RETIREMENT PLANS: WHAT TO DO WHEN NO QDRO IS …

1 RETIREMENT Plans: what to Do When No QDRO is Honored Section 65. RETIREMENT PLANS: what TO DO WHEN NO QDRO IS HONORED. CHARLA BRADSHAW CONNER. Gregory & Bradshaw, 303 N. Carroll Blvd., Suite 100. Denton, Texas 76201. And PHILIP D. PHILLIPS. Cochran & Phillips, 101 W. Randol Mill Rd., Suite 110. Arlington, Texas 76011. Advanced Family Law Course 2000. August 21 24, 2000. San Antonio, Texas CHAPTER 65. i Section 65 RETIREMENT Plans: what to Do When No QDRO is Honored Table of Contents I. INTRODUCTION .. 1. II. what IS A QDRO?.. 1. A. Property Division .. 1. B. Child Support and Spousal Support .. 2. III. what LAW APPLIES .. 2. A. Privately Sponsored plan .. 2. B. State or Church plan .. 2. C. Federal and Military plan .. 3. IV. DEFINITIONS AND QDRO ISSUES .. 3. A. Alternate Payee .. 3. B. Participant .. 3. C. Defined Benefit plan ("DBP").

2 3. D. Defined Contribution plan ("DCP").. 3. E. Accrued Benefit (DBP) and Account Balance (DCP) Issues .. 4. F. Vested Benefits .. 5. G. Matured 6. H. Provisions Concerning Death of Participant: Survivor Annuity Provisions for Preretirement and Postretirement .. 6. I. Provisions Concerning Death of Alternate Payee .. 7. J. Loans .. 8. K. Discuss Annuity Options With Clients .. 8. L. Alternate Payee's Attorney Should Always Request a 9. V. OFFICE PROCEDURE AND CHECKLISTS FOR 9. A. Overview of the Checklists .. 9. B. Legal Assistant and Client at Beginning of 10. C. Attorney at Beginning of Case .. 10. D. Attorney During Discovery Stage .. 10. E. Office 10. F. Legal Assistant and Attorney During Drafting and Submitting Stage .. 11. G. Preview by the plan Administrator .. 11. H. Relationship with the plan Administrator .. 11. I.

3 Submitting the QDRO to the Court, then the plan Administrator .. 11. J. Delinquent QDROs .. 12. K. Domestic Relations Order not approved by plan Administrator as "Qualified", therefore not a 13. 1. Carefully Review the Rejection 13. 2. Contact Author of Rejection 13. L. what Every Decree Should Include .. 14. M. Real World Examples of what Can Go Wrong .. 14. VI. WHERE TO OBTAIN SAMPLE QDROS AND/OR GUIDANCE .. 15. A. Private 15. B. State or Political Subdivision .. 16. ii Section 65 RETIREMENT Plans: what to Do When No QDRO is Honored C. 16. 1. Federal Employees RETIREMENT System ("FERS") and Civil Service RETIREMENT System ("CSRS") .. 16. 2. Thrift Savings plan ("TSP").. 17. 3. Railroad RETIREMENT Annuity .. 17. 4. Military .. 17. AREAS WHERE QDROS FAIL TO BE 17. A. Incorrect plan Name .. 17. B. The QDRO is for the Wrong Type of plan .

4 18. C. Increases or Decreases Are Not Addressed in Defined Contribution Plans .. 18. D. The Valuation Date is Not Feasible or Allowed Under the 18. E. Requests for Lump-Sum Distributions .. 18. F. Beneficiary for Defined Contribution 18. G. Combining a Percentage and a Dollar 19. H. Form a Benefit Designation for Defined Benefit plan .. 19. I. When Payments Begin .. 19. J. Didn't Use Sample Form .. 19. K. Unique Terminology Federal, State and Military 19. L. Reference to ERISA in non-ERISA, church or private 20. M. Supplemental & Early RETIREMENT Benefits .. 20. VIII. PLANS WHERE NO QDRO APPLIES (NON-QUALIFIED PLANS).. 20. A. Examples .. 20. 1. Accounts .. 20. 2. Stock Options .. 21. 3. Stock 21. 4. Certain Governmental or Church Savings 21. B. Specific Decree Language to Effectuate Division .. 21. C. Monitor for Compliance.

