ALASKA RAILROAD CORPORATION 401(k) TAX DEFERRED SAVINGS PLAN FOR NON-REPRESENTED EMPLOYEES AND

Transcription

1 ALASKA RAILROAD CORPORATION 401(k) TAX DEFERRED SAVINGS PLAN FOR NON-REPRESENTED EMPLOYEES AND ALASKA RAILROAD CORPORATION 401(k) TAX DEFERRED SAVINGS PLAN FOR REPRESENTED EMPLOYEES AND ALASKA RAILROAD CORPORATION 457 PLAN FOR NON-REPRESENTED EMPLOYEES QUALIFIED DOMESTIC RELATIONS ORDER (QDRO) Procedures Packet for 401(k)/457 Plan Participants (with sample QDRO) March 2011 Alaska Railroad Corporation 327 W. Ship Creek Avenue, Anchorage, AK P.O. Box , Anchorage, Alaska, Fax: (907) Telephone: (907)

2 TABLE OF CONTENTS INTRODUCTION... 2 DECISION TO SPLIT BENEFITS... 2 IF BENEFITS ARE DIVIDED... 3 FEDERAL INCOME TAXES... 3 CALCULATING THE ALTERNATE PAYEE S SHARE... 3 QDRO MINIMUM REQUIREMENTS... 6 GLOSSARY... 8

3 INTRODUCTION The Alaska Railroad Corporation 401(k) Tax Deferred Savings Plan for Non-Represented Employees, The Alaska Railroad Corporation 401(k) Tax Deferred Savings Plan for Represented Employees, and the Alaska Railroad Corporation 457 Plan for Non-Represented Employees (the Plans ) are intended to comply with the provisions of the Internal Revenue Code applicable to government plans. Benefits under the Plan(s) may be paid to someone other than the Participant, pursuant to a qualified domestic relations order, or QDRO, issued in accordance with Alaska State Statutes, IRS regulations, and Plan documents. This booklet was written to assist in the drafting of a QDRO which is acceptable to the Plan(s) for division of benefits when a Participant is divorced. We have provided a sample QDRO in a later section of this booklet that can be used as a model. The sample is not intended to be the only form in which an acceptable QDRO can be written. The Alaska Railroad Corporation does not provide legal advice. Participants should consult with their own attorney or legal advisor. These procedures are intended to assist in preparing a QDRO that will be acceptable to the Plan(s). The Plan(s) reserve the right to reject any order that is inconsistent with these procedures. Each QDRO must, at a minimum, contain the list of elements referred to in the QDRO Minimum Requirements section. The QDRO will be rejected if any component on the list is omitted or if the QDRO language is unclear to the Plan(s) Administrator(s). The Plan(s) may reject an order even if it is already approved by the court. Rights under a QDRO do not take effect until a QDRO is filed with and accepted by the Plan(s) Administrator(s). DECISION TO SPLIT BENEFITS 401(k)/457 accounts are generally considered a marital asset for which ownership must be decided at the time of divorce or dissolution of marriage. Benefits do not have to be divided if the Participant and spouse agree to exchange other assets instead of splitting the 401(k)/457. At the time of a divorce or dissolution of marriage, 401(k)/457 accounts may be split between the Participant and Alternate Payee(s), or may be awarded solely to one or the other. If the Participant is to retain full ownership of his or her account(s), the divorce or dissolution documents must clearly state that the 401(k)/457 benefits are not to be divided and that the Participant has full ownership of the account(s), specifying the 401(k)/457 plan by name. For example, if benefits are not to be divided, a statement such as the following should be included in the property settlement agreement or final divorce decree: Kyle Rhoade waives all rights and entitlements to any portion of Carolyn Rhoade s account(s) in the Alaska Railroad Corporation 401(k) Tax Deferred Savings Plan for [Non-Represented / Represented] Employees.. If benefits are to be divided, the procedures outlined in this booklet will apply. Model for Pre-Retirement Participants (Rev 3/2011) Page 2

