Tax reporting for a Transfer of 457b funds from one spouse to another as part of divorce

Hello benefit experts!

I have not encountered this before, and hence the question.

Two spouses are participating in the same non-governmental 457b plan and have accounts at another company's 401k plan. They are getting divorced. As part of their divorce settlement, one spouse agreed to give over her entire 457b funds to the other spouse in exchange for the second spouse to transfer the same amount to her from his 401k account. The reason they did this was to avoid distribution to one spouse after relocation / termination. The custodian didn't need QDRO, just a letter from the trustee, for the transfer. The transfer is now complete. 

What, if any, IRS documentation or forms need to be filed for this transfer of 457b funds from one spouse to another? 

Thank you!!

The knowledgeable custodian, or perhaps the accommodating trustee, who are both effecting the transfer, should have the answer to that question as well. 😉

About an employer’s W-2, 1099-MISC, or other wage or tax-information reporting and withholding (if any might be or become needed), consider that there might be no service provider obligated to provide a service regarding the employer’s obligations for deferred wages.

Or if a service provider is engaged to tax-report payments of deferred wages, consider the scope and conditions of the service engaged. Those might leave with the employer anything that did not involve a payment processed through the service provider’s system.

This is not advice to anyone.

By what authority did the Plan Administrator transfer retirement benefits between divorcing spouses without a QDROs? 

Did I miss the Memo?

Even for a plan that is none of a governmental plan, a church plan, or an excess-benefit plan (and meets no other exception from ERISA’s title I), ERISA § 206 [29 U.S.C. § 1056] (which includes ERISA’s provision for following a qualified domestic relations order) does not govern “a plan which is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees[.]” ERISA § 201(2), 29 U.S.C. § 1051(2). Yet, if the plan is ERISA-governed (for parts 1 and 5 of subtitle B of title I), ERISA supersedes State law. ERISA § 514(a), 29 U.S.C. § 1144(a).

A nongovernmental tax-exempt organization’s unfunded deferred compensation for select-group executives need not provide for recognizing a State’s domestic-relations order, and many do not.

But even with no Federal law command, an organization administering its deferred compensation obligations might voluntarily recognize a domestic-relations order if the order satisfies the obligor.

For those plans regarding which an organization recognizes an order, some require more detailed conditions than ERISA § 206(d)(3) sets for a QDRO, but some tolerate a less detailed order. Some might rely on a court’s acceptance of the divorcing parties’ settlement agreement, even without a separate order. (Some might be surprised by how often an organization acts contrary to its lawyer’s advice, or without any lawyer’s advice.)

A nongovernmental tax-exempt organization might allow a transfer between divorcing spouses if the organization finds its obligation to the original participant is satisfied or released.

This is not advice to anyone.

Thank you for all the feedback and information. 

This is a funded non-governmental 457b, utilizing Rabbi Trust. The employer honored party's divorce settlement agreement for this transfer instead of a QDRO. The custodian [Schwab] indicated that a letter of instruction from the trustee was sufficient to make the transfer. None of the amount was current year contributions, and thus not reportable on W-2. Both party's accounts were solely prior year's contributions. Transfer between divorcing spouses is allowed per plan documents. 

The funds remain "at risk" for the employee and available to the employer to satisfy its debt per the provisions of the 457b plan. 

So, again, is there any IRS reporting of this transfer?

Thank you experts! 

I have not researched the wage-reporting and tax-reporting questions. (No client has done a transfer of the kind described above.)

Some sources an employer/obligor or its lawyer or other tax practitioner might consider include:

Internal Revenue Code of 1986 § 457 http://uscode.house.gov/view.xhtml?req=(title:26%20section:457%20edition:prelim)%20OR%20(granuleid:USC-prelim-title26-section457)&f=treesort&edition=prelim&num=0&jumpTo=true

26 C.F.R. § 1.457-10(c) https://www.ecfr.gov/current/title-26/part-1/section-1.457-10#p-1.457-10(c)

I.R.C. (26 U.S.C.) § 1041 http://uscode.house.gov/view.xhtml?req=(title:26%20section:1041%20edition:prelim)%20OR%20(granuleid:USC-prelim-title26-section1041)&f=treesort&edition=prelim&num=0&jumpTo=true

26 C.F.R. § 1.1041-1T https://www.ecfr.gov/current/title-26/section-1.1041-1T;

and because tax law sometimes requires reporting even when something is not yet income:

Form W-2 Instructions https://www.irs.gov/pub/irs-pdf/iw2w3.pdf

Form 1099-MISC Instructions https://www.irs.gov/instructions/i1099mec.

A lawyer, certified public accountant, enrolled agent, or other practitioner who follows the Circular 230 rules for practice before the Internal Revenue Service could not provide advice until she has read (at least) the plan’s documents and the divorce documents, even if there is no distinct order beyond the divorce and the divorcing parties’ settlement agreement.

This is not advice to anyone.

Thank you for your response. Much appreciated. I realize that this is an unusual situation and from what I have gathered, strictly speaking, QDRO is not required for non-ERISA plans such as 457b, and no tax reporting is due.