QDRO's

A-1: Any judgement, decree, or order (including approval of a property settlement agreement) that (1) relates to the provision of child support, alimony payment, or marital property rights to a spouse, former spouse, child or other dependent of a participant, and (2) is made pursuant to a state domestic relations law (including community property law).

2. How do I know what kind of information is required under a qualified domestic relations order (QDRO)?

A-2: All of the requirements for QDROs are contained in Section 206(d)(3) of ERISA and Section 414(p) of the Internal Revenue Code. These sections are essentially mirror images of one another. Therefore, you only have to choose one source to find all the legal requirements you QDRO must satisfy before it can be deemed qualified by the Plan Administrator.

3. What does ERISA stand for?

A-3: Employee Retirement Security Act of 1974, as amended.

4. What is the Pension Benefit Guarantee Corporation (PBGC)?

A-4:. The governmental agency established to insure employer-sponsored pension plans which terminate with unfunded liability. Title IV of ERISA contains information relative to the establishment and function of PBGC.

5. Who is the alternate payee?

A-5: The alternate payee is any spouse, former spouse, child, or other dependent of a participant who is recognized by a domestic relations order as having a right to receive all, or a portion of, the benefits payable under a plan with respect to such participant.

6. What is a deferred vested participant?

A-6: An employee who terminates employment with a company after satisfying the plan's vesting requirements and thus becomes entitled to receive the vested accrued benefit accumulated as of the date of termination. A deferred vested participant must normally defer commencement of benefits until reaching normal retirement age as defined under the plan (usually age 65). At this time, the participant will be entitled to commence the vested accrued benefit on an unreduced basis. Many pension plan allow a deferred vested participant to commence benefits on an actuarially reduced basis once the participant meets the plan's age requirement for early retirement.

7. What is a defined benefit pension plan?

A-7: Pension plan qualified under ERISA and the IRC that provides a specific predeterminable amount of benefits to a participant at the individual's projected date of retirement. Normally, the benefits are based on a formula that incorporates the participant's projected years of service and final average compensations. Defined benefit plan are required to be funded on an ongoing basis in accordance with actuarial principles enumerated in ERISA and the IRC. A participant's benefits under a defined benefit pension plan are referred to as accrued benefits.

8. What is a defined contribution plan?

A-8: A plan qualified under ERISA and the IRC that provides for contributions directly to individual accounts established and maintained for each plan participant. The contributions may consist of either employee or employer contributions or both. The participant is generally entitled to receive the account balance (together with any interest accrued thereon as well as investment gains and/or losses) when the employee retires or otherwise terminates employment with the company. There are several types of defined contribution plans, including profit sharing plans, thrift plans, 401(k) plans, retirement savings plan, stock bonus plans, and employee stock ownership plans (ESOPs).

9. What is the participant's "accrued benefit" under the defined benefit pension plan?

A-9: This refers to the amount of benefits that a participant has earned under a defined benefits pension plan as of any particular date and is usually stated in terms of a monthly pension annuity. It is generally based on the employee's years of service with the company and his/her final average compensation as of the calculation date. A participant's accrued benefit can be calculated at any point in time during his/her working career, based on the plan formula and components in effect at such time. However, regardless of when the accrued benefit is calculated, it generally represents the amount of the participant's monthly pension annuity the he/she can receive on an "unreduced" basis at normal retirement age.

10. What is a vested accrued benefit?

A-10: The accrued benefit in which the plan participant is vested based on the individual's years of vesting service with the company. Normally, a plan participant becomes fully vested in pension benefits after five years of service. However, some pension plans use a graded vesting schedule in which a participant's vesting percentage increases each year until it reaches 100 percent. Under current law, a plan participant must be fully vested in the accrued benefit after no later than seven years of vesting service. The participant's vested accrued benefit refers to the portion of benefits the participant has a nonforfeitable right to receive under the plan.

11. What is the participant's "account balance" under a defined contribution plan?

A-11: A participant's benefits under a defined contribution plan are referred to as the account balance. A participant's total account balance under a plan may consist of amounts established and maintained under various subaccounts. For example, a plan may contain pretax and after-tax employee contribution accounts and employer-match accounts. Further, each subaccount may contain various investment fund alternatives in which a participant may choose to invest contributions.