4 Qualified Domestic Relations Orders IF BENEFITS ARE DIVIDED A QDRO is a specialized court order that divides 401(k)/457 Plan benefits. It is usually processed at the same time as the divorce or dissolution, although processing could happen after the final decree. Generally, a QDRO authorizes the Plan to segregate a specified amount or percentage of the Participant s vested 401(k)/457 account(s) that is to be distributed to the former spouse. QDROs are necessary only if benefits are to be paid to someone other than the Participant. A former spouse, hereafter called the Alternate Payee, may be awarded a portion of a Participant s vested 401(k)/457 Account by order of a court in a divorce or dissolution proceeding. The Alternate Payee s portion is usually transferred into a separate account, thereafter to be paid to the Alternate Payee as specified in the Plan document. FEDERAL INCOME TAXES The Participant and the Alternate Payee will each be responsible for federal income tax on the amount they receive from the Plan. Any penalties and/or interest assessed by the Internal Revenue Service will be directed to the individual receiving the distribution from which the penalty arose. CALCULATING THE ALTERNATE PAYEE S SHARE The Alternate Payee s share of the Participant s 401(k)/457 account(s) may be calculated in a number of ways. It is up to the parties, and the court, to decide exactly how the benefit is to be divided. It is important to remember that regardless of the method used, the QDRO must clearly communicate to the Plan what is required. The Plan Administrator has the final word on the interpretation of the QDRO. Once received and accepted, any other interpretation of the QDRO must be resubmitted through the court for clarification. We strongly suggest draft QDRO s be sent to the Plan Administrator for a complete review prior to submitting them to the court. The following are some of the most common methods to determine the Alternate Payee s portion of the Participant s 401(k)/457 account balance(s). However, there are a number of other calculation methodologies that may be used. Formula Method A frequently used method to determine the Alternate Payee s share of an account is by developing and utilizing a formula using the following two components: Marital Service is a routinely used term that means the amount of employment service during the marriage. The QDRO can either list the dates of the marriage, or can simply state the total years of the marriage during the employment of the Participant. The Plan Administrator may assist in calculating the employment service earned during the marriage. Model for Pre-Retirement Participants (Rev 3/2011) Page 3

5 The percentage of the benefits accrued during the marriage to which the Alternate Payee is entitled. Although 50% is commonly used, this percentage may vary because of other assets that are being divided, or by agreement of the parties. Example: [NAME of the ALTERNATE PAYEE], as the Alternate Payee, shall receive from the Plan, benefits that otherwise would be paid to the Participant, an amount equal to 50% of the Participant s account balance(s) as of [DATE OF SEPARATION OR DIVORCE], multiplied by a fraction derived of the number of years of marital service which is [DATE OF MARRIAGE THROUGH DATE OF SEPARATION OR DIVORCE], divided by the Participant s total years of credited service which is [DATE OF HIRE THROUGH DATE OF SEPARATION OR DIVORCE], plus a proportionate share of the investment gains/losses earned up to the date said benefits are segregated from the Participant s account. In this example, if the Participant s total employment service as of the date of divorce was 20 years, and employment service during the marriage was years; and assuming a 401(k) Account Balance of $50, as of the date of divorce, the formula to calculate the Alternate Payee s benefit would look like this: years of marital service / 20 years of employment service at date oof divorce x $50,000 ( balance at date of divorce) x 50% (Alternate Payee s percentage) = $20, In the example, the Alternate Payee would be awarded $20, of the Participant s 401(k) account as of the date of divorce, plus a proportionate share of any investment gains/losses up to the date the account is segregated. The balance would be the Participant s separate property and would be left in the Participant s account(s). The difference between the two amounts reflects the fact that only about 16-1/2 of the 20 years that the Participant worked were during the marriage. Dollar Amount Method The QDRO can specify a certain dollar amount that is to be paid to the Alternate Payee. Example: [NAME of the ALTERNATE PAYEE], as the Alternate Payee, shall receive from the Plan, benefits that otherwise would be paid to the Participant, an amount equal to $25, Model for Pre-Retirement Participants (Rev 3/2011) Page 4

6 Percentage Method The QDRO can specify a certain percentage of the Participant s account(s) to be paid to the Alternate Payee. A consultant hired by either the Participant or the Alternate Payee often derives this percentage. Factors used to calculate this percentage may include years of marriage, years of employment service, contributions to the Plan made by the Participant, investment gains/losses to the account, and may include the distribution of other joint assets. Actuaries, CPAs, or other experts can use these elements to calculate the percentage of the Alternate Payee s marital share of the account(s). Example: [NAME of the ALTERNATE PAYEE], as the Alternate Payee, shall receive from the Plan, benefits that otherwise would be paid to the Participant, an amount equal to [ ]% of the Participant s 401(k) account balance(s) as of [DATE SPECIFIED IN QDRO], plus investment gains/losses earned through the date said amount is segregated from the Participant s account. Participant Loans Participant Loans are considered to be one of the investments in a 401(k)/457 account, and as such, are part of the 401(k)/457 assets to be divided by the QDRO. The QDRO must specifically address whether the participant loan is to be divided between the Participant and the Alternate Payee, or if it is to be considered the sole property of either the Participant or the Alternate Payee. Regardless of the method used, the QDRO should clearly and concisely set out the payment to the Alternate Payee. The Plan Administrator will determine whether a QDRO meets the requirements of an acceptable QDRO and will notify the Participant and any Alternate Payee, within a reasonable period after receiving an order, that an order has been received. Once the Plan Administrator interprets and accepts the QDRO, any other interpretation of the QDRO must be resubmitted through the court for clarification. Please note that the Plan Administrator does not provide valuation calculation services. If these types of calculations are needed, an independent advisor, such as an actuary or CPA must be retained by the Participant or Alternate Payee at no cost to the Plan. However, the Plan Administrator can provide the information needed for such calculations. If information is to be sent to someone other than the Participant, the Participant must first submit to the Plan Administrator a written authorization specifying what, and to whom, his or her account information may be released. Model for Pre-Retirement Participants (Rev 3/2011) Page 5

