QDRO Attorney

By: tompmiller | June 14, 2016

In a divorce, you may want to divide marital interest in a pension plan, but maybe not, maybe you would choose to offset interest in a pension against other assets or debts. Perhaps one party can retain the former marital residence and the other his/her pension, without dividing or buying out each other. Alternatively, maybe you want to keep your entire pension and are considering taking on all the marital debt in exchange for your spouse's waiver of his/her interest in your pension.


The first step, even before you answer the above questions is to know what the pension is worth. To make this determination, you will need an actuarial calculation. You can hire an actuary if you want a really good, well-reasoned calculation. On the other hand, you may want to start with some "quick and dirty" numbers, or simply cannot afford to hire yet another professional. Many lawyers have programs that run present value calculations for pensions and other annuities, but if your attorney falls into the group that does now know whether or not s/he has such a program, or you do not have an attorney, check with your local library.


In short, the question that is answered in such a calculation is this: how much money would I need now, to generate an income of X dollars per month from when I turn X age and until I die or my former spouse dies. Some plans will only pay once the Participant retires, others will allow to start payments based on the Alternate Payee's age and life span. Some plans will only pay for the life of a Participant, so what you plug in depends on the specific Plan.


Of course, you will have to know what is the monthly benefit. If the Plan is in pay-status, that is easy. However, if the Participant-spouse is not yet retired, and perhaps still working, the best you might be able to get is an estimated monthly benefit. These estimates usually say, if the employee continues to work at the rate he/she has until earliest retirement age, he/she will receive this much per month. This is not a firm number, because the person may not continue to work for a variety of reasons, but you have the best in the circumstances, an estimate.


Once the numbers, the monthly benefit, parties' ages, dates of retirement, etc., are plugged in, the actuarial tables are applied. Actuarial tables are estimates of how long someone is likely to live, mainly based on their gender. Combining the factors, we have a final question to answer, if you were to get the current value of those future payments in a lump sum today, what rate of interest could you expect to earn on that sum? This is where actuaries and other financial/number professionals are better than others. A difference of 1% interest over the course of 20 years can make a tremendous difference. If you can do no better, you may just want to rely on a conservative interest rate, like federal government bonds.


For hands-on learners, lets take an example. Say I am a 45 year old male, that could get $1,000 per month (plus an annual cost of living adjustment of 3%), for the rest of my life, beginning when I am 65. The program I use tells me that I would need $58,382 right now to generate the same monthly benefit assuming that sum would earn the interest I input, which is 5% annually. The program uses Mortality Table (UP-94), male life expectancy, which assumes I will receive 215 monthly payments (meaning I will die just before I turn 83). Notably, keeping all else the same, if I change the interest rate on my investment to 1%, I would need $183,563, and if I could invest at 10% interest, I would need only $15,369 right now.


As always, contact a professional. This is only general information, not legal advice on your specific situation.

Comments:

Thomas P. Miller

Posted on : January 18, 2018

Fran, thank you for your comment. The Plan Document must comply with ERISA, but if it does it can provide for earliest age of distribution, etc. I have not ran into the situation that you describe: a 401(k) solely prohibiting distribution to the Alternate Payee because the Participant has not taken a distribution first. I have had this situation, but only with defined benefit (pension) plans.

Time is of essence, absolutely. If you have a divorce decree and no QDRO, the Plan is not under any obligation to the Alternate Payee. If the Participant dies, takes a loan, withdraws funds, gets fired, etc., the Alternate Payee is hugely affected.

In case of death of the Participant, for instance, if there is another person named as beneficiary, that named beneficiary will get the money, or if not, it will go to the estate. The Alternate Payee would have to move quickly to stop the distribution, filing a case, of if there is a probate case, joining in that case and filing for the divorce decree/Judgment for Dissolution of Marriage to take precedence over a Will or succession laws.

Alternate Payee may win in the end, but the time and cost would be substantial. And if the money is spent first, the Alternate Payee might still have an enforceable claim, but having a claim and collecting on it are two different things.

Thanks for reading,
Thomas P. Miller


Fran

Posted on : January 02, 2018

Hello, basically have a question regarding a 401(k) defriend Contribution plan (Governed by ERISA) I've heard several people state that some retirement plans do not allow early payment of BENEFITS to the alternate payee (Before participant begans being paid) BUT I've found several federal laws that informs; Certain statutory right have been created for the alternate payee, including payment of BENEFITS before participant AND A plan cannot fail a QDRO soley because the qdro assigns early payment of BENEFITS to the alternate payee, even when participant is not permitted payments yet AND a qdro cannot assign to an alternate payee a type or form of BENEFITS that is not otherwise provided by the plan. HOWEVER the plan cannot prevent a qdro from assigning to the alternate payee, any type or form of BENEFITS payment that would be provided to the participant (If he was terminating employment) including payment of early Benefit payment. My question is, IF the plan is governed by Federal Law (ERISA) DO the plan have a choice of complying with a qdro that assigns lump sum distribution immediately after order is approved and administratively feasible? The SPD states that the plan must comply. So WHY do people state that "some plans do not ALLOW early payment of BENEFITS to the AP... as if the qdro has to comply with the plan INSTEAD OF the plan has to comply with the QDRO. Also per federal law, there is no time issuance of when a qdro can be revised or amended, even AFTER a divorce. (Especially If the funds have already been seperated and put into the AP's name. seperated) So, why do you inform that time is of an importance. I hope you understand my questions or concerns. Thank you


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