QDRO Financial Analysis & Plan Evaluation 2 — Questions and Answers
Question 1: When valuing a defined benefit plan for QDRO purposes, which factor most directly affects the present value of the alternate payee's benefit?
- The plan's investment return over the past five years
- The discount rate used to convert future benefits to present value (Correct answer)
- The participant's current salary level
- The number of plan participants
Correct 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.
Question 2: 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?
- $100,000 (50% of valuation date balance)
- $80,000 (50% of distribution date balance) (Correct answer)
- $90,000 (average of both dates)
- $160,000 (full current balance)
Correct 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.
Question 3: 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?
- Present value offset method
- Deferred distribution method
- Separate interest approach (Correct answer)
- Shared payment approach
Correct 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.
Question 4: 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?
- Payments continue at the same level if survivor coverage was ordered (Correct answer)
- Payments automatically increase by 50%
- Payments terminate immediately upon the participant's death
- The alternate payee receives the participant's full benefit
Correct 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.
Question 5: 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?
- The alternate payee benefits proportionally from all salary increases
- Post-divorce raises benefit only the participant because the fraction is fixed at divorce (Correct answer)
- Post-divorce raises are split 50/50 between parties
- The plan administrator decides at commencement
Correct 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.
Question 6: Which actuarial table is most commonly mandated by the IRS for valuing pension benefits in the context of QDROs and qualified plans?
- GAM-83 tables
- IRS-prescribed mortality tables under IRC §430 (Correct answer)
- Uniform Lifetime Table used for RMDs
- Annuity 2000 tables
Correct 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.
Question 7: 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?
- A 401(k) plan that does not allow in-service distributions
- A governmental defined benefit plan that only offers annuity payments (Correct answer)
- A profit-sharing plan with a vesting schedule
- A 403(b) plan with a hardship withdrawal provision
Correct 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.
QDRO Financial Analysis & Plan Evaluation 2
When valuing a defined benefit plan for QDRO purposes, which factor most directly affects the present value of the alternate payee's benefit?