Financial Analysis & Plan Evaluation Flashcards

A governmental 457(b) plan is to be divided in a divorce. Which statement correctly distinguishes this plan from a private-sector 401(k) for QDRO purposes?

Answer: Governmental 457(b) plans are not subject to ERISA; division requires a domestic relations order that meets the plan's own requirements, not ERISA's QDRO rules

Governmental 457(b) plans are exempt from ERISA, so they follow the plan document's own domestic relations order requirements rather than ERISA's QDRO framework.

When performing a financial analysis to compare settlement options — for example, pension offset versus deferred distribution — what financial concept is critical for making an apples-to-apples comparison?

Answer: Net present value using a consistent discount rate

Net present value discounts all future benefit streams to a common point in time, enabling a fair comparison between receiving an offset asset today versus a future pension payment.

A participant's pension is in pay status and the QDRO is submitted years after retirement. Under the shared payment approach, what happens to arrears — payments the alternate payee should have received but did not?

Answer: The plan may be required to pay arrears to the alternate payee depending on when the QDRO was submitted and plan terms

Some plans will pay retroactive amounts owed to the alternate payee from the date the QDRO should have been effective, though plan terms and timing affect whether arrears are recoverable.

Which financial analysis technique helps evaluate whether a lump-sum QDRO settlement today is preferable to waiting for a share of a future pension?

Answer: Break-even analysis comparing the lump sum to the present value of projected pension payments

A break-even analysis calculates how long the alternate payee must survive and collect pension payments before the deferred pension's cumulative value exceeds the immediate lump-sum offset.

A 401(k) QDRO specifies the alternate payee receives $50,000. Before the transfer is processed, the plan suspends participant-directed investments due to a blackout period. What governs how the alternate payee's $50,000 is invested during the blackout?

Answer: The alternate payee's funds remain in the participant's investment elections until the blackout ends and the transfer is processed

During a blackout period, investment direction is suspended for all participants including alternate payees, so the funds stay in existing elections until the blackout lifts.

What is the significance of the 'actuarial reduction factor' when an alternate payee under a separate-interest QDRO elects to begin pension payments before the plan's normal retirement age?

Answer: The alternate payee's benefit is actuarially reduced to reflect a longer expected payment period when commencing early

Under the separate interest approach, the alternate payee's benefit is treated as independent and is subject to early commencement reductions based on the plan's actuarial factors.

A QDRO practitioner is evaluating a pension plan that integrates with Social Security (uses an offset formula). How does Social Security integration affect the benefit assigned to the alternate payee?

Answer: The plan benefit may be lower than a non-integrated formula because the Social Security offset reduces the gross pension, affecting the alternate payee's share

A Social Security-integrated plan reduces pension benefits by a portion of the participant's Social Security benefit, directly reducing the gross plan benefit from which the alternate payee's share is calculated.