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  #1  
Old 12-19-2017, 12:33 PM
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Default Please comment on this QDRO award

In 2001, a participant and alternate payee divorced with a decree which awarded the AP 50% of the P's benefit accrued as of 1/1/2000. The Plan apparently calculated that 50% amount of the accrued benefit (the benefit payable as if P had terminated employment on 1/1/2000) as $1,363.15. (This calculation appears accurate given average earnings and length of service as of 1/1/2000.) The Plan defines a participant's Accrued Benefit as a 10C&C benefit at age 65. The Plan sent a qualification letter stating that the AP was entitled to $1,363.15 payable as a 10C&C benefit payable for the AP's life beginning at the AP's age 65, 6.5 years after the P's age 65.

This doesn't look like an award of the P's benefit since it shifts the life basis to the AP and delays payment for 6.5 years, without adjustment for either change. What do you all think?

Does it make any difference that the Plan has a "continue to accrue" post NRD (age 65) provision without actuarial increase?
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Old 12-19-2017, 10:55 PM
DiscreteAndDiscreet DiscreteAndDiscreet is offline
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The construction of applying plan eligibilities for a QDRO that I have generally seen is (1) that the AP's early retirement date is the participant's early retirement date, (2) subsidized early retirement (more generous than actuarial equivalent of normal benefit on QDRO conversion basis) is only payable to AP once the participant has retired and taken that subsidized benefit form, and (3) depending on whether (2) is in play, you give the AP the benefit payable at AP's elected retirement date that is actuarially equivalent to the participant's benefit deferred to either NRA (no subsidy) or to the participant's elected retirement date.

(1) has the effect that payment timing options available to the participant are available to the spouse and, in the event of an older AP, prevents the plan from being forced to start payments earlier than would otherwise be possible for the participant.

(2) has the effect that the QDRO does not increase utilization of subsidized payment forms by allowing contrary elections on multiple portions of the benefit. The early retirement subsidy is normally contingent on the participant terminating employment.

(3) keeps the plan whole for the change in the lifetime of payments.

Should every QDRO work exactly like this? Ask a lawyer that. But these elements all relate to balancing the requirements that options in the plan be made available to the AP and the plan not be forced to increase benefits to satisfy the QDRO.

The Plan's position is problematic since I've always been told that (1) was very important and the lack of an adjustment to the AP benefit doesn't address this issue.
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Old 12-22-2017, 11:06 PM
Mark Cavazos Mark Cavazos is offline
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A QDRO cannot create benefits. Neither can benefits disappear. This means that the sum of PV of the benefit before the split must be equal to the sum of the AP’s PV and the particpant’s post-split PV.
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Old 01-01-2018, 10:42 AM
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Let me lay out some facts so we see if anyone wants to comment directly about whether this interpretation is outrageous of justifiable rather than with generalities:
1. If the participant had terminated on the day of the divorce division, he would have been entitled to an Accrued Benefit of $2,726.29, payable monthly at his NRD (FOMF 65) as a 10C&C annuity.
2. The PA determined that a QDRO was qualified and notified the AP that she was entitled to 50% of his benefit, $1,363.15, but payable at her age 65 (6.5 years after his age 65) as a 10C&C annuity over her lifetime. At the time of qualification, she was offered a lump sum, using then current published tables, of $66,602.15.
3. Using the same Plan tables (the Plan apparently uses the same tables for participants and beneficiaries), the participant would have been eligible to elect a lump sum payment of $195,126.74 for his Accrued Benefit at the same time. 50% of this is $97,563.37.
Question: can anyone think of anything which would make the PAís determination of her award a valid interpretation of a divorce decree and QDRO which stated that she was entitled to 50% of his Accrued Benefit?
(I'm leaving out all of the other typical divorce questions, such as whether the award was equitable, whether there were any subsidized benefits subject to division, whether any survivor benefits which should have been considered, etc. Let's just assume that all of the typical restrictions were included (no increased benefits, nothing that the Plan wouldn't normally pay, etc.) and concentrate on whether this interpretation makes any sense to anyone.)
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  #5  
Old 01-01-2018, 10:57 AM
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Quote:
Originally Posted by Fuzzy View Post
Let me lay out some facts so we see if anyone wants to comment directly about whether this interpretation is outrageous of justifiable rather than with generalities:
1. If the participant had terminated on the day of the divorce division, he would have been entitled to an Accrued Benefit of $2,726.29, payable monthly at his NRD (FOMF 65) as a 10C&C annuity.
2. The PA determined that a QDRO was qualified and notified the AP that she was entitled to 50% of his benefit, $1,363.15, but payable at her age 65 (6.5 years after his age 65) as a 10C&C annuity over her lifetime. At the time of qualification, she was offered a lump sum, using then current published tables, of $66,602.15.
3. Using the same Plan tables (the Plan apparently uses the same tables for participants and beneficiaries), the participant would have been eligible to elect a lump sum payment of $195,126.74 for his Accrued Benefit at the same time. 50% of this is $97,563.37.
Question: can anyone think of anything which would make the PA’s determination of her award a valid interpretation of a divorce decree and QDRO which stated that she was entitled to 50% of his Accrued Benefit?
(I'm leaving out all of the other typical divorce questions, such as whether the award was equitable, whether there were any subsidized benefits subject to division, whether any survivor benefits which should have been considered, etc. Let's just assume that all of the typical restrictions were included (no increased benefits, nothing that the Plan wouldn't normally pay, etc.) and concentrate on whether this interpretation makes any sense to anyone.)
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Originally Posted by Mark Cavazos View Post
A QDRO cannot create benefits. Neither can benefits disappear. This means that the sum of PV of the benefit before the split must be equal to the sum of the AP’s PV and the particpant’s post-split PV.
Based on what Mark says, the PA's conclusion does not seem to be actuarially sound. But then, I'm not an actuary.

