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Divorce ~ QDRO Retirement Plans
Preface ~ Client Letter - What this idea is about ~ Introduction ~
Dear Client:
If you are involved in, or expect to be involved in a divorce proceeing you may be concerned about the tax treatment of a retirement plan.
The
following items are covered in the end notes as indicated on each item:
Dangers of eliminating or having an imperfect Qualified Domestic Relations Order[i]
Sample Language For Spouse's Rights To Survivor Annuities and QDROs - Notice 97-10, Notice 97-11[ii]
The following are from sources to be reliable. Any issue can be challenged by any government authority at its will, and no warranty can be made regarding the results. Any risks are real and any treatment of the issue is the responsibility of the taxpayer.
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Bob Parrish CPA:
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Related Information
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A few closely related topics & pages From Bob Parrish CPA PC (left-click this to expand it):
Plain English Explanation
Object Restated
Why or How It Works
Alternatives
Cost V. Benefit
Other
Reserved
Your Answers
This Topic OBJECTIVE is: What it does Explanation of this topic and how it may affect you (for how it may affect you also refer to : Financial Accounting: Bookkeeping & Financials ~ Compliance - What is required for protection, defense, etc. ~ Alerts & Dangers)
Start of Plain English Section
Why or How it works - Both Sides of the Equation and Examples:
Please
Reply To The Longboat Key Office
June 5,
1997
The
following items are covered in the end notes as indicated on each item:
Dangers of eliminating or having an imperfect Qualified Domestic Relations Order[i]
Sample Language For Spouse's Rights To Survivor Annuities and QDROs - Notice 97-10, Notice 97-11[ii]
The following are from sources to be reliable. Any issue can be challenged by any government authority at its will, and no warranty can be made regarding the results. Any risks are real and any treatment of the issue is the responsibility of the taxpayer.
Introduction.........................
What Is A QDRO?.............
Community
Property Laws................
Distributions
Eligible For Rollover.....
Divorce and
separation.-- Other..............
TSA
Information............................
Case Example..........................
Internal
Revenue Code {CFR Title 26}..........................
Practice
Suggestions To Advisers And Professionals.....................
Introduction
A distribution by a qualified retirement plan to an “alternate payee” who is a spouse or former spouse of the participant is taxable to the spouse, rather than the participant, if it is made pursuant to a “qualified domestic relations order” (QDRO) (Code Sec. 402(e)(1)(A)). An alternate payee is a person who is recognized by a domestic relations order as having a right to receive all or a portion of the participant's benefits under the plan (Code Sec. 414(p)(8)). A domestic relations order is a judgment, decree, or other order of a court issued under the domestic relations or community property law of a state or the District of Columbia that relates to alimony payments, child support, or marital property rights (Code Sec. 414(p)(1)(B)). It includes judicial approval of a property settlement agreement between the spouses. A domestic relations order is “qualified” (is a QDRO) if it satisfies the requirements.
The foregoing rule applies to taxable distributions of all kinds--annuity distributions, in-service distributions, lump-sum distributions, and all others. For special rules that apply in the case of lump-sum distributions and rollover distributions, see ¶¶18,207.048 and 18,922.0925.
What Is A QDRO?
Qualified domestic relations order.--
A domestic relations order, under Code Sec. 414(p), is a judgment, decree or order (including approval of a property settlement agreement) made pursuant to a state's domestic relations or community property law and relating to the provision of child support, alimony or marital property rights to a spouse, former spouse, child or other dependent of a plan participant. For such an order to be a qualified order, it must clearly specify--
(1) the name and the last known mailing address (if any) of the participant and the name and mailing address of each “alternate payee” (i.e., the spouse, former spouse, child or dependent who is recognized by the order as having a right to benefits);
(2) the amount or percentage of the participant's benefits to be paid to each alternate payee or the manner in which the amount or percentage is to be determined;
(3) the number of payments or the period to which the order applies; and
(4) each plan to which the order applies.
In addition, a domestic relations order is not a qualified order if--
(a) except as noted at .126, below, it requires a plan to provide any type or form of benefit, or any option, not otherwise provided by the plan;
(b) it requires the plan to provide increased benefits (determined on the basis of actuarial value); or
(c) it requires the payment of benefits to an alternate payee that are required to be paid to another alternate payee under a previous qualified order.
With respect to restriction (a), the Senate Finance Committee Report on the Tax Reform Act of 1986 indicates that an order will not fail to be a QDRO even if the form of the benefit does not continue to be a form permitted under the plan on account of a plan amendment or a change of law. In the case of plan amendment, an alternate payee remains entitled to receive benefits in the form specified in the order. In the case of a law change that makes the benefit form specified in the order impermissible, a plan must permit the alternate payee to select a form of benefit specified in the plan. In either case, the elected form cannot affect, in any way, the amount or form of benefits payable to the participant.