12. What are matching employer contributions?

A-12: Contributions made to a defined contribution benefit plan, such as a 401(k) Retirement Savings Plan, by the employer based on a certain percentage of the employee's own contribution. For example, an employer may contribute 50 cents on the dollar for each dollar which an employee contributes to the plan on a payroll deduction basis, up to 6 percent of his/her base salary. An employee may become fully vested in his/her Matching Employer Contributions immediately or they may be subject to a vesting schedule based on the employee's years of service.

13. What is meant by the earliest retirement age?

A-13: The age at which a plan participant may first commence pension benefits under the provisions of the plan. Normally, benefits payable to someone before normal retirement age are actuarially reduced to reflect the earlier commencement of benefits. For QDRO purposes the term means the earlier of: (1) the date on which the participant is entitled to a distribution under the plan, or (2) the later of (a) the date the participant attains age 50, or (b) the earliest date on which the participant could begin receiving benefits under the plan if the participant separated from service.

14. What is an actuarial equivalent?

A-14: The actuarial adjustment necessary to convert a participant's benefits into different forms and/or payment periods so that the total value of a participant's pension benefits remains equal (on an actuarial basis) regardless of the form of benefit or the commencement date the participant may elect.

15. What is an actuarial reduction?

A-15: The actuarial adjustment required when a plan participant elects to commence pension benefits before normal retirement age. Because the participant's benefits will commence before normal retirement age, they must be reduced based on the participant's life expectancy and the fact that the individual will be receiving benefits over a longer period of time. Remember, under a defined benefit pension plan, a participant's projected accrued benefit is predetermined based on a specific formula and is calculated to commence on an unreduced basis at normal retirement age. Actuarial reductions may also be required when converting a life only benefit to another form of benefit, such as a qualified joint and survivor annuity.

16. What is an early retirement subsidy?

A-16: A benefit provided to an early retiree (someone who commences pension benefits before normal retirement age) that has not been actuarially reduced to reflect such early commencement of benefits. The employer is, in effect, subsidizing the participant's pension benefit to the extent that it exceeds what would otherwise have been payable with a full actuarial reduction.

17. What is a qualified joint and survivor annuity (QJSA)?

A-17: A form of benefit available under a defined benefit pension plan and sometimes found in defined contribution plans in which benefit payments continue after the death of the plan participant to the surviving spouse, if any. Typically, the amount of benefit that continues to the surviving spouse is any where from 50 percent to 100 percent of the benefit the participant had been receiving before death. Upon the death of the surviving spouse, all payments cease. Because this form of benefit provides pension payments that extend beyond the death of the plan participant, the monthly benefit payment made while the participant is alive are actuarially reduced to account for the potentially longer stream of benefit payments. This actuarial reduction takes into account the life expectancy of the surviving spouse in addition to the life expectancy of the plan participant.

18. What is preretirement survivor annuity (QPSA)?

A-18: A form of death benefit normally payable under a defined benefit pension plan to the surviving spouse of an active employee (or a deferred vested participant) who is vested under the plan but dies before the commencement of retirement benefits. This benefit is normally calculated as if the plan participant had survived to the earliest retirement age and then died with a 50 percent qualified joint and survivor annuity election in place.

19. How can I obtain information about a Plan Participant?

A-19: In order to obtain information regarding the status of a certain Plan participant, you must furnish the Plan Administrator with a written, signed release from the participant or a subpoena.

20. What kind of information can I obtain from the Plan Administrator?

A-21: Once the Plan Administrator receives the proper release or subpoena, the family law attorney can receive the following information regarding the status of the Plan participant:

Names of all qualified plans under which he/she participates

Status of Plan participant, whether active, retired, or terminated with rights to a vested pension

Date of retirement or termination of employment, as applicable

Current account balance information for company-sponsored

defined contribution plan(s) and current accrued benefit under the defined benefit pension plan

If retired, the form of benefit option elected by the participant upon his/her retirement (i.e. single life annuity, joint & survivor annuity, period certain annuity, etc.)

