QDRO Drafting Boot Camp: Preparing QDROs for 401(k)s and Similar - - PowerPoint PPT Presentation

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QDRO Drafting Boot Camp: Preparing QDROs for 401(k)s and Similar Defined Contribution Plans

Strategies for Family Law Practitioners to Help Ensure Administrator Approval and Avoid Unintended Loss of Retirement Benefits

Today’s faculty features:

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific THURSDAY, MAY 25, 2017

William J. Cantrell, Esq., Cantrell Duarte, Tampa, Fla.

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Purpose of Presentation

To assist you in:

• Understanding 401(k) plans
• Preparing QDROs for 401(k) plans

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QDROs: Statutory Product of ERISA

ERISA’s Anti-Assignment Rule and Exception

• The Employee Retirement Income Security Act

(“ERISA”) and the Internal Revenue Code (“Code”) prohibit retirement plan participants from assigning their interest in a plan.

• An exception to this anti-assignment rule is

assigning retirement benefits through a QDRO.

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QDRO Defined

A “qualified domestic relations order” (QDRO) is:

• A “domestic relations order”
• That creates the existence of an “alternate payee’s” right to receive

all or a portion of the benefits payable with respect to a “participant” under a retirement plan, and

• That includes certain required information (i.e., content

requirements) and does not require the plan to agree to certain provisions (i.e., prohibited provisions)

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Key Terms

• Domestic Relations Order
• Participant
• Alternate Payee
• Plan Administrator

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Retirement Plans Subject to QDROs

Those sponsored by:

• Private sector employers (e.g., 401(k) plans, traditional pension

plans)

• Public schools and non-profit organizations (403(b) plans)
• State and local governments (457 plans)

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Retirement Plans Subject to QDRO- Like Orders (Not QDROs)

• IRAs
• Retirement plans sponsored by:
• Federal Government
• Military
• Railroad

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Retirement Plans Not Subject to QDROs or QDRO-Like Orders

• Non-qualified plans (i.e., unfunded excess benefit plans)

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401(k) Plan Features

• Contributions
• Interest, dividends, investment gains/losses
• Fund menu
• Traditional v. Roth accounts

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401(k) Plan Features (cont’d)

• Vesting
• Forfeitures
• Loans
• Early withdrawal penalties

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QDRO Content Requirements

• The name and last known mailing address of the participant and alternate

payee

• The name of the plan to which the order applies
• The dollar amount or percentage (or method of determining the amount
• r percentage) of the benefit to be paid to the alternate payee (i.e.,

acceptable assignment provision)

• The number of payments or the time period to which the order applies

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Plan Name

• Most common drafting mistake is including a generic plan name.
• Plan name can be obtained by several means, including contacting the

employer’s HR department and/or reviewing the benefits statement.

• Plan name can be confirmed via DOL EBSA Form 5500 Filing Search website:
• https://www.efast.dol.gov/portal/app/disseminate?execution=e1s1

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Common (and Acceptable) Assignment Provisions

• Dollar Amount as of Specific Date
• Dollar Amount as of Segregation Date
• 50% of Total Account Balance as of Specific Date
• 50% of Marital Portion of Total Account Balance as of Specific Date

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#1: Dollar Amount as of a Specific Date

• Alternate payee will be provided with any gains or losses on the amount of

benefits assigned beginning on the date provided, for example, the date of divorce or legal separation.

• Model Language:

The Alternate Payee is hereby assigned and awarded [Insert Specific Dollar Amount]

• f the Participant’s total account balance in the Plan, together with any

interest, dividends,

• r investment gains and losses beginning on [Insert

Specific Date)] (or the earliest valuation date thereafter). The Alternate Payee’s share of benefits shall be calculated on a pro-rata basis among all of the Participant’s account(s) and investment fund(s).

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#2: Dollar Amount as of Segregation Date

• Alternate payee will be provided with any gains or losses on the amount of

benefits assigned beginning on the date a separate account is established on behalf of the alternate payee. This date will be on or after the date the plan administrator approves the court-executed QDRO.

• Model Language:

The Alternate Payee is hereby assigned and awarded [Insert Specific Dollar Amount]

• f the Participant’s total account balance in the Plan, together with any

interest, dividends,

• r investment gains and losses beginning on the date a separate account is established for the

Alternate Payee) (or the earliest valuation date thereafter). The Alternate Payee’s share of benefits shall be calculated on a pro-rata basis among all of the Participant’s account(s) and investment fund(s).

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#3: 50% of Total Account Balance as of Specific Date

• Alternate payee will be provided with any gains or losses on the amount of

benefits assigned beginning on the date provided, for example, the date of divorce or legal separation. This approach is often used if the participant and alternate payee were married before the participant began participating in the plan.

• Must address loans.

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#4: 50% of “Marital Portion” of Total Account Balance as of Specific Date

• Alternate payee will be provided with any gains or losses on the amount of

benefits assigned beginning on the date provided, for example, the date of divorce or legal separation. The “marital portion” is the participant’s total account balance on the date provided, minus the participant’s total account balance on the date of marriage. This approach is often used if the participant and alternate payee were married after the participant began participating in the plan.

• Must address loans.

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Other Acceptable Assignment Provisions

• Not limited by previous formulas
• For example: 50% of Total Account Balance as of Specific Date + Dollar

Amount as of Segregation Date

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Recommended Provisions

• Establishment of Separate Account
• Timing of Benefit Distribution
• Form of Benefit
• Death of Alternate Payee
• Death of Participant

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Recommended Provisions (cont’d)

• Taxation of Distributions
• Savings Clause
• Constructive Receipt
• Improper Actions by Participant
• Cooperation by Parties
• Reservation of Jurisdiction

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Top Three Improperly Drafted QDRO Provisions

• Generic Plan Name
• Improper Assignment of Benefits
• Designating a Beneficiary

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QDRO Approval Process

• Obtain pre-approval of proposed QDRO from plan administrator (if permitted)
• Obtain court execution of proposed QDRO
• Submit court-executed proposed QDRO to plan administrator for final approval
• If needed, modify proposed QDRO
• Also: remind parties of beneficiary designations

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Common Client Questions

• How long will this take from start to finish?
• How much will this cost?
• What can the alternate payee do with benefits awarded?
• What should alternate payee do with benefits awarded?

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Plan Sponsor Model QDROs

• Use or Don’t Use?
• There is no one-size fits all (including the model QDROs provided)

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Additional Sources

• “QDROs: The Division of Retirement Benefits Through Qualified Domestic

Relations Order” – U.S. Department of Labor, Employee Benefits Security Administration (See https://www.dol.gov/ebsa/pdf/qdros.pdf)

• “Qualified Domestic Relations Order Handbook” – Gary Shulman
• “The Complete QDRO Handbook” – David Carrad
• Will Cantrell

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Questions?

William J. Cantrell Cantrell Duarte, PLLC. 401 East Jackson Street, Suite 2340 Tampa, FL 33602 (813) 867-0115 E-mail: wcantrell@cantrellduarte.com

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