The Senate Committee Report on REA makes it clear that an order need not furnish the mailing address of an alternate payee if the plan administrator has reason to know that address (e.g., where the alternate payee is also a plan participant). It also makes it clear that an order is not considered to provide “increased benefits” unless it provides for the payment of benefits in excess of those to which the participant would be entitled in the absence of the order. The Committee Report states that a QDRO will remain qualified with respect to a successor plan of the same employer or a plan of a successor employer (within the meaning of Code Sec. 414(a)). Finally, the Senate Finance Committee Report includes the following remark: “During any period in which the alternate payee cannot be located, the plan is not permitted to provide for the forfeiture of the amounts that would have been paid unless the plan provides for full reinstatement when the alternate payee is located.”
Period to which order applies. Questions are raised by the requirement that a QDRO specify the number of payments or the period to which the order applies. For example, a common alimony order requires payments “until further order of the court.” Does this order specify the period to which the order applies? Again, in a property division, the court may order that the nonemployee spouse is to receive a specified percentage of whatever benefits are paid with respect to the employee, whenever and however they may be paid. Does such an order specify the period to which it applies?
For the above and other reasons, it is of the utmost importance that any divorce court ordering a deferred division of benefits retain jurisdiction to clarify the order in the event that it should meet with a narrow interpretation at the hands of a plan administrator.
Alternative forms of benefits: Whose choice? Although neither the law nor its legislative history is informative on the point, it seems that the definition of a QDRO is broad enough to include any order under which the plan must provide a nonemployee spouse with his share of the employee's benefits in any form authorized by the plan (at the election of the nonemployee spouse). In other words, it does not appear that the divorce court is restricted to awarding to the nonemployee spouse an amount or percentage of a benefit that is elected by the employee. The legislation generally does not impose any restrictions on the power of divorce courts to divide benefits, and the early retirement rule (see .126, below) clearly contemplates awarding a benefit to the nonemployee spouse (other than a joint and survivor annuity with a subsequent spouse) that has not been elected by the employee.
Descendibility of benefits. In some states retirement benefits awarded to a nonemployee spouse are held to be descendible. That is, upon the death of that spouse, his share of the employee's benefits may pass to legatees by will or to heirs if there is no will. If the order of the divorce court is silent on this matter, there is a strong possibility that any such payments to an heir or legatee would not be construed to be made pursuant to a QDRO or a domestic relations order of any kind. Even if the court's order specifically provides for descendibility, payments could be made only to a “child or other dependent” of the employee, because a payment to any other person is excluded by the definition of a qualified domestic relations order.
Order directed to whom? In the past, many state courts have assumed that the only manner in which benefits could be made available to a nonparticipant was by means of a personal order directed to the employee to pay, upon receiving them, a portion of those benefits to the nonparticipant. This assumption was certainly correct where the plan had not been made a party to the proceedings. REA, by its terms, does not require that a QDRO be directed to the administrator of the plan. It requires only that the order create or recognize the existence of an alternate payee's right to, or assign to an alternate payee the right to, all or a portion of the benefits payable with respect to a participant under a plan. Under this definition there appears to be no reason why an order directed to the employee may not be enforced as against a plan administrator. Conservative practice, however, dictates that the order specifically provide for enforcement against the plan administrator. (Compare 5 CFR §831.1703, wherein a statute governing the division of civil service retirement benefits was construed by the Office of Personnel Management to require that a qualifying court order demonstrate a clear intent that benefits be payable directly to a nonparticipant by the government. That regulation also holds that an order directing a participant to make payment to a former spouse does not evidence such an intent.)
IRS sample language and guidance. Section 1457(a)(2) of the Small Business Job Protection Act directed the IRS to develop sample language for inclusion in a form for a qualified domestic relations order described in Code Sec. 414(p)(1)(A) (and ERISA Section 206(d)(3)(B)(i)) which meets the minimum requirements of these provisions and focuses attention on the need to consider the treatment of any lump sum payment, qualified joint and survivor annuity, or qualified preretirement survivor annuity. The IRS complied with this mandate in Notice 97-11, I.R.B. 1997-2, 50, (97(16) ¶46,223). The Notice provides information intended to assist domestic relations attorneys, plan participants, spouses and former spouses of participants, and plan administrators in drafting and reviewing a QDRO. Sample language that may be included in a QDRO is provided and a variety of drafting issues are discussed.
Government Plans:
In general.--
A distribution to a spouse by a qualified plan that is a governmental plan (as defined in Code Sec. 414(d)) or a church plan (as defined in Code Sec. 414(e)) is taxable to the spouse if it is made pursuant to a domestic relations order. The order need not be a “qualified” domestic relations order (Code Sec. 414(p)(11)). The same rule applies in the case of: (1) a qualified plan that has not, after September 2, 1974, provided for employer contributions; and (2) a qualified plan established by a fraternal order or voluntary employee's beneficiary association (VEBA) to which employers do not contribute (Code Sec. 414(p)(9) and (11)).
If a distribution to a spouse or former spouse is not made pursuant to a QDRO (or, in the case of the plans referred to in the preceding paragraph, is not made pursuant to a domestic relations order of any kind), the certain provisions[iii] do not apply.
Community Property Laws
Since enactment of the Retirement Equity Act of 1984 (REA), several courts have held that state community property laws, standing alone, cannot deprive an employee participant of any part of his interest in benefits accumulated under a plan subject to ERISA. Under the provisions of ERISA (as amended by REA) community property laws are preempted and the nonemployee spouse can acquire an interest in the employee's benefits only through a qualified domestic relations order
Distributions Eligible For Rollover
Q-12: How does section 402(c) apply to a distributee who is not the employee?
