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

Transcription

1 Presenting a live 90-minute webinar with interactive Q&A 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 THURSDAY, MAY 25, pm Eastern 12pm Central 11am Mountain 10am Pacific Today s faculty features: William J. Cantrell, Esq., Cantrell Duarte, Tampa, Fla. The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions ed to registrants for additional information. If you have any questions, please contact Customer Service at ext. 10.

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6 Purpose of Presentation To assist you in: Understanding 401(k) plans Preparing QDROs for 401(k) plans 6

7 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. 7

8 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) 8

9 Key Terms Domestic Relations Order Participant Alternate Payee Plan Administrator 9

10 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) 10

11 Retirement Plans Subject to QDRO- Like Orders (Not QDROs) IRAs Retirement plans sponsored by: Federal Government Military Railroad 11

12 Retirement Plans Not Subject to QDROs or QDRO-Like Orders Non-qualified plans (i.e., unfunded excess benefit plans) 12

13 401(k) Plan Features Contributions Interest, dividends, investment gains/losses Fund menu Traditional v. Roth accounts 13

14 401(k) Plan Features (cont d) Vesting Forfeitures Loans Early withdrawal penalties 14

15 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 or 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 15

16 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: 16

17 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 17

18 #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] of the Participant s total account balance in the Plan, together with any interest, dividends, or 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). 18

19 #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] of the Participant s total account balance in the Plan, together with any interest, dividends, or 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). 19

20 #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. 20

21 #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. 21

22 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 22

23 Recommended Provisions Establishment of Separate Account Timing of Benefit Distribution Form of Benefit Death of Alternate Payee Death of Participant 23

24 Recommended Provisions (cont d) Taxation of Distributions Savings Clause Constructive Receipt Improper Actions by Participant Cooperation by Parties Reservation of Jurisdiction 24

25 Top Three Improperly Drafted QDRO Provisions Generic Plan Name Improper Assignment of Benefits Designating a Beneficiary 25

26 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 26

27 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? 27

28 Plan Sponsor Model QDROs Use or Don t Use? There is no one-size fits all (including the model QDROs provided) 28

29 Additional Sources QDROs: The Division of Retirement Benefits Through Qualified Domestic Relations Order U.S. Department of Labor, Employee Benefits Security Administration (See Qualified Domestic Relations Order Handbook Gary Shulman The Complete QDRO Handbook David Carrad Will Cantrell 29

30 Questions? William J. Cantrell Cantrell Duarte, PLLC. 401 East Jackson Street, Suite 2340 Tampa, FL (813)