Child Support Judgment Against a Participant’s 401(k) Account

Has anyone dealt with a child support order or judgment directed to a 401(k) plan?

The participant reportedly owes approximately $90,000 but currently has only about $1,500 in safe harbor contributions in the plan. The plan’s financial advisor has indicated that the order must be honored. Is that correct?

• Must the order satisfy the requirements of a QDRO before any plan assets can be paid?

• Can the plan be required to make an immediate payment if the participant does not otherwise have a distributable event?

• Could the order apply to future contributions, or only to the participant’s current account balance?

• Are there any particular procedures or notices the plan administrator should follow upon receiving this type of order?

Any input or experience with a similar situation would be greatly appreciated.  Thanks!

As ERISA defines a “domestic relations order”, a DRO includes an order that “relates to the provision of child support.” ERISA § 206(d)(3)(B)(ii)(I), 29 U.S.C. § 1056(d)(3)(B)(ii)(I); see also I.R.C. (26 U.S.C.) § 414(p)(1)(B)(i).

A carefully written DRO might meet the elements and conditions for a qualified domestic relations order.

As ever, RTFD—Read The Fabulous Documents.

Although ERISA § 206(d)(3) sets up some of what the plan must provide, there also are some QDRO-related provisions a plan may include or omit. For example, some plans allow a QDRO distribution even when the participant has no right to a distribution and has not reached ERISA § 206(d)(3)(E)(ii)’s earliest retirement age; but some plans preclude a QDRO distribution if the participant has not reached that earliest retirement age.

A QDRO cannot “require a plan to provide any type or form of benefit, or any option, not otherwise provided under the plan[.]” ERISA § 206(d)(3)(D)(i). If a plan’s only form of distribution is a nonperiodic payment, an alternate payee would need a distinct court order for each payment, specifying the amount of the payment. But ERISA § 206(d)(3) doesn’t directly preclude a State’s or Native American Indian tribe’s court from issuing as many DROs as it takes to keep consuming the participant’s account balances, including balances that result from continuing contributions.

An order that specifies a payment more than the participant’s account balance is not a QDRO.

The plan’s administrator ought to follow its QDRO procedure and claims procedure (except to the extent a procedure would have the administrator do something contrary to the plan, or violating ERISA’s title I).

If the plan’s administrator engaged a recordkeeper’s or other service provider’s DRO-review service, check whether the service includes or excludes an order designed to collect child support. If the court order names an alternate payee other than the participant’s spouse or former spouse, check whether the DRO-review includes or excludes such an order.

Communications to the participant, to a would-be alternate payee, and to an attorney or other recognized representative of either should be as the QDRO and claims procedures call for.

If the plan’s administrator finds that a submitted order is not a QDRO, the administrator might want to use extra care to make the denial communication procedurally perfect.

None of this is advice to anyone.

Who is this demand coming from?  If it is a state child welfare agency trying to collect back child support see if you can get a notice and read it carefully.  It will mostly use language that is very scary but when read carefully admits they can't force a plan to pay.  It has been my understanding that a state agency can't make a qualified plan pay absent of a QDRO.  I have seen several that when read carefully it was clear it was a clever bluff.  

I would make the client get an attorney to give an opinion but there is a good chance the plan can't pay legally.  But most likely the TPA isn't qualified to make that legal call. 

And yes I have see plans ignore a state agency on this and nothing happen after the plan attorney said they didn't think the state could make the plan pay the benefit and nothing happen.  

22 hours ago, 415 Limit said:

The plan’s financial advisor has indicated that the order must be honored.

Unless also an ERISA or labor attorney I'd tell him to stay in his/her own lane.

Thank you all for your input. It is greatly appreciated.

The demand is from the California Department of Child Support Services (CDCSS). The letter is addressed to the custodian of the 401(k) plan assets; however, the Plan itself is not specifically named. I left a message for the CDCSS Case Manager to discuss the matter but have not yet received a return call.

The letter identifies the participant by name, Social Security number, and address. It is titled “Order to Withhold” and states that it is intended to collect a past-due child support debt pursuant to California Family Code Sections 17453 and 17522.5. It directs the custodian to remit a check to CDCSS for up to the total amount due.

This does not appear to be a traditional domestic relations order directed to the Plan, although I understand that an order relating to child support could potentially qualify as a QDRO if it satisfies the applicable requirements.

Based on your responses, it sounds like the appropriate next step is for the Plan Administrator to have ERISA counsel review the order and provide an opinion before the Plan or custodian takes any action. In the meantime, we should follow the Plan’s QDRO procedures and not authorize the release of any Plan assets. Does that sound correct?

If a child-support agency (rather than the child or the child’s custodial parent) sought an order or gives a notice, a plan’s administrator might have extra reason to get its lawyers’ advice.

Some fiduciaries might question the prudence of paying those lawyers’ fees from plan assets if, for one situation, both the amount involved and the risk exposure on a participant’s claim that one’s account was improperly alienated or assigned are slight. Yet, a fiduciary might find that the situation could be recurring. That might suggest needs for clarifying and strengthening the administrator’s QDRO and claims procedures to help the administrator manage claims efficiently and impartially. Those needs might be more important if a meaningful portion of the participating employers’ workers or retirement plan participants might not pay due child support. And more important if any of the plan’s administrator, trustee, or custodian is vulnerable to the jurisdiction of California, New York, or another State that tries to collect child support from retirement plans.

The U.S. Labor department’s Employee Benefits Security Administration has unofficially published a view: “[I]f an alternate payee is a minor or is legally incompetent, [a QDRO] can require payment to someone with legal responsibility for the alternate payee (such as a guardian or a [person] acting in loco parentis in the case of a child, or a trustee [sic] acting as an agent [sic] for the alternate payee).” DOL-EBSA, QDROs, The Division of Retirement Benefits Through Qualified Domestic Relations Orders, Q&A 1-10, page 8 (2020), https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/publications/qdros.pdf).

See DOL-EBSA ERISA Adv. Op. 2002-03A (June 7, 2002) (on particular State law and assumptions, EBSA interpreted the Mississippi Department of Human Services Division of Child Support Enforcement as a child’s “agent”).

Some suggest that those interpretations are contrary to law. (I’m unaware of a Federal court precedent that adopts or rejects EBSA’s interpretation.)

Also: “It is the view of the [U.S. Labor] department that an income withholding notice issued by [New York State Office of Temporary and Disability Assistance, Division of Child Support Enforcement] or county child support enforcement agencies (as described in your submission) as part of [New York’s] [Social Security Act] IV-D program, is a domestic relations order as defined in section 206(d)(3)(B)(ii) of ERISA.” DOL-EBSA, ERISA Adv. Op. 2001-06A (June 1, 2001).

Some suggest that an executive agency’s income-withholding notice is not an order.

But even if a plan’s administrator recognizes a State agency’s notice as, within the meaning of ERISA § 206(d)(3), an order and a domestic-relations order, it would not result in a QDRO distribution unless the order meets the elements and conditions for a qualified domestic relations order.

Some suggest that Social Security Act § 466 [42 U.S.C. § 666] sets up some authority, independent of ERISA’s QDRO regime, for a State to collect child support from a pension or retirement plan.

I do not express my thinking for or against any of the interpretations.

BenefitsLink neighbors might have observations about a State agency’s efforts to seek a QDRO distribution or other retirement plan distribution to collect child support.

This is not advice to anyone.