A-12: (a) Spousal distributee. If any distribution attributable to an employee is paid to the employee's surviving spouse, section 402(c) applies to the distribution in the same manner as if the spouse were the employee. The same rule applies if any distribution attributable to an employee is paid in accordance with a qualified domestic relations order (as defined in section 414(p)) to the employee's spouse or former spouse who is an alternate payee. Therefore, a distribution to the surviving spouse of an employee (or to a spouse or former spouse who is an alternate payee under a qualified domestic relations order), including a distribution of ancillary death benefits attributable to the employee, is an eligible rollover distribution if it meets the requirements of section 402(c)(2) and (4) and Q&A-3 through Q&A-10 and Q&A-14[iv] of this section. However, a qualified plan (as defined in Q&A-2 of this section) is not treated as an eligible retirement plan with respect to a surviving spouse. Only an individual retirement plan is treated as an eligible retirement plan with respect to an eligible rollover distribution to a surviving spouse.
Alternate payee under qualified domestic relations order. You may be able to roll over all or any part of a distribution from a qualified employer plan that you receive under a qualified domestic relations order (QDRO). If you receive the distribution as an employee's spouse or former spouse under a QDRO, the rollover rules apply to you (the alternate payee) as if you were the employee. You can rollover the distribution from the plan into a traditional IRA or to another eligible retirement plan.
Divorce and separation.-- Other
As discussed at .03, a key element in the definition of a lump-sum distribution is that the distributee must, within one tax year, receive the entire balance to his or her credit in the plan. In applying this provision, the portion of the participant's account that is earmarked for a spouse or former spouse pursuant to a qualified domestic relations order (QDRO) is ignored (Code Sec. 402(d)(4)(H)). For the definition of a qualified domestic relations order, see “What is a QDRO?”.
Example: Randall Ralston is a participant in the profit-sharing plan of Acorn Corporation. He was born before 1936. On August 1, 1994, he terminates his employment with Acorn and requests a distribution of all amounts due him by the plan. The balance standing to his account is $100,000, but, pursuant to a QDRO, $50,000 is distributable to his ex-wife, Rose, upon Randall's termination of employment. Therefore, Randall receives only $50,000. Even though this does not represent the entire benefit accrued by him under the plan, Randall is treated as having received the entire balance to his credit as of the date of his termination of employment. Accordingly, it is eligible for special tax treatment.
The law provides that, if any distribution of the balance to the credit of a participant would be treated as a lump-sum distribution, the payment under a QDRO of so much of that balance as has been earmarked for the participant's spouse is treated as a lump-sum distribution. For this purpose, the balance to the credit of the spouse does not include any amount payable to the participant (Code Sec. 402(d)(4)(J)). This provision is not a model of draftsmanship, and little help in its interpretation is provided by the legislative history. (The Conference Report No. 100-1104, 100th Cong., 2d Sess. 168) (Technical and Miscellaneous Revenue Act of 1988 (P.L. 100-647)) reads as follows: “The conference agreement makes income averaging available with respect to distributions to an alternate payee who is a spouse or former spouse of the employee. In particular, the conference agreement provides that if a distribution of the balance of the credit to the employee would constitute a lump-sum distribution, then a distribution of the balance of the credit to the alternate payee constitutes a lump-sum distribution. In determining whether the distribution consists of the balance to the credit of the alternate payee, only the interest of the alternate payee is taken into account.” Although the matter is not free from doubt, it appears that the entire portion of the participant's accrued benefits that is payable to a spouse pursuant to a QDRO is treated as a lump-sum distribution to that spouse if it would be so treated if paid to the participant (assuming that it was the entire amount due the participant). If this is correct, the distribution to the spouse must (1) represent the entire amount earmarked for the spouse by the QDRO, (2) be paid within one tax year of the spouse, and (3) be paid on account of the participant's death or separation from service or after the participant's disability or attainment of age 591/2. The IRS Publication on divorce and separation appears to embrace this view, as does the Publication on pension and annuity income. IRS Publication 504, Tax Information for Divorced or Separated Individuals, p. 11, states : “The spouse or former spouse can use the special rules for lump-sum distributions (special averaging method or capital gain treatment) if, had the participant received the benefits, they would have been treated as a lump-sum distribution.” IRS Publication 575, Pension and Annuity Income, p. 17, states: “If you receive a distribution as an alternate payee under a qualified domestic relations order * * *, you may be able to choose the special tax treatment for it. You can make this choice for a distribution that would be treated as a lump-sum distribution if received by your spouse or former spouse (the plan participant).”
It may be argued that the status of a distribution to a spouse should not be linked to the participant's age, employment, or mortality and that the spouse should be entitled to special tax treatment in any case where the entire amount to which he or she is entitled under a QDRO is received within a single tax year. However, the first clause in the statute (“If any distribution or payment of the balance to the credit of an employee would be treated as a lump-sum distribution * * *”) implies that the status of the distribution is tied to the participant's age, employment, or mortality.