21. What kind of information can I receive about the Plan(s)?

A-21: The Plan Administrator can furnish you with the following information regarding the Company's qualified retirement plans:

Accrued benefit formula under defined benefit pension plan

Early retirement provisions and applicable reduction factors

Available distribution options

Earliest age at which alternate payee can commence his/her share of the benefits

Joint & Survivor annuity reduction factor, if applicable

22. What happens if the participant dies before the QDRO is approved by the Plan Administrator?

A-22: This issue should be of central concern to the attorney representing a potential alternate payee under a QDRO. A QDRO is not a QDRO until a certified executed copy is received and approved by the Plan Administrator. If the participant dies before a certified copy of the QDRO has been reviewed and approved by the Plan Administrator, the alternate payee will not be entitled to any portion of the participant's benefits nor will the alternate payee be entitled to any pre-retirement survivor annuity benefits or post-retirement joint & survivor annuity benefits that may become payable under the Plan. This is true even if the Plan Administrator has already pre-approved a draft Order. It may therefore be in the best interests of your client to get your QDRO signed by the judge before submitting it to the Plan Administrator for review.

23. What is the earliest date on which the alternate payee can begin to receive benefits under a QDRO?

A-23: With respect to a defined contribution plan, an alternate payee is entitled to commence his/her share of the benefits as soon as administratively feasible following the date the QDRO is approved by the Plan Administrator and upon completion by the alternate payee of the necessary distribution forms and other paperwork as may be required by the Plan Administrator.

Under a defined benefit pension plan, an alternate payee must wait until the participant attains the "earliest retirement age" as defined under Section 414(p)(4) of the Internal Revenue Code, before he/she can commence his/her share of the benefits and upon completion of the necessary paperwork. Also, depending on the age of the participant when the alternate payee elects to commence his/her share of the benefits, the alternate payee 's benefits may be further reduced by any applicable early commencement reduction factors.

24. Will the Plan Administrator tell me how much the Alternate Payee should get under a QDRO from an equity perspective?

A-24: Absolutely Not. The Plan Administrator will avoid discussing fairness or equitability issues regarding the division of benefits under a QDRO. It is the responsibility of the parties' legal counsel to negotiate the substantive provisions of a QDRO. The Plan Administrator will limit its review to the technical requirements for QDROs as set forth under ERISA and Section 414(p) of the Internal Revenue Code.

25. Are benefit payments to the Alternate Payee automatic once the QDRO is qualified?

A-25: No. Even if the QDRO includes a specific date when the alternate payee is to commence his/her share of the benefits, the alternate payee will not commence his/her benefits until a benefit distribution election form and any other associated paperwork as may be required by the Plan Administrator, is properly completed by the alternate payee. Remember, the alternate payee must contract the plan administrator to request the necessary distribution application forms. These must be properly completed and returned to the Plan Administrator before any distribution will occur.

26. Can the QDRO simply include language that provides the alternate payee with a specified percentage of benefits "accumulated during the marriage?"

A-26: No. You should avoid using the term "accumulated during the marriage" when defining the alternate payee's benefits. This term cannot be properly interpreted by the Plan Administrator. It is acceptable to state the alternate payee's benefits in terms of a specific percentage or dollar amount of the participant's accrued benefit as of a specific date. Alternatively, you may include language that utilizes a standard "coverture approach" (i.e.: years of service earned during the marriage divided by total service as of date of retirement) which bases the alternate payee's share of the benefits on the participant's accrued benefit as of his/her date of retirement.

In other words, if the alternate payee is allowed to commence his/her share of the benefits before the participant's actual date of retirement, then both the denominator of the coverture fraction and the participant's accrued benefit should be calculated as of such earlier date.

27. Can a QDRO under a defined benefit pension plan provide the alternate payee with "interest and investment earnings" on his/her assigned share of the benefits?

A-27: No. Remember, under a defined benefit pension plan, there are no accounts established for plan participant's. Consequently, there are no interest or investment earnings applied to a participant's benefits. A QDRO may only state the alternate payee's share of the benefits in one of three ways:

1. As a specified percentage of the participant's accrued benefit as of a certain date; or

2. As a specified dollar amount of the participant's accrued benefit; or

3. As a coverture fraction applied to the participant's accrued benefit as of a certain date, typically the date of his/her retirement, or the alternate payee's elected benefit commencement date, if earlier.

Therefore, in lieu of using terminology such as "interest or investment earnings", you may utilize method 3, or a similar method using a formula acceptable to the Plan Administrator, if your intent is to provide growth protection for the alternate payee, as opposed to freezing his/her share of the benefits as of the date of divorce.

