relations order between the same parties. Participant and Spouse divorce, and the administrator of Participant's 401(k) plan receives a domestic relations order. The administrator determines that the order is a QDRO. The QDRO allocates a portion of Participant's benefits to Spouse as the alternate payee. Subsequently, before benefit payments have commenced, Participant and Spouse seek and receive a second domestic relations order. The second order reduces the portion of Participant's benefits that Spouse was to receive under the QDRO. The second order does not fail to be treated as a QDRO solely because the second order is issued after, and reduces the prior assignment contained in, the first order. The result would be the same if the order were instead to increase the prior assignment contained in the first order.

A prior commenter noted that the contemplated DRO may not qualify as a QDRO because it does not technically assign any benefits to the AP. However, even if that is a correct reading of the law, you could effectively get around it by assigning $0.01/m to the AP (and then if you really wanted to get it to zero--which is probably not necessary as a practical matter when you are only worried about a Medicaid income threshold--you could simply have her disclaim the $0.01/m benefit). Or, if benefit payments have already commenced, you could argue that the new QDRO does assign a benefit--it assigns the monthly benefits that are payable through a particular cutoff date. You could also argue that the requirement is satisfied because the second DRO "recognizes" the existence of the AP's rights to any benefits that were previously assigned and which have already been paid, even as it revokes the AP's right to future payments. 

There are also several arguments you could make for simply recognizing the subsequent DRO directly. Three possible options occur to me: (1) permit the ex-spouse to disclaim her benefits under the QDRO, and take the position that the result is that the benefits are payable to the participant, rather than simply ceasing to be payable altogether (which is not immediately clear to me), (2) treat the new order as a new QDRO and determine whether it satisfies the requirements to be a QDRO, or (3) treat the new order as a modification of the prior QDRO and determine that the modification can be taken into account. 

Disclaimers of retirement benefits are generally permissible if permitted under plan terms/procedures which are complied with. The result is that the benefit is payable as though the disclaimant died prior to the date the benefit became payable. The original QDRO likely specifies what happens when the AP dies. Take a look at those terms and see if they would provide the desired result if triggered early. 

As a practical matter, who is going to sue? The parties agree on what they want to happen. It doesn't result in increased benefits payable from the plan. The IRS or DOL could theoretically take an interest on audit, but that seems unlikely. The biggest risk, from my perspective, is that the AP will turn around several years from now and argue that the second DRO was invalid, and thus she is entitled to the benefit payments after all. Given that the plan stopped paying the benefits to her at her express request when they see the complaint, the judge is likely going to raise several eyebrows (however many eyebrows they possess).