Basic QDRO questions

If a plan participant in a company's 401(k) plan transfers a portion of his account balance into an IRA and gets a divorce:

1. Is the IRA money (which originally emanated from the 401(k) Plan), subject to the QDRO rules or can the split between husband and ex-wife just be subject to a separate agreement?

2. If the plan participant established an individual IRA (not containing any plan monies), how is this handled in a divorce? Does this money need to follow QDRO splitting rules?

This participant is currently receiving $15,000/mo. (no survivor benefit) from a company sponsored defined benefit plan. To determine the amount the ex-wife gets:

1. Is the monthly amount she would receive be $15,000 x the marital fraction? What actuarial adjustments need to be made, if any?

2. Could the wife choose whether or not to take an annuity or a lump sum? If a lump sum is taken, what assumptions would be used to determine the lump sum? If the annuity option is chosen, again, what assumptions would need to be used?

If anyone has a good internet site detailing how this all works, with examples, please pass it along.  

Thanks

IRAs are not subject to IRC section 414(p). See section 408(d)(6).

State court domestic relations proceedings determine the portion of a pension benefit awarded to a participant's former spouse. Assuming the plan is subject to ERISA, the award must satisfy the requirements for qualification under IRC section 414(p), including section 414(p)(3) (A), which means that plan terms matter.

The Department of Labor website has a publication entitled "QDROs: The Division of Retirement Benefits Through Qualified Domestic Relations Orders." It has mistakes about the law, but is generally helpful.

To clarify, was the participant's account (partial or whole) transferred to an IRA before the alternate payee's interest was segregated? From what I understand (i.e., this isn't legal advice), once a Plan receives a DRO (qualified or not), the account should be flagged so that the AP's interest isn't diverted.  Apologies if I misunderstood.  Was the move to the IRA part of a small balance transfer after the participant termed?

I agree with the response regarding your first two questions about IRAs (assuming the funds were transferred to the IRA prior to the DRO begin submitted).

With regard to you second question, a QDRO can give an AP any part or all of the retirement benefits payable to a participant under a DB (or DC) plan. The QDRO simply cannot require the plan to provide increased benefits (determined on the basis of actuarial value) or provide a type or form of benefit, or any option, not otherwise provided under the plan (except, to receive payment at the participant’s “earliest retirement age”). Plus, the QDRO can't require the payment of benefits to an AP that are to be paid to another AP under another QDRO already recognized by the plan.   Thus, though most DB QDROs utilize the marital portion fraction formula to divide benefits, an AP is not limited to (or entitled to) using a formula based on the marital portion when determining the amount of benefits to be assigned.  If a QDRO is submitted clearly and unambiguously awarding 100% (or 0%) of the DB benefit to an AP, it can be qualified.  The QDRO administrator has no idea of what other negotiations have occurred between the participant and AP.  Perhaps in this case, the participant received 100% of the DC plan benefit.  (0% --  participant wants to make it clear that the former spouse is not to receive anything and not be treated as surviving spouse).  

Save the limitations noted above, the QDRO can give the AP the right to elect any form of payment under the plan that the participant could have elected.  (This is of course assuming payments haven't begun yet, i.e.,the QDRO is a separate interest award).  The actuary would use the same actuarial assumption that would be used under the plan substituting the APs age, etc. for the participant (again, no increase in benefit and all determined on an actuarial basis).  There is no need to have the QDRO spell out the actuarial assumptions that will be used, and it would likely be problematic if it did (because it could differ from what the plan uses and be bounced because arguably it might increase the benefit.   

I think the DOL website has a fairly long booklet ...Dividing Retirement Benefits through QDROs... or something like that.