The legislative history of the provision refers only to the spouse becoming eligible for “averaging.” However, the language of the statute implies that the spouse is eligible to treat the distribution in any manner in which the participant could treat it. This being so, the spouse should also be entitled to elect a flat 20% tax for the taxable amount of the pre-1974 portion (if any) of the distribution, provided that the participant was age 50 before 1986 (see .01).
TSA Information
The rules relating to divorce-related distributions from a qualified plan to a participant's spouse or former spouse pursuant to a qualified domestic relations order (QDRO) likewise apply in the case of such distributions from a TSA, except as may be otherwise provided in regulations (Code Sec. 414(p)(9) (last sentence)). Such regulations have not yet been adopted or proposed, but an explanation by the Joint Committee on Taxation states that, because the anti-assignment rules of Code Sec. 401(a)(13) do not apply to TSAs, it may be appropriate for the Treasury to exempt such annuities from some of the procedural requirements discussed at ¶17,733.123 (Description of Technical Corrections Act of 1988 (H.R. 4333 and S. 2238), prepared by the staff of the Joint Committee on Taxation, March 31, 1988, reprinted as CCH Special 1, Extra Edition of Standard Federal Tax Reports No. 19, April 6, 1988).
The QDRO rules that apply to TSAs include the distribution rules discussed at ¶6140.125 et seq., ¶18,217A.06, and ¶18,922.0925 other than the provision extending capital gain and averaging treatment to spouses or former spouses of participants in qualified plans. Since participants in TSAs are themselves not eligible for capital gain or averaging treatment, it seems inconceivable that Congress intended that their spouses or former spouses be eligible for such treatment (a literal reading of Code Sec. 414(p)(9) might suggest otherwise). Other QDRO rules include:
(1) an exception to the distribution limitations of Code Sec. 403(b)(11) (see .044) (Code Sec. 414(p)(10)), and
(2) exemption from the excise taxes on early distributions and excess distributions (Code Secs. 72(t)(3)(A) and 4980A(e)) (see .0322 and .0324).
Qualified Domestic Relations Order - SAMPLE
Case No. _________
IN
THE MATTER OF_________________
IN THE DISTRICT COURT
THE
MARRIAGE OF _________________
_________
[Petitioner's Name]
__________ COUNTY, TEXAS
And
__________
[Respondent's Name]
__________ JUDICAL DISTRICT AND IN THE INTEREST OF
__________
[Child's Name]
A
MINOR __________ or MINOR
CHILDREN
___________
___________
QUALIFIED
DOMESTIC RELATIONS ORDER NUMBER __________
This
QUALIFIED DOMESTIC RELATIONS ORDER NUMBER __________ is intended to meet
the requirements for a ``qualified domestic relations order'' relating to
the __________, hereinafter called the ``Plan,'' as set forth in Chapter
76, Title 110B, Vernon's Texas Civil Statutes (V.T.C.S.), as added by
Section 1, Chapter 616 (SB 187), Acts of the 71st Texas Legislature,
Regular Session, 1989. This order is an integral part of the FINAL DECREE
OF DIVORCE signed on the day of __________, 19__. In compliance with those
requirements, the following are specified:
1.
This Order assigns a portion of the benefits or amounts payable under the
Plan to __________ [Petitioner's Name] in recognition of her marital rights in
__________ [Respondent's Name]
benefits or amounts payable under the Plan.
2.
Participant in the Plan is __________ [Respondent's
Name] whose last known mailing address is __________, and whose social
security number is __________.
3.
Alternate Payee is __________ whose last known mailing address is
__________, and whose social security number is __________.
4.
As part of a just and right division of the estate of the parties,
Alternate Payee is awarded and shall receive from the Plan a portion of
each distribution of retirement benefits (whether payable to Participant
or a beneficiary) and death or survivor benefits (including distribution
of the remaining balance of Participant's accumulated contributions paid
as a death benefit) if, as, and when such distributions are made as
provided by the plan's governing laws and rules based on Participant's
membership in, credit with, or contributions to the Plan. Alternatively,
in lieu of these benefits, Alternate Payee is awarded and shall receive
from the Plan a portion of the distribution of Participant's total
accumulated contributions to the plan, if as, and when such distribution
is made as provided by the Plan's governing laws and rules. The term
``accumulated contributions'' as used in this Order is defined by Section
821.001(1), Texas Government Code, or its successor statute.
The
portion of the distribution of benefits or total accumulated contributions
that is awarded and that is to be paid to Alternate Payee shall be FIFTY
PERCENT (50%) of the total accumulated value of the Plan for the period
beginning with the date of marriage, which is __________, and the date of
divorce, which is __________, 19 __.
5.
The Administrator of the Plan is directed to disburse to Alternate Payee
the portion of distributions assigned under Paragraph No. 4 of this Order,
if, as, and when such distributions are made as provided by the Plan's
governing laws and rules based on Participant's membership in, credit with
or contributions to the Plan, subject to the following provisions:
(a) This Order shall not be interpreted in any way to require the Plan to provide any type or form of benefit or any option not otherwise provided under the Plan.
(b) This Order shall not be interpreted in any way to require the Plan to provide increased benefits determined on the basis of actuarial value.
