QDRO Legal Foundations of Domestic Relations Orders 4 — Questions and Answers
Question 1: Which of the following plan types is NOT subject to the QDRO rules under ERISA?
- A 401(k) plan sponsored by a private employer
- A defined benefit pension plan sponsored by a corporation
- A governmental retirement plan such as a state teachers' pension system (Correct answer)
- A profit-sharing plan maintained by a private company
Correct answer: A governmental retirement plan such as a state teachers' pension system
Governmental plans are exempt from ERISA's QDRO requirements, though many states have enacted parallel 'QDRO-like' order rules for their public pension systems.
Question 2: A QDRO is entered but the plan administrator has not yet determined its qualified status. During the 18-month determination period, benefits that would be payable to the alternate payee must be:
- Paid immediately to the participant since qualification is not yet confirmed
- Segregated and held separately, then paid to the alternate payee if the order is determined to be a QDRO (Correct answer)
- Forfeited to the plan if not resolved within 18 months
- Invested in the plan's default fund pending resolution
Correct answer: Segregated and held separately, then paid to the alternate payee if the order is determined to be a QDRO
ERISA requires the plan to segregate amounts payable to the alternate payee during the 18-month review period and pay them out if the order is ultimately qualified.
Question 3: A QDRO specifies that the alternate payee shall receive benefits 'in the same form elected by the participant.' This approach is characteristic of which QDRO payment method?
- Separate interest approach
- Lump sum rollover approach
- Shared payment approach (Correct answer)
- Deferred distribution approach
Correct answer: Shared payment approach
The shared payment approach ties the alternate payee's benefit form and timing directly to whatever elections the participant makes at retirement.
Question 4: An alternate payee who receives a distribution from a qualified plan pursuant to a QDRO may roll over that distribution to an IRA. The tax treatment of such a rollover is:
- Subject to mandatory 20% withholding that cannot be avoided
- Treated the same as any eligible rollover distribution, allowing tax-free rollover within 60 days (Correct answer)
- Taxable in the year received with no rollover option available to alternate payees
- Subject to the participant's applicable tax rate rather than the alternate payee's rate
Correct answer: Treated the same as any eligible rollover distribution, allowing tax-free rollover within 60 days
QDRO distributions to alternate payees are treated as eligible rollover distributions, allowing a tax-free rollover to an IRA within 60 days (or via direct rollover).
Question 5: Which document governs the procedural requirements a plan imposes on QDRO submissions, such as model order language or acceptable formats?
- The plan's QDRO procedures, which must be established and maintained by the plan administrator (Correct answer)
- The Summary Annual Report provided to participants
- The IRS Determination Letter for the plan's qualified status
- The Department of Labor's mandatory national QDRO template
Correct answer: The plan's QDRO procedures, which must be established and maintained by the plan administrator
ERISA requires every plan to establish reasonable QDRO procedures, and practitioners must review these procedures before drafting an order.
Question 6: The 'coverture fraction' method in a QDRO is primarily used to:
- Calculate the tax withholding rate applicable to QDRO distributions
- Determine the alternate payee's share of the benefit earned during the marriage relative to the participant's total career benefit (Correct answer)
- Establish the earliest date the alternate payee can begin receiving payments
- Compute the present value of the alternate payee's future benefit stream
Correct answer: Determine the alternate payee's share of the benefit earned during the marriage relative to the participant's total career benefit
The coverture fraction allocates the marital portion of a defined benefit by comparing years of plan participation during the marriage to total years of participation.
Question 7: A domestic relations order directs a 401(k) plan to pay the alternate payee a lump sum equal to the account balance on the date of the order. The participant's account then loses value due to market fluctuation before the plan processes the QDRO. The alternate payee will generally receive:
- The original balance stated in the order regardless of subsequent market changes
- The account balance adjusted for gains and losses from the valuation date to the distribution date (Correct answer)
- The higher of the stated amount or the current account balance at distribution
- The original amount minus applicable early withdrawal penalties
Correct answer: The account balance adjusted for gains and losses from the valuation date to the distribution date
Unless the QDRO specifies a fixed dollar amount with no adjustment, defined contribution plans typically apply investment gains and losses from the valuation date through the segregation period.
QDRO Legal Foundations of Domestic Relations Orders 4
Which of the following plan types is NOT subject to the QDRO rules under ERISA?