28. Under a defined benefit pension plan con an alternate payee's share of the benefits be given to his/her beneficiary or estate in the event of the alternate payee's death?

A-28: Generally no. If the alternate payee dies before he/she elects to commence benefits in accordance with the terms of the QDRO, no benefits may become payable to her beneficiary or estate. Even if the QDRO includes language that provides for payments to be made to the beneficiary or estate of the alternate payee, it will be rejected by the Plan Administrator.

If the alternate payee dies after his/her benefit commencement date and if he/she elected a form of benefit payment that provides for continued payments to a designated beneficiary in the event of his/her death, then such payments will be made to such beneficiary following his/her death.

In no event can payments ever be made to the estate of the alternate payee upon his/her death either before or after their elected benefit commencement date. Never include language in the QDRO that requires the Plan Administrator to make payments to the alternate payee's estate in the event of his/her death. This is not acceptable for QDROs under defined benefit pension plans.

A-29: This important question should be understood by attorneys in the case and also the participant and alternate payee as well. There are essentially three parts to this answer:

1. The Actuarial Assumption:

A pension plan is designated to provide a Plan participant with a monthly pension annuity payable for life upon retirement. During a participant's working career, the Plan is being funded on an actuarial basis so that when he/she retires, there is enough money to pay him/her a monthly pension for the remainder of his/her lifetime.

2. The Early Commencement of Alternate Payee's Benefits:

Generally, a participant's pension benefits under a defined benefit pension plan are designed to commence on an unreduced basis at the participant's normal retirement age. Depending on the age of the participant at the alternate payee's benefit commencement date, his/her share of the benefits may be reduced to reflect such early commencement. Therefore, if the QDRO provides the alternate payee with $500 per month but allows her to commence her benefits before the participant's normal retirement age, she amy receive an amount less than $500 to incorporate the plan's early commencement reduction factors.

3. The Early Retirement Subsidy:

The early retirement subsidy is a phenomenon created by QDROs when they were established by the Retirement Equity Act of 1984. Many companies offer employees the opportunity to retire early before attaining their normal retirement age. Because an employee's accrued is inherently designed to commence on an unreduced basis at the participant's normal retirement age, such benefits should be reduced if they begin before a participant reaches the normal retirement age. From a mathematical standpoint, it's obvious that a monthly lifetime benefit of $1000 per month commencing at age 65 would have "less" value than a monthly lifetime benefit commencing at age 60. Because a participant's pension benefits must be "actuarially equivalent" regardless of the date of benefit commencement, an actuarial reduction is normally applied to a participant's pension benefits if he starts them before the normal retirement age. However, in order to provide an incentive for early retirement, many companies offer a participant the right to stare his benefits early (ie: before the normal retirement age) without making the actuarial reduction to reflect such early commencement. In effect, the company is "subsidizing" a portion of the participant's early retirement benefits.

Under the federal QDRO provisions of the law, an alternate payee may not be entitled to any portion of the participant's early retirement subsidy "until" the participant actually retires early and receives subsidy, which essentially takes the form of a higher monthly pension. Therefore, if your QDRO includes language that permits the alternate payee to commence her share of the benefits before the participant actually retires, it must be understood that her share of the benefits will be further reduced to eliminate any potential early retirement subsidy that would have been payable to the participant had he elected to retire on the date the alternate payee elected to commence her benefits.

30. Will the alternate payee be entitled to growth on his/her share of the benefits "automatically" under a defined contribution plan?

A-30: No. If the intent is to provide the alternate payee with interest and investment income or losses that are attributable to his/her share of the benefits from the date of assignment to the date of distribution, the QDRO must include specific language to this effect. If the QDRO does not include a specific reference regarding investment growth, the alternate payee's share of the benefits may be "frozen" as of the effective date of assignment.

31. How are interest and investment earnings/losses calculated on the alternate payee's share of the benefits?

A-31: Retroactive calculation of growth on the alternate payee's share of the account balance from effective date of assignment to the current date (QDRO approval date): Annual interest and investment growth factors will be applied with partial year adjustments for the first and final year of the calculation.

Growth from current date to date of distribution: If the alternate payee does not elect immediate distribution of his/her share of the benefits upon approval of the QDRO, benefits will be segregated and maintained in separate account(s) in the name of the alternate payee. Once new accounts are established, the alternate payee's share of the benefits will grow with interest and investment income or losses in the some manner as the participant's benefits under such accounts.