(c) This Order shall not be interpreted in any way to require the Plan to pay any benefits to an Alternate Payee named in this Order which are required to be paid to another Alternate Payee under another order previously determined to be a qualified domestic relations order.
(d) This Order shall not be interpreted in any way to require the payment of benefits to Alternate Payee before the retirement of Participant, the distribution of a withdrawal of contributions to Participant as authorized by the statues governing the Plan, or any other distribution required by law.
(e) If the Plan provides for a reduced benefit upon ``early retirement,'' this Order shall be interpreted to require that, in the event of Participant's retirement before normal retirement age, the benefits payable to Alternate Payee shall be reduced proportionately.
(f) This Order shall not be interpreted to require the designation of a particular person as the recipient of benefits in the event of Participant's death or to require the selection of a particular benefit payment plan or option. However, notwithstanding the provisions of this Order, if Alternate Payee is designated as a beneficiary for any benefits payable by the Plan upon the death of Participant, then Alternate Payee shall receive such payment to which she is entitled by law as beneficiary. If Alternate Payee is a joint beneficiary for a benefit, Alternate Payee shall receive the portion of the total benefit payable to the joint beneficiaries as specified in Paragraph No. 4 above; the portion of the benefit payment received by Alternate Payee as a joint beneficiary of Participant shall be credited toward satisfying the amount of the benefit payable to Alternate payee as the alternate payee for Participant's interest. Additionally, as specified in Paragraph No. 4 above, Alternate Payee shall receive a portion of any other benefits which are payable to a beneficiary and for which Alternate Payee was not designated as a beneficiary.
(g) In the event that, after distribution of a benefit to Participant or a beneficiary has begun, the amount of the distribution is increased or reduced by law, then the amount payable to Alternate Payee shall be increased or reduced proportionately.
(h) If the Administrator of the Plan has provided by rule that, in lieu of paying an alternate payee the interest awarded by a qualified domestic relations order, the Plan may pay an alternate payee an amount that is the actuarial equivalent of such interest in the form of (1) an annuity payable in equal monthly installments for the life of the alternate payee, or (2) a lump sum, then and only in that event Alternate Payee or Participant may request the Plan to make payment in this form, and the Plan is authorized to make payment in this form instead of in the manner otherwise described in this Order. This Order shall not be interpreted in any way to require the Plan to adopt such rules or to require the Plan to grant any request for payment in the form described in this provision. The determination of whether to pay an amount authorized by this provision in lieu of the interest otherwise awarded in this Order shall be at the sole discretion of the Plan.
(i) The interest of Alternate Payee is governed by Section 78.001, Title 110B, V.T.C.S, or its successor statute.
6.
Any amounts payable by the Plan, other than those payable under Paragraph
No. 4 above to Alternate Payee shall be payable directly to Participant,
Participant's beneficiary, or the estate, heirs, or legatees of either, in
accordance with the Plan rules. If Participant, Participant's beneficiary,
or the estate of either receives any amount of a distribution that has
been awarded to Alternate Payee, the recipient is designated a
constructive trustee for the amount received and shall immediately
transmit such amount to Alternate Payee.
7.
If Alternate Payee or the estate, heirs, or legatees of Alternate Payee
receive any amount of a distribution that should have been paid to
Participant, Participant's beneficiary, or the estate, heirs, or legatees
of either, the recipient is designated a constructive trustee for the
amount received and shall immediately transmit such amount to Plan
Participant or other person to whom the amount should have been paid.
If
Participant, Alternate Payee, or the estate, heirs, or legatees of either
receive any amount of a distribution that should not have been paid by the
Plan, the recipient is designated a constructive trustee for the amount
received and shall immediately transmit such amount to the Plan
Administrator.
8.
Alternate Payee is ORDERED to report any payments received on any applicable income tax
return in accordance with Internal Revenue Code provisions or regulations
in effect at the time any payments are issued by the Plan. The Plan is
authorized to issue a Form W‑2P, Form 1099R, or other applicable
form on any direct payment made to Alternate Payee. Plan Participant and
Alternate Payee shall allocate Participant's investment in contract in the
manner established by the Internal Revenue Code and any applicable
regulations.
9.
Alternate Payee is ORDERED to provide the Plan prompt written notification of any
changes in Alternate Payee's mailing address. The Plan shall not be liable
for failing to make payments to Alternate Payee if the Plan Administrator
does not have a current mailing address for Alternate Payee at time of
payment.
10.
Alternate Payee shall furnish a certified copy of this Order to the Plan
Administrator.
11.
The Court retains jurisdiction to amend this Order so that it will
constitute a qualified domestic relations order under the Plan even though
all other matters incident to this action or proceeding have been fully
and finally adjudicated. If the Plan determines at any time that changes
in the law, the administration of the Plan, or any other circumstances
make it impossible to calculate the portion of a distribution awarded to
Alternate Payee by this Order and so notifies the parties, either or both
parties shall immediately petition the Court for reformation of this
Order.
SIGNED
on __________, 19__
____________________
JUDGE
PRESIDING
APPROVED
AS TO FORM:
______________________________
[Name
of attorney]
Attorney
for Petitioner
[Address
of firm]
[Telephone
and facsimile nos.]