5 22. D. Enforcement .. 22. E. Plans That Do Not Allow Division .. 22. IX. WHEN ALL ELSE FAILS, JOIN THE plan TO YOUR LAWSUIT .. 22. X. CONCLUSION .. 23. APPENDICES. A. QDRO Fact Sheet for Legal Assistants and Clients B. QDRO Identification During Discovery Stage C. QDRO Fact Sheet for the plan D. QDRO Drafting and Submitting Checklist for Privately Sponsored Defined Benefit Plans and Defined Contribution Plans E. Office Procedure for QDROs F. IRS Notice 97-11. G. Records Authorization RETIREMENT and Employee Benefits H. Introductory Representation Letter I. Request for QDRO Procedures and/or Model QDRO Forms J. Request for Administrative Account Hold/ Restricted Access K. Request to Remove Administrative Hold L. Request for Release of Participant Information M. Cover Letter to Accompany the Divorce Decree (Non-QDRO). N. Cover Letter to Accompany the Divorce Decree (QDRO Included).

6 Ii RETIREMENT Plans: what to Do When No QDRO is Honored Section 65. O. Cover Letter to Accompany the Proposed QDRO. P. Cover Letter to Accompany a DRO. Q. Submission of Court-Conformed Copy of QDRO. R. Request for Administrative Appeal Note: Appendices H R are copied from Qualified Domestic Relations Order, Forms &. Worksheets , Second Ed., 1998, by Mark W. Dundee, , Esq. iii RETIREMENT Plans: what to Do When No QDRO is Honored Section 65. RETIREMENT PLANS: what participant's benefits, in a defined benefit plan or a TO DO WHEN NO QDRO IS defined contribution plan , payable under an HONORED ERISA-qualified employee benefit plan (Employee RETIREMENT Income Security Act of 1974)--that is, a privately sponsored plan . ERISA. I. INTRODUCTION 206(d)(3)(B) and 414(p)(1). The focus of this paper is to alert the Governmental (State, Federal and military), practitioner to the common problems that can church, and foreign RETIREMENT plans are not cause a QDRO to be rejected, and highlight the subject to ERISA.

7 Further, a company may have a hazards and alternatives when dealing with a non- privately sponsored plan that is not qualified . ERISA plan that does not accept a QDRO and will and not subject to ERISA. A QDRO, at a not divide the plan benefits, regardless of a court minimum, must meet a set of specified criteria order. summarized in 414(p) of the Internal Revenue In any case involving marital property, Code ("IRC"). That criteria is fairly simple and alimony, or child support, your antennae should go straightforward. Unfortunately, most of the plans up about the possibility of a QDRO (qualified and their lawyers have greatly added to the domestic relations order). The time to understand requirements of a QDRO and have made the the type and terms of the plan and to start on a preparation of a QDRO so technically difficult, QDRO is at the beginning of the case, the moment inconsistent and downright stupid as to defy logic.

8 You have a mere suspicion one may be necessary, QDROs are particularly common in the area whether you represent the employee or non- of divorce and are used as a means to employee. Secretaries, legal assistants, and the "breakthrough" the anti-alienation provisions attorney should each do a part as the case required in all plans subject to ERISA, which progresses to make negotiation, drafting and prohibit a plan from distributing a participant's finalizing a QDRO painless. We have provided benefits to anyone other than the participant. you with an office procedure for QDROs, to Further, a QDRO is basically a state-issued heighten your awareness of the issues surrounding domestic relations order that relates to the QDROs, and, to aid you in drafting QDROs. provision of child support, alimony payments, or Checklists for every facet of a QDRO have been marital property rights to a spouse, former spouse, provided, as well as an office procedure you can child, or other dependent of a plan participant.

9 Implement immediately. Greater detail as to ERISA 206(d)(3)(B)(ii) and 414(p)(1). definitions and terms involved in a QDRO and With a properly worded QDRO, a former spouse QDRO preparation can be found in Charla (also known as the alternate payee) of an Bradshaw Conner's paper entitled RETIREMENT employee (also known as the participant) can be Overview and a Walk Through the QDRO , 1998 eligible to receive all or a portion of such Advanced Family Law Course. participant's accrued benefits in a defined benefit It is vital to understand the difference in the plan , or total account balance in a defined types of RETIREMENT plans and the issues lurking contribution plan , to satisfy child support, therein before you attempt to advise your client, alimony, or marital property rights. Gary A. negotiate a settlement or try the case. Many Shulman, Qualified Domestic Relations Order attorneys wait until it is time to draft a QDRO Handbook 8 (1993) [hereinafter Shulman].

10 Before the attorney really attempts to understand Although government and church plans are the plan , which can create major problems exempt from ERISA, almost all have provisions or affecting the client and the attorney's malpractice statutory language that allows the plan to accept premiums. Whether the attorney drafts the QDRO an order dividing the benefits. The Texas state or contracts that task out, a certain basic plans usually continue the use of the term QDRO;. understanding of the plan must be obtained. however, the Federal plans do not, and will reject any order that is even titled as a QDRO. Be II. what IS A QDRO? aware, however, that there are a few state and local The term "qualified domestic relations order" defined contribution plans that absolutely cannot refers to a judgment, decree, or order that creates be divided by court order.