I also have no advice on what the spouse should do about it, other than getting more attorneys (and a few actuaries) involved.
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  #6  
Old 01-01-2018, 11:29 AM
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the benefit always follows the ptp. meaning, early reductions or late increases (if the QDO allows, as some are written that the ap must commence by ptp's NRD if he is not still working) are based on the ptp's age, regardless of what the ap's age is. it does not matter that she is older than he is. also, there is a difference between what is payable and what is assigned to her. having said that and without having seen the actual qdro, if she is able to commence when she wants and it is not dependent on when he commences, the 1363.15* is reduced or increased accordingly based on the commencement date and the age of the ptp and then adjusted to account for the different lifetimes, PVF of ptp's age/ PVF of ap's age. the PVF may be deferred or immediate, depending on how the QDRO is written.

*I am assuming that 1363.15 is the benefit assigned to her at the time of his age 65, meaning no adjustments have been made yet and this is simply the 50% of what his accrued benefit was at 1/1/2000.

I haven't looked at your follow up post yet.

also...I am not credentialed actuary but I do work heavily in pension administration.
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Old 01-01-2018, 11:50 AM
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1. If the participant had terminated on the day of the divorce division, he would have been entitled to an Accrued Benefit of $2,726.29, payable monthly at his NRD (FOMF 65) as a 10C&C annuity.

ok, then I would say she is assigned 1363.15 at his NRD.
2. The PA determined that a QDRO was qualified and notified the AP that she was entitled to 50% of his benefit, $1,363.15, but payable at her age 65 (6.5 years after his age 65) as a 10C&C annuity over her lifetime.

I disagree. the benefit payable to her at her age 65 would be 1363.15 * early reduction factor based on his age at that time (58.5) * PVF for his age / PVF of her age.

At the time of qualification, she was offered a lump sum, using then current published tables, of $66,602.15.

the LS payable to her at the BCD, should be 1363.15 * reduction or increase based on his age * PVF for his age / PVF of her age (these PVF can be deferred or immediate...it depends on how the qdro is written) * PVF of her age (this PVF can be deferred or immediate depending on the plan) * 12

note that the PVFs for the age adjustment and the PVF for the conversion to the LS may be based on different interest and mortality. it depends on the plan.


3. Using the same Plan tables (the Plan apparently uses the same tables for participants and beneficiaries), the participant would have been eligible to elect a lump sum payment of $195,126.74 for his Accrued Benefit at the same time. 50% of this is $97,563.37.



