Financial Analysis & Plan Evaluation Flashcards

When valuing a defined benefit plan for QDRO purposes, which factor most directly affects the present value of the alternate payee's benefit?

Answer: The discount rate used to convert future benefits to present value

The discount rate is a critical actuarial assumption that converts future benefit payments into a lump-sum present value for division purposes.

A QDRO assigns 50% of the marital portion of a 401(k) to an alternate payee. The account held $200,000 at the valuation date but dropped to $160,000 by the distribution date. How much does the alternate payee receive?

Answer: $80,000 (50% of distribution date balance)

Unless the QDRO specifies a fixed dollar amount, the alternate payee shares proportionally in gains and losses, so 50% of the $160,000 distribution-date balance applies.

Which method of dividing a defined benefit plan gives the alternate payee a direct, independent benefit payable from the plan rather than waiting for the participant?

Answer: Separate interest approach

The separate interest approach creates an independent benefit for the alternate payee, allowing them to choose their own commencement date and form of payment.

In a shared payment QDRO for a pension already in pay status, what happens to the alternate payee's payments if the participant predeceases the alternate payee?

Answer: Payments continue at the same level if survivor coverage was ordered

Under a shared payment approach, the QDRO must specifically require survivor annuity coverage to protect the alternate payee after the participant's death.

A defined benefit plan uses a final-average-pay formula. The QDRO is silent on whether future salary increases benefit the alternate payee. Under the coverture fraction approach, how are post-divorce raises treated?

Answer: Post-divorce raises benefit only the participant because the fraction is fixed at divorce

The coverture fraction locks in the marital share at divorce, so the denominator grows with post-divorce service but the numerator does not, effectively excluding post-divorce raises from the alternate payee's share.

Which actuarial table is most commonly mandated by the IRS for valuing pension benefits in the context of QDROs and qualified plans?

Answer: IRS-prescribed mortality tables under IRC §430

The IRS requires plans to use prescribed mortality tables under IRC §430 for minimum funding and benefit valuation purposes, including QDRO-related actuarial calculations.

An alternate payee wants a lump-sum distribution from a defined benefit plan immediately after the QDRO is approved. Which plan type restriction is most likely to prevent this?

Answer: A governmental defined benefit plan that only offers annuity payments

Many governmental defined benefit plans are restricted to annuity forms of payment and cannot distribute lump sums, limiting the alternate payee's options.