Texas
Bar No. __________
______________________________
[Name
of attorney]
Attorney
for RESPONDENT
[Address
of firm]
[Telephone
and facsimile nos.]
Texas
Bar No. __________
APPROVED
AS TO FORM AND CONTENT:
______________________________
__________
[Petitioner's Name]
______________________________
__________[Respondent's
Name]
Case Example
[CCH Dec. 51,822(M)]
Jerry L. Burton v. Commissioner
Docket No. 6115-95., TC Memo. 1997-20, 73 TCM 1729, Filed January 13, 1997
[Appealable, barring stipulation to the contrary, to CA-6.--CCH.]
[Code Secs. 72, 401, and 414 ]
[Retirement plans: Early distributions: 10 percent tax: Qualified domestic relations orders: Qualification as.]P received a lump-sum distribution from two accounts under a qualified pension plan in 1991. Pursuant to a divorce decree entered shortly thereafter, part of the distribution was used to pay off the mortgage on P's former residence and to pay his ex-wife $30,000. P reported the distribution as income on his 1991 Federal income tax return, but included the amount used to satisfy his mortgage obligation and the amount paid to his ex-wife as part of an alimony deduction. R disallowed the alimony deduction and determined that P is taxable on the entire distribution. P contends that he is not liable for tax on the portion of the distribution paid to his former wife and the portion used to satisfy the mortgage because the payments were made pursuant to a qualified domestic relations order (QDRO), as defined by sec. 414(p), I.R.C. Held: The divorce decree rendered after the lump-sum distribution to P does not meet the requirements of sec. 414(p), I.R.C., and is thus not a QDRO. Therefore, P is liable for tax on the entire lump-sum distribution. Held, further, P is liable for additional tax on the entire lump-sum as a result of the early distribution from a qualified retirement plan pursuant to sec. 72(t), I.R.C.
John L. Onesto, Columbus, Ohio, for the petitioner. Donald K. Rogers and Matthew J. Fritz, for the respondent.
MEMORANDUM OPINION
NIMS, Judge: *
Respondent determined a deficiency in the 1991 Federal income tax of petitioner Jerry L. Burton in the amount of $53,916, stemming from funds received by petitioner in connection with the closing of his retirement benefits accounts. A petition was filed on April 24, 1995. An Answer was filed on June 13, 1995. Respondent thereafter filed an Amendment to Answer, claiming an increased deficiency of $17,676 based upon section 72(t).
Unless otherwise indicated, all section references are to sections of the Internal Revenue Code in effect for the year in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure.
The sole issue for decision is whether the portion of petitioner's retirement account distribution used to pay off the mortgage on petitioner's former residence and to pay his ex-wife $30,000 pursuant to their divorce decree constituted taxable income to petitioner in the amount of $156,099.46 for 1991.
This case was submitted to the Court on a full stipulation of facts, which are so found. The stipulation of facts and the attached exhibits are incorporated herein by this reference. At the time the petition was filed, petitioner resided in Jackson, Ohio.
Background
Petitioner's employment with Fluor Daniel, Inc. (Fluor Daniel) was terminated on March 8, 1991. Petitioner subsequently divorced Linda Gayle Burton (Mrs. Burton) on June 11, 1991; an “Agreed Decree of Divorce” (Decree) was entered with the District Court of Denton County, Texas. The Decree divested petitioner of his entire interest in his former residence located at 2707 Daybreak Drive, Dallas, Texas (2707 Daybreak Drive), and transferred that interest to Mrs. Burton. The Decree also required petitioner to withdraw his entire retirement account balances at Fluor Daniel, use the proceeds to pay off the mortgage on 2707 Daybreak Drive (for which petitioner was personally liable), and pay Mrs. Burton the remaining balance in an amount not to exceed $30,000. The Decree states that petitioner “shall be responsible for all taxes due on the lump sum retirement withdrawal, and releases *** [Linda] from any and all liability concerning the taxes on the retirement withdrawal.”
The Fluor Daniel retirement plan is and was, at the time of petitioner's participation, subject to the requirements of the Employee Retirement Income Security Act of 1974 (ERISA), Pub. L. 93-406, 88 Stat. 829, as amended. Petitioner had two separate retirement accounts at Fluor Daniel, the “Retirement Plan” and the “Savings Investment Plan.” Sometime in March of 1991, petitioner asked the plan administrator at Fluor Daniel to distribute to him the entire balance of each retirement account. By letters dated May 7 and May 13, 1991, the plan administrator acknowledged petitioner's request and reported to him the amounts to be distributed based on a valuation date of March 31, 1991. As of that date, the combined value of the Retirement Plan and the Savings Investment Plan accounts (plan balance) was $176,754.88. Petitioner received this sum sometime at the end of May 1991 in the form of two checks dated May 24, 1991 and issued by The Northern Trust Company. At the time petitioner received the checks, he was under the age of 59-1/2 and did not attain that age at any time during 1991. The record does not disclose whether petitioner had attained age 55. See sec. 72(t)(2)(A)(v).