32. How will the alternate payee's share of the benefits be "allocate" among the participant's various accounts and/or subaccounts under a defined contribution plan?

A-32: Not only should your QDRO include specific details regarding the amount of the alternate payee's benefits, it should also include instructions regarding the allocation of benefits form the participant's accounts. Alternatively, you may include an instruction in the QDRO that requires the Plan Administrator to carve out the alternate payee's share of the benefits on a "pro-rata" basis among all of the participant's accounts.

33. Can a QDRO provide the alternate payee with a portion of the participant's "future" benefits under the Plan ?

A-33: No. The QDRO must include an effective date of assignment that is on or before the date that such QDRO is submitted to the Plan Administrator. This requirement is necessary due to loan and withdrawal provisions. Therefore a QDRO submitted on June 1, 1996, cannot include language that provides the alternate payee with, say 50%, of the participant's total account balance under the Plan as of December 31 1998. This would deprive the participant of contractual Plan rights and entitlements and be in strict contravention of ERISA.

34. When will the Plan Administrator begin to segregate an separately account for the alternate payee's share of the benefits?

A-34: Pursuant to section 414(p)(7) of the Internal Revenue Dose, during any period in which the issue os whether an executed domestic relations order is a qualified domestic relations order is being determined, the Plan Administrator shall withhold and separately account for the amounts which would have been payable to the alternate payee during such period if the order had been determined to be a qualified domestic relations order. In order words, the Plan Administrator shall be required to withhold and separately account for the called-for portion of the participant's benefits during the period in which it is determining whether the Order is a QDRO, but only for a maximum of 18 months.

35. Is it proper if a QDRO directs payments to someone other than the alternate payee?

A-35: In limited circumstances, it is permissible for a QDRO to permit payments directly to someone other than the Alternate Payee. According to the legislative history, the QDRO provisions do not prevent the payment of amounts in pay status with respect to an alternate payee to a state agency that is an agent of an alternate payee or the payment of such amounts if the alternate payee consents to such payment (for example, to meet the requirements relating to Aid to Families with Dependent Children). In such a case, payments to the agency does not result in disqualification of the order and, under normal principles of constructive receipt, the alternate payee is treated as having received the amounts paid under the order.

However, if a domestic relations order attempts to provide payments to the alternate payee via that individual's attorney, it might be wise not to permit such an arrangement. It is too easy for these funds to be diverted to someone other than the alternate payee, and this could be a violation of §414(p)(1)(A)(i) of the IRC.

36. Can a domestic relations order qualify as a QDRO if it does not specify the number of payments or the period to which such order applies?

A-36: Yes, under certain circumstances. According to IRC §414(p)(2), a QDRO must specify the number of payments or the period to which such order applies. However, if the QDRO contains language that states the form of benefit payment under which the alternate payee is to receive benefit payments and such form of payment inherently describes the period under which payments are to be made, then such an order may qualify as a QDRO. For example, if the order merely states that the alternate payee is to receive 50 percent of the participant's vested accrued benefit under the plan, this would not qualify as a QDRO, for a number of reasons. It is not clear what date should be used for calculating the alternate payee's portion of the accrued benefit, an further, the commencement date and form of payment are not indicated. It is proper, however, for a QDRO to provide that the alternate payee is to receive 50 percent of the Participant's vested accrued benefit as of December 31, 1992, commencing in any optional form available under the plan as the alternate payee may select, on the earliest date under which the participant could retire and commence benefits under the plan.

37. Do QDROs apply to welfare benefit plans?

A-37: No. Welfare benefit plans as described in ERISA §3(1), which include an employer's medical, dental, and disability plans, are exempt from the provisions relating to QDROs which are contained in Part 2 of Title 1 of ERISA. Section 210 (1) of ERISA specifically excludes welfare benefit plans from the provisions of Part 2 Title 1.

38. Do QDROs apply to plans sponsored by the government and churches?

A-38: No. The Omnibus Budget Reconciliation Act of 1989 (OBRA 1989) subsection 7841 (a)(2) added a new subsection 11 to §414(p) of the IRC regarding the application of QDROs to governmental and church plans. It states in pertinent part:

[A] distribution or payment from a governmental plan (as defined in subsection (d)) or a church plan (as described in subsection (e)) shall be treated as made pursuant to a qualified domestic relations order if it is made pursuant to a domestic relations order which meets the requirements of clause(i) of paragraph (1)(A).