Question: can anyone think of anything which would make the PAís determination of her award a valid interpretation of a divorce decree and QDRO which stated that she was entitled to 50% of his Accrued Benefit?
(I'm leaving out all of the other typical divorce questions, such as whether the award was equitable, whether there were any subsidized benefits subject to division, whether any survivor benefits which should have been considered, etc. Let's just assume that all of the typical restrictions were included (no increased benefits, nothing that the Plan wouldn't normally pay, etc.) and concentrate on whether this interpretation makes any sense to anyone.)
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Old 01-01-2018, 02:41 PM
DiscreteAndDiscreet DiscreteAndDiscreet is offline
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Originally Posted by Fuzzy View Post
Let me lay out some facts so we see if anyone wants to comment directly about whether this interpretation is outrageous of justifiable rather than with generalities:
1. If the participant had terminated on the day of the divorce division, he would have been entitled to an Accrued Benefit of $2,726.29, payable monthly at his NRD (FOMF 65) as a 10C&C annuity.
2. The PA determined that a QDRO was qualified and notified the AP that she was entitled to 50% of his benefit, $1,363.15, but payable at her age 65 (6.5 years after his age 65) as a 10C&C annuity over her lifetime. At the time of qualification, she was offered a lump sum, using then current published tables, of $66,602.15.
3. Using the same Plan tables (the Plan apparently uses the same tables for participants and beneficiaries), the participant would have been eligible to elect a lump sum payment of $195,126.74 for his Accrued Benefit at the same time. 50% of this is $97,563.37.
Question: can anyone think of anything which would make the PAís determination of her award a valid interpretation of a divorce decree and QDRO which stated that she was entitled to 50% of his Accrued Benefit?
(I'm leaving out all of the other typical divorce questions, such as whether the award was equitable, whether there were any subsidized benefits subject to division, whether any survivor benefits which should have been considered, etc. Let's just assume that all of the typical restrictions were included (no increased benefits, nothing that the Plan wouldn't normally pay, etc.) and concentrate on whether this interpretation makes any sense to anyone.)
Technically, youíre asking things that are more like legal questions and not actuarial questions. The ASOP on QDROs says that actuaries should avoid unlicensed practice of law when providing advice in relation to QDROs. I am not a lawyer and I would not suggest that this be treated as legal advice.

For most plans I work on, the lump sum conversion basis at the time of the divorce is used for QDROs. In this setup the 97563.37 would be the PV assigned to the AP and it would be converted to an annuity on her lifetime at such time that she elects payment. I donít do much single employer work and donít work on any cases with full lump sum distribution, but the AP would need to be offered a lump sum distribution option on this converted annuity, presumably based on the conversion basis for the plan year that payment is elected. I actually might ask plan counsel about converting the 1363.15 to a lump sum on the participantís age at the time payment is elected in lieu of conversion from a lump sum at divorce to an annuity back to a lump sum on a different basis.

I do not know the specific ramifications of offering an annuity at the APís age 65 but Iíve been told this is very bad juju.

As noted, I havenít worked on a plan with full lump sum distribution and I havenít seen the details of the calculation or the plan document, but the 66602.15 lump sum sounds like bad juju too. I would expect an appropriately calculated lump sum for the AP to be higher than 50% of the participantís lump sum at divorce since interest rates havenít increased and elapsed time should cause deferred annuity factors used for conversion to increase. Paying the lower lump sum is not needed to keep the plan whole. Adjustments based on the APís lifetime are only used to compensate the plan for a change in the annuitant and that doesnít happen for a lump sum.

Unless the APís lawyer is asleep at the wheel, this seems like a train wreck, but again, I am not a lawyer and this is just my idle speculation.
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Old 01-01-2018, 02:57 PM
DiscreteAndDiscreet DiscreteAndDiscreet is offline
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Quote:
Originally Posted by Fuzzy View Post
Question: can anyone think of anything which would make the PAís determination of her award a valid interpretation of a divorce decree and QDRO which stated that she was entitled to 50% of his Accrued Benefit?
Answering the question more narrowly, if the participant, the AP, the judge, and the planís fiduciaries are mutually satisfied with an interpretation of a QDRO, itís effectively valid even if an actuary thinks itís nuts. Plan counsel is supposed to be responsible for pointing out when itís likely that the PAís actions will put the plan in an untenable position or create a fiduciary breach.

Youíre effectively practicing law when you advise someone on how a question of law will be decided in court or when you analyze a situation to identify any potential claims the different parties involved could make against each other. Your situation seems to have some obvious implications, but a lawyer qualified in this area should be able to settle this in a more decisive fashion.
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Old 01-01-2018, 03:49 PM
Helen Sass Helen Sass is offline
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What you may be missing is that there is no requirement that the “value “ of the AP’s benefit must be equal to the value of the participant’s remaining benefit. For example, the former spouse could have been awarded other money or property in lieu of a portion of the pension benefit.

If the order specifically provided the AP 50% of the accrued monthly benefit as a life annuity with no adjustment and both parties signed off on it, it is not disqualified because her portion is less valuable than his.
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