QDRO Compliance & Regulatory Requirements 3 — Questions and Answers
Question 1: IRC Section 414(p) defines a QDRO. Which of the following is NOT one of the required elements it must specify?
- The social security number of each alternate payee's attorney (Correct answer)
- The name and last known mailing address of the participant
- The amount or percentage of the benefit to be paid to the alternate payee
- The number of payments or time period to which the order applies
Correct answer: The social security number of each alternate payee's attorney
IRC 414(p)(2) requires the order to specify the participant and alternate payee addresses, benefit amount, and period, but does not require the attorney's SSN.
Question 2: Under IRS rules, early distributions paid to an alternate payee from a qualified plan pursuant to a QDRO are exempt from which penalty?
- The 10% early distribution penalty under IRC § 72(t) (Correct answer)
- Ordinary income tax
- Self-employment tax
- The 20% mandatory withholding
Correct answer: The 10% early distribution penalty under IRC § 72(t)
IRC § 72(t)(2)(C) exempts QDRO distributions to an alternate payee from the 10% early distribution penalty, regardless of the payee's age.
Question 3: Who bears the income tax liability when an alternate payee receives a distribution from a defined benefit plan pursuant to a QDRO?
- The alternate payee pays the tax on amounts they receive (Correct answer)
- The participant pays tax on all distributions
- The plan pays a flat 30% withholding
- Tax liability is split 50/50 between the parties
Correct answer: The alternate payee pays the tax on amounts they receive
The alternate payee is treated as the distributee for tax purposes and is responsible for income taxes on QDRO distributions they receive.
Question 4: A QDRO is prohibited from requiring a plan to pay increased benefits determined on an actuarial basis. What does this mean in practice?
- The order cannot increase the total plan liability beyond what was already accrued (Correct answer)
- The alternate payee cannot receive any benefits
- Benefits cannot be paid before age 65
- The order cannot split a defined contribution account
Correct answer: The order cannot increase the total plan liability beyond what was already accrued
The plan cannot be required to pay more in aggregate than the benefit already accrued — the QDRO divides existing benefits rather than creating new ones.
Question 5: For governmental plans (e.g., state pension plans), which legal framework governs domestic relations orders instead of ERISA?
- IRC § 414(p) and applicable state law (Correct answer)
- ERISA Part 2
- PBGC regulations only
- The Uniform Disposition of Community Property Act
Correct answer: IRC § 414(p) and applicable state law
Governmental plans are exempt from ERISA but must comply with IRC § 414(p) and relevant state statutes when processing domestic relations orders.
Question 6: The Retirement Equity Act of 1984 (REA) is significant for QDROs because it:
- Created the QDRO exception to the anti-alienation rule (Correct answer)
- Established the 18-month determination deadline
- Required all plans to offer lump-sum distributions
- Mandated survivor annuities for all plan types
Correct answer: Created the QDRO exception to the anti-alienation rule
The REA amended ERISA and the IRC to create the QDRO exception to the general rule prohibiting assignment or alienation of pension benefits.
Question 7: When must a plan administrator segregate and separately account for amounts payable to an alternate payee after receiving a domestic relations order?
- During the entire 18-month determination period (Correct answer)
- Only after the order is approved as a QDRO
- Only if the participant requests it
- Within 5 business days of court entry
Correct answer: During the entire 18-month determination period
The plan must segregate the alternate payee's share throughout the 18-month determination period to protect those funds pending the final QDRO determination.
QDRO Compliance & Regulatory Requirements 3
IRC Section 414(p) defines a QDRO.
Which of the following is NOT one of the required elements it must specify?