7 QDRO MINIMUM REQUIREMENTS A QDRO must contain: The state having jurisdiction over dissolution or domestic relations matters, and the applicable statutes that authorize the QDRO. The name and address of the Plan. Names, addresses, Social Security Numbers, and dates of birth for the Participant and each Alternate Payee named in the Order. Current status of Participant (i.e., active, inactive, retired, etc). Date of Marriage, Date of Separation, and Date of Divorce or Dissolution. The dollar amount or Percentage of the participant s vested account balance(s) to be paid to each alternate payee; or the method or formula for determining the amount payable to the alternate payee(s). Treatment of any outstanding participant loans on the account; (for example is the loan balance to be split between the participant and alternate payee(s); does the loan belong soley to the participant; does the loan belong solely to the alternate payee(s). A statement to the effect that remarriage does not alter the Alternate Payee s entitlement. A Statement of the Alternate Payee s right to name a beneficiary to the extent of his/her entitlement. A statement that distribution to the Alternate Payee(s) will commence as soon as administratively feasible after receipt of, and acceptance by the Plan Administrator of, an approved, court certified QDRO and a completed application for payment. A provision assigning the taxability of benefits to the person receiving funds. A statement to the effect that death of the participant after the QDRO is accepted, but before distribution is made, shall not affect the alternate payee s entitlement. A statement to the effect that should the alternate payee die after a QDRO is accepted, but before distribution is made, the alternate payee s benefit will be paid to the alternate payee s named beneficiary, or per the Plan s provisions in the absence of a beneficiary designation made by the alternate payee. A provision requiring the participant and the alternate payee(s) to advise the Plan Administrator of any changes in address or contact information. A provision recognizing that the court has the authority to amend the order at a later date. A QDRO must not: Require the Plan to provide any type or form of benefit that it does not otherwise offer. Require the Plan to provide increased benefits. Require the payment of benefits to an alternate payee, when a previously issued QDRO requires that benefits be paid to a different alternate payee. Model for Pre-Retirement Participants (Rev 3/2011) Page 6

8 Each QDRO must, at a minimum, contain the elements listed above. The QDRO will be rejected if any component on the list is omitted or if the intent of a statement is unclear to the Plan Administrator. The Plan Document, and state and federal laws, give the Plan Administrator the authority to reject any QDRO that does not meet the technical requirements or because it contains statements that are vague or ambiguous, even if already approved by the court. We have provided a sample QDRO in a later section of this booklet, which can be used as a model for the statements and declarations. The sample is not intended to be the only form in which an acceptable QDRO can be written. Again, we strongly urge that you forward a copy of your QDRO for review by the Plan Administrator before you pay the fees for and submit it to the court for certification. Should you or your counsel have questions on any aspect of drafting a domestic relations order for qualification and approval, please contact either the Retirement Specialist or the Benefits & Records Manager of the Alaska Railroad Corporation Human Resources Department. Model for Pre-Retirement Participants (Rev 3/2011) Page 7

9 GLOSSARY Account: Refers to the account balance(s) maintained for the participant s benefit under the 401(k) Plan(s) sponsored by the Employer, and may include the participant s pre-tax contribution account, catch-up contribution account, Roth contribution account, Roth catch-up contribution account, employer matching contribution account, employer bonus contribution account, rollover account, Roth rollover account, and any other subaccounts that may be maintained under the existing account. Alternate Payee: The former spouse, or other designatee, of a Participant who has been granted a benefit entitlement under the terms of a QDRO. Court Certified Copy: This is an original copy of the decree, property settlement agreement or petition for dissolution, or QDRO that has been certified as a true original copy by the Clerk of the Court. In Alaska, court certified copies are usually distinguished from photocopies by either an embossing seal or by a blue ink seal. Domestic Relations Order: Any judgment, decree or order that is made pursuant to a state domestic relations law and that relates to the payment of child support, alimony payments or marital property rights of a spouse, former spouse, child or other dependent of a Participant. Employer: Means the Alaska Railroad Corporation. Foreign Order: A QDRO that originates in a state other than Alaska. Marital Service: This term means the period of the marriage during which the Participant employed. Credit can include periods of actual employment in a covered position, including credit for periods in the armed forces if contributions are made, or other creditable service. Plan(s): This term means the Alaska Railroad Corporation 401(k) Tax Deferred Savings Plan for Non-Represented Employees and/or the Alaska Railroad Corporation 401(k) Tax Deferred Savings Plan for Represented Employees. Qualified Domestic Relations Order (QDRO): A domestic relations order that (1) 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 Plan, (2) contains certain necessary information, and (3) does not contain certain prohibited provisions. Model for Pre-Retirement Participants (Rev 3/2011) Page 8