QDRO and Suspension of Benefits After Retirement

Relatively simple situation. I have a separate interest qdro with the following facts:

* the qdro was issued at the participant's normal retirement date (assume exactly, it was close, not sure if a month off). 

* the alternate payee chose to commence benefits at the participant's normal retirement date (life annuity - no subsidy received in the traditional sense as far as early retirement is usually considered)

* the participant chose to continue working despite suspension of benefits. No actuarial increase is provided (benefit is frozen)

* said participant is now past RMD. The participant is looking to start benefits at age 74, and will receive the appropriate 401(a)(9) increase for starting past rmd

* During the time since NRD, the alternate payee has received benefits continuously, but the deferral period will reflect actuarially equivalent benefits for the participant only for the period after what would've been RBD if said participant had not been active

Question: since the plan is paying benefits to the alternate payee that it would not have paid without the issuance of the QDRO, has the participant forced himself inadvertently into paying for the alternate payee's benefit during the period between NRD and what would've been RBD via reduction of his benefit once he starts. 

That is, instead of receiving his share of the benefit increased for the period past typical RBD, is he required to receive that less an actuarial equivalent amount for benefits paid to the alternate payee?

This is a variation on a participant footing the bill for a qdro that allows the alt payee to get subsidized early retirement when a participant doesn't start, but instead of paying for a subsidy, the subsidy is seemingly a benefit reduction (negative subsidy) that he caused himself by continuing to work after NRD. 

The number of years we're talking about is about 6 1/2 to 7, so the adjustment would be significant. 

This is a defined benefit plan, of course.

5 hours ago, DW said:

* the participant chose to continue working despite suspension of benefits. No actuarial increase is provided (benefit is frozen) 

Are you sure there is no actuarial increase?

No actuarial  increase in this case (it is multiemployer, the participant is given a suspension of benefits notice and in this case has chosen to continue to work in the same industry, which prevents him from receiving benefits in the plan). 

If he was working in this particular plan (instead of just in the industry), he would continue to earn benefits, but not be provided an actuarial increase. Because of the industry tie-in, until he chose to retire at 74, he would've just been earning benefits in another fund instead. 

That muddies the water here, as it would be actuarial equivalent if he were provided late retirement increases after normal retirement. 

I received an opinion from counsel that the actions of the participant not affect whether or not the benefit is actuarial equivalent after the alternate payee starts if the alternate payee didn't receive a subisidy from the plan. I'm satisfied with that. 

Counsel has asserted that the statement of actuarial equivalence (in the DOL's rules to be a QDRO) before and after QDRO (this next part I've paraphrased) is not the same thing as I'm thinking as an actuary. As in, it's based on a hypothetical normal retirement benefit, and not an unincreased late retirement benefit as chosen by the participant.

If this is a separate interest allocation the amount paid to the Alternate Payee and the date on which she elects to commence benefits has no bearing whatever on the Participant's remaining share.  The interest paid to the Alternate Payee leaves him with whatever remains.  That amount will increase with whatever factors will result in an adjustment of his benefit, whether it's increased time in service, or a higher salary.  I don't understand the interrelationship between his decision to retire at the age of his choice and the Alternate Payee's election to commence benefits at the age of her choice.  The amount received by the Alternate Payee will be actuarially reduced based on her age and life expectancy.....as will his.    

In theory, the present value of an annuity will be the same no matter the age at which the annuitant elects to commence benefits.  Start at a younger age and receive less.  Start at an older age, get more.  However any time I have tried to make that computation the PV at the younger age is greater, a counter intuitive result, given that i don't have the ability to make the year by year recalculation of life expectancy as the annuity ages.    

We all know from statisticians that if you put your left foot in boiling water and your right foot in freezing water, on the average you're comfortable.  

I agree with your comments - where things fall apart is the lack of actuarial increase in the plan. If the participant starts at a later age, the actuarial value provided to the annuitant is less (ignoring the mismatches you're describing, I've seen them, too) until the participant is at RBD - then the mandatory increases are provided until his actual late retirement date. 

I described this to fund counsel as a photographic negative of a QDRO that provides the early retirement subsidy to an alternate payee without requirement that the participant retire (in that case, the participant's benefit is reduced if the participant doesn't retire early). That is uncommon, but I've done it probably half a dozen times due to QDROs that provide a nominal benefit amount, or that allow the alternate payee to receive a subsidy (without commenting about who is paying for it if the participant doesn't retire early to receive it).