In other words, a domestic relations order that 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 governmental or church plan shall be treated as made pursuant to a QDRO.

For these purposes, a governmental plan means a plan established and maintained for its employees by the government of the United States, by the government of any state or political subdivision thereof, or by any agency or instrumentally of any of the foregoing. It is also includes any plan to which the Railroad Retirement Act of 1935 or 1937 applies and that is financed by contributions required under that Act and any plan of an international organization that is exempt from taxation by reason of the International Organizations Immunities Act (IRC §414(d)).

The term church plan generally means a plan established and maintained for its employees (or their beneficiaries) by a church or a convention or association of churches is exempt from tax under IRC §501.

39. How should a plan administrator handle a domestic relations order that was submitted before the effective date of the provisions relating to QDROs under the Retirement Equity Act of 1984?

A-39: According to the legislative history, a plan administrator may choose to treat a domestic relations order that was issued on or before December 31, 1984 (the effective date of the QDRO rules) as if it were a QDRO even though the order does not satisfy all of the IRC §414(p) requirements for qualification. However, the terms of such order must be generally consistent with the qualification requirements for QDROs.

40. Can a QDRO provide that all of the participant's accrued benefits are to be paid to the alternate payee?

A-40: Yes. It is a common misconception that an alternate payee is only entitled to half of the participant's vested accrued benefit under the plan. If a state domestic relations court decides that the alternate payee is entitled to 100 percent of the participant's pension benefits, the plan administrator will be obligated to follow the order pursuant to its terms if the order otherwise satisfies the qualification requirements for QDROs.

41. Do the reporting and disclosure provisions of ERISA and the Code apply to alternate payees receiving plan benefits under a QDRO?

A-41: Yes, because an alternate payee has all the rights and privileges of a beneficiary under the plan, the payee should receive summary plan descriptions, summary annual reports, and an explanation of ERISA rights as appropriate.

42. What is the Tax Treatment regarding direct rollovers?

A-42: The Unemployment Compensation Amendments Act of 1992 (UCA), which was signed into law on July 3, 1992, significantly changed the tax treatment of distributions from qualified retirement plans. Under prior law, a retirement plan distribution could be rolled over on a tax-free basis by a plan participant only if it was a qualified total distribution or a partial distribution equal to at least 50 percent of the balance to the credit of the employee. Under UCA, all taxable distributions from qualified plans are eligible to be rolled over to an IRA or another qualified plan except (1) annuities paid over life or life expectancy, (2) installment for a period spanning 10 years or more, and (3) required minimum distributions under IRC §401(a)(9).

UCA further imposes a mandatory 20-percent federal tax withholding requirement on any eligible rollover distribution paid on or after January 1, 1993, if it is not "directly" transferred to an IRA or another qualified retirement plan. Therefore, if a plan participant or alternate payee under a QDRO receives a plan distribution that qualifies as an eligible rollover distribution, then 20-percent of such distribution will be withheld for federal income tax purposes even such participant or alternate payee rolls over the distribution to an IRA within the permitted 60-day period. The only way to avoid this 20-percent withholding requirement is to have the distribution "directly" rolled over from the participant's retirement plan to an IRA or, for plan participants only, to another qualified retirement plan.

The plan administrator is now required to give written notice of the direct rollover option along with related tax rules within a reasonable period of time before making an eligible rollover distribution. This notice must be given to all plan distributees, including an alternate payee who is a spouse or former spouse, pursuant to the terms of the QDRO.

Therefore, if a distribution is payable to the employee's spouse or former spouse by reason of being an alternate payee under a qualified domestic relations order, it is eligible rollover treatment (and avoidance of the 20-percent withholding requirement) if such distribution qualifies as an eligible rollover distribution. However, unlike a plan participant, an alternate payee may not roll over his/her plan distribution to another qualified retirement plan, such as one sponsored by another employer. Only an individual retirement plan (an IRA) is treated as an eligible retirement plan with respect to the alternate payee's eligible rollover distribution.

An alternate payee under a QDRO who is not the spouse or former spouse of the plan participant is not permitted to roll over distributions from a qualified retirement plan. These distributions do not constitute eligible rollover distributions under UCA and, thus are not subject to the 20-percent income tax withholding requirement. Therefore, payments to a child under a QDRO do not qualify as eligible rollover distributions and the 20 percent withholding requirement does not apply.