Petitioner paid off his mortgage debt on 2707 Daybreak Drive by wire transfer of $126,099.46 from his account at BancOhio National Bank (BancOhio) to his mortgage account at Bank One Dallas on June 6, 1991. Furthermore, on or about July 31, 1991, petitioner sent Mrs. Burton a check drawn on petitioner's account at BancOhio in the amount of $30,000 to fulfill his obligation under the Decree.
On his 1991 Federal income tax return, petitioner reported the plan balance as dividend income of $138,418.91 and capital gain income of $38,335.97. Petitioner also claimed an alimony deduction with respect to both the $30,000 that he paid directly to Mrs. Burton and the $126,099.46 he paid to satisfy the mortgage on 2707 Daybreak Drive. Petitioner included this amount as part of the total alimony deduction of $175,394.07 claimed on the return. The parties have stipulated that petitioner's allowable alimony deduction for the taxable year 1991 was $5,425.
In the Amendment to Answer referred to above, the asserted increased deficiency of $17,676 represents the imposition of additional tax under section 72(t) on petitioner's premature retirement benefits distribution of $176,754.88. Since respondent asserts an increased deficiency, she has the burden of proof on this issue. Rule 142(a). However, the parties stipulated that $20,655.42 of that distribution is taxable income to petitioner. The parties further stipulated that if the Court holds that the total amount of the retirement accounts distribution ($176,754.88) is taxable to petitioner, then petitioner is liable for the additional tax under section 72(t).
Discussion
We must decide whether the Decree is a qualified domestic relations order (QDRO) within the meaning of section 414(p), thus relieving petitioner of liability for tax pursuant to section 402(a)(9) on the $156,099.46 portion of the lump-sum distribution used to satisfy his mortgage and pay his ex-wife, and the $17,676 additional tax under section 72(t). For the reasons which follow, we hold that the Decree does not constitute a QDRO.
Ordinarily, any funds distributed from an exempt employees' trust (under a tax qualified employees' plan) are taxable to the plan participant or beneficiary who is entitled to receive the distribution under the plan. Darby v. Commissioner [Dec. 47,484], 97 T.C. 51, 58 (1991). However, section 402(a)(9) (now section 402(e)(1)(A)) states an exception to this general rule, providing that an alternate payee (who is the spouse or former spouse of the plan participant) shall be treated as the distributee of any distribution or payment made to such payee under a QDRO. Accordingly, the tax liability for the distribution from the Fluor Daniel retirement accounts will be allocated either to petitioner or to Mrs. Burton depending upon whether the Decree meets the statutory definition of a QDRO.
The Retirement Equity Act of 1984 (REA), Pub. L. 98-397, sec. 204(b), 98 Stat. 1445, added section 414(p), which defines a QDRO. Section 414(p) provides, in pertinent part, the following:
SEC. 414(p). Qualified Domestic Relations Order Defined.--For purposes of this subsection and section 401(a)(13)--
(1) In General.--
(A) Qualified Domestic Relations Order.--The term “qualified domestic relations order” means a domestic relations order--
(i) which creates or recognizes the existence of an alternate payee's right to, or assigns to an alternate payee the right to, receive all or a portion of the benefits payable with respect to a participant under a plan, and
(ii) with respect to which the requirements of paragraphs (2) and (3) are met.
(B) Domestic Relations Order.--The term “domestic relations order” means any judgment, decree, or order (including approval of a property settlement agreement) which--
(i) relates to the provision of child support, alimony payments, or marital property rights to a spouse, former spouse, child, or other dependent of a participant, and
(ii) is made pursuant to a State domestic relations law (including a community property law).
(2) Order Must Clearly Specify Certain Facts.--A domestic relations order meets the requirements of this paragraph only if such order clearly specifies--
(A) the name and the last known mailing address (if any) of the participant and the name and mailing address of each alternate payee covered by the order,
(B) the amount or percentage of the participant's benefits to be paid by the plan to each such alternate payee, or the manner in which such amount or percentage is to be determined,
(C) the number of payments or period to which such order applies, and
(D) each plan to which such order applies.
(3) Order May Not Alter Amount, Form, Etc, Of Benefits.--A domestic relations order meets the requirements of this paragraph only if such order--
(A) does not require a plan to provide any type or form of benefit, or any option, not otherwise provided under the plan,
(B) does not require the plan to provide increased benefits (determined on the basis of actuarial value), and
(C) does not require the payment of benefits to an alternate payee which are required to be paid to another alternate payee under another order previously determined to be a qualified domestic relations order.
Thus, to qualify as a QDRO, a domestic relations order must meet the following tests: First, it must be a domestic relations order that creates, recognizes, or assigns, to an alternate payee, rights under a qualified employee benefit trust otherwise payable to a plan participant. Second, the QDRO must clearly specify certain facts, namely, the names and last known mailing addresses of the participant and the alternate payee; the amount or percentage of the benefits to be paid or the manner in which such amount or percentage is to be determined; the number of payments; and each plan to which the order applies. Third, the QDRO may not alter the amount, form, etc., of the benefits.
Generally, benefits under qualified plans are subject
to prohibitions against assignment or alienation (so-called “spendthrift
provisions”). S. Rept. 98-575, at 19 (1984), 1984-2 C.B. 447, 456.
