§ 35.04 STATUTORY PROHIBITIONS

• Jurisdiction: Washington

§ 35.04 STATUTORY PROHIBITIONS

The QDRO, as implemented, must not violate the proscriptions of the Code and ERISA.

[1] Nonalteration of Benefits

The following provisions are not required to be stated in the order. However, they are often included so that all parties are aware of the statutory limitations.

[a] Form of Benefit

The order must not require the plan to provide any type or form of benefit or any option not otherwise provided under the plan. I.R.C. § 414(p)(3)(A); 29 U.S.C. § 1056(d)(3)(D)(i). For example, an order may not require installment payments over 10 years if the sole form of distribution under the plan is a lump-sum distribution.

[b] Increased Benefits

The order must not require the plan to provide increased benefits (determined based on actuarial value). I.R.C. § 414(p)(3)(B); 29 U.S.C. § 1056(d)(3)(D)(ii). An order may not require the plan to pay the alternate payee benefits in excess of the benefits to which the participant would be entitled in the absence of the order. S. Rep. No. 98-575, 98th Cong., 2d Sess. 1984, Pub. L. No. 98-397, reprinted in 1984 U.S.C.C.A.N. 2547, 2566. In a defined contribution plan, this requirement is relatively simple to comply with. For example, if the order requires the plan to pay the spouse one-half of the participant's account balance as of the date of separation, but the participant is only 20 percent vested, the DRO is not a QDRO because it requires payment of an amount greater than the benefit the participant is entitled to receive at the time of payment. The alternate payee may not receive more than the 20 percent vested benefit. Instead, the order could provide that the alternate payee be assigned the entire 20 percent vested interest of his or her former spouse.

In a defined benefit plan, the issues are more complex. A QDRO may not provide benefits to the participant and to the alternate payee that are more valuable than the benefit that the participant, alone, is entitled to receive. For example, if the intent of the QDRO is to assign a 50 percent interest in the participant's annuity benefit to an alternate payee who is younger than the participant, the alternate payee's portion will have to be actuarially adjusted to account for the longer life expectancy. In addition, if benefits are to commence to the alternate payee prior to the participant's normal retirement date under the plan, the benefits may have to be actuarially adjusted to reduce the benefit.

Comment: These examples apply to a

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