43. Is there a right of appeal under ERISA with respect to QDROs?

A-43: Pursuant to §503 of ERISA, every employee benefit plan must provide adequate notice in written to any participant or beneficiary whose claim for benefits under the plan has been denied, setting forth the specific reasons for the denial and written in a manner calculated to be understood by the participant. Further, if a claim for benefits has been denied, the plan must afford to any participant whose claim for benefits has been denied a reasonable opportunity for a full an fair review by an appropriate named fiduciary of the plan. Department of Labor Regulations §2560.501-1(g) contains appeal procedures which must be established and maintained by every employee benefit plan.

One school of thought argues that the claim appeal process should not be applicable to a participant and an alternate payee when benefits are distributed pursuant to the terms of a qualified domestic relations order, According to IRC §414(p)(6), in the case of any domestic relations order received by a plan, and within a reasonable amount of time after the receipt of such order the "plan administrator" shall determine whether such order is a qualified domestic relations order and must notify the participant and alternate payee of such decision. A strict reading of §414(p)(6) seems to indicate that the final determination as to the qualified status of a domestic relations order rests with the plan administrator. This language appears to defeat the purpose of any claim appeal process for such employee benefit plan. In other words, if the plan administrator determines, in good faith, that a domestic relations order does not qualify as a QDRO, this would satisfy the requirements of §414(p) with respect to the review process. Further, if such an order is determined by the plan administrator to be deficient for any number of reasons, then it seems highly unlikely that any additional review process or appeals committee will come to another conclusion. Further, the benefits "earned" by such plan participant are not really being denied to the participant; rather, a portion of his benefits are merely being assigned or "redirected" according to the terms of a qualified domestic relations order and thus, the plan's claim appeal procedures should not apply.

Under another school of thought, the ERISA claim appeal requirement of §503 applies to any participant or beneficiary whose claim for benefits under an ERISA qualified employee benefit plan has been denied in whole or in part. If the plan participant's pension benefits have been redirected pursuant to the terms of a qualified domestic relations order, then this effective denial of benefit payment to the participant is enough to warrant the application of the plan's appeal procedures. Similarly, since an alternate payee is to be treated under ERISA with the same rights as a beneficiary, then perhaps this too would trigger the application of the plan's appeal procedures. Remember, the claim denial process enumerated in Department of Labor Regulations §2560.503-1 applies to all claimants under an employee benefit plan, including participants and beneficiaries.

From a conservative standpoint, it may be a good idea for plan administrators to utilize the benefit appeals procedures that have been established under the plan whenever they reduce or redirect a participant's benefits pursuant to the terms of a qualified domestic relations order. This will help them avoid any potential ERISA noncompliance penalties. On the other hand, from the family law attorney's perspective, it will probably prove to be futile to pursue the appeals process through the plan's named fiduciary. This adds time and expenses to the QDRO process and in all likelihood, the order will not be found to qualify if the plan administrator has already determined that it is deficient in some respect. It may be in the attorney's best interest (and the client's) simply to modify the order by incorporating the changes suggested by the plan administrator.

44. Are alternate payee's under a QDRO treated a "Beneficiaries" under ERISA?

A-44: The answer is yes. It is important to remember when drafting a QDRO that an alternate payee is essentially treated under ERISA with all of the rights and privileges of a plan beneficiary. As stated in ERISA §206(d)(3)(j), "A person who is an alternate payee under a qualified domestic relations order shall be considered for purposes of any provision of this Act a beneficiary under the plan." Therefore, a plan administrator should remember to include alternate payee's with respect to any ERISA compliance issue. For example, when complying with ERISA's reporting and disclosure requirements, a plan administrator should be sure to treat alternate payees in the same manner as plan participants and beneficiaries. An exception does not exist, however, with respect to the payment of PBGC premiums, as just discussed.

45. Does the distribution of a portion of the plan participant's benefits under a plan constitute a garnishment of such participant's wages as defined under federal or state law?

A-45: No. According to §206(d)(3)(M) of ERISA, benefit payments made to alternate payees under the terms of a QDRO do not constitute a garnishment for purposes of §303(a) of the Consumer Credit Protection Act.