Before the enactment of section 414(p), the IRS had ruled that the
spendthrift provisions are not violated when a plan trustee complies with
a court order requiring the distribution of benefits of a participant in
“pay status” to the participant's spouse or children in order to meet
the participant's alimony or child support obligations, but the IRS had
taken no position with respect to this issue in cases in which the
participant's benefits are not in pay status. The Senate report indicates
that section 414(p) was enacted “to provide rational rules for plan
[administrators]”. Id.
Congress believed it necessary to establish guidelines for determining
whether the exception to the spendthrift rules applies, to ensure that
only those domestic relations orders that are excepted from the
spendthrift provisions are not preempted by ERISA. Id.
The facts in this case do not comport with the requirements of section 414(p)(1). Petitioner's employment with Fluor Daniel was terminated on March 8, 1991. During that same month petitioner asked the Fluor Daniel plan administrator to distribute to him--petitioner--the entire plan balance. In mid-May of that year the plan administrator acknowledged petitioner's request and reported to him the amounts to be distributed based upon a March 31 valuation date. Petitioner received two checks, both dated May 24, 1991, which terminated his interest in the plan. It is not clear why the plan administrator agreed to this termination of petitioner's entire interest in the plan; one possibility is that the termination of petitioner's interest was permissible as being related to his separation from service with Fluor Daniel. In any event, since the plan proceeds were distributed to petitioner and not to Mrs. Burton, and in advance of the Decree (which was dated June 11, 1991), it cannot be argued that the distribution was made by the plan administrator to an alternate payee in response to the Decree.
Rodoni v. Commissioner [Dec. 50,765], 105 T.C. 29 (1995), involved a similar situation. The domestic relations order in dispute in that case was not executed until after the taxpayer had received a lump-sum distribution terminating his interest in a profit sharing plan. We held that the domestic relations order in that case could not create or recognize rights that no longer existed at the time of the order. Id. at 35. The same is true in this case. See also to the same effect Karem v. Commissioner [Dec. 49,091], 100 T.C. 521 (1993).
Nowhere is there any indication that the Decree was presented to the plan administrator, even in draft form, prior to the distribution of the plan proceeds to petitioner. We have stated, in Rodoni v. Commissioner, supra at 36, that implicit in the procedural rules relating to employee benefit plan provisions (contained in sections 414(p)(6)(B) and 414(p)(7)(B)) is the requirement that a domestic relations order be presented to the plan administrator and adjudged “qualified” before any distribution is made by the plan to the spouse or former spouse. There is no evidence that this occurred in the case before us.
For the foregoing reasons, we hold that the Decree did not effectively create or recognize Mrs. Burton's right as an alternate payee, within the meaning of section 414(p), to receive petitioner's qualified plan benefits. The directions in the Decree to turn over the disputed part of the plan proceeds could only have been effectively addressed to petitioner, who already had the proceeds, and not to the plan administrator. As a consequence of this holding, the total amount of the plan distribution to petitioner is taxable to him in 1991.
Having so held, we do not reach the question of whether the Decree clearly specifies facts as required by section 414(p)(2), or alters the amount, form, etc., of the benefits, as prohibited by section 414(p)(3).
In Hawkins v. Commissioner [96-1 USTC ¶50,316], 86 F.3d 982 (10th Cir. 1996), the Court of Appeals disagreed with our holding in Hawkins v. Commissioner [Dec. 49,638], 102 T.C. 61 (1994), that the domestic relations order in that case did not create or recognize the existence of an alternate payee's right, or assign to an alternate payee the right, to receive employee plan benefits, and did not satisfy the clearly specified facts requirement of section 414(p)(2). However, in that case the disputed domestic relations order preceded the plan distribution, which makes this case distinguishable from Hawkins in a way that is fatal to petitioner's position. The Court of Appeals in Hawkins v. Commissioner [96-1 USTC ¶50,316], 86 F.3d at 990-991, itself recognized a similar disabling distinction under the facts of Karem v. Commissioner [Dec. 49,091], 100 T.C. 521, 523 (1993):
In Karem [v. Commissioner [Dec. 49,091], 100 T.C. 521 (1993)], a consent judgment was entered by a state divorce court in order to partition the community property of Mr. and Mrs. Karem. 100 T.C. at 523. The consent judgment provided that Mrs. Karem was to receive an interest in her ex-husband's pension plan, but it stated the following condition:
“She shall receive that interest pursuant to a qualified Domestic Relations Order to be prepared by Robert Louis Karem. Until the Qualified Domestic Relations Order is completed, Robert Louis Karem shall pay Barbara Wiechman Karem her interest in the pension plan immediately when he receives it.”
Id. After being assessed a deficiency in his gross income based on a lump-sum plan distribution paid to Mrs. Karem, Mr. Karem filed a petition in the Tax Court arguing that the consent judgment was a QDRO. The court rejected this argument, noting that “the consent judgment directs that a QDRO be drafted ***; the consent judgment itself is not a QDRO.” Id. at 525-526 ***.
The Court of Appeals went on to observe that there was thus no written order in existence at the time of the distribution that would satisfy the requirements of section 414(p). Hawkins v. Commissioner, supra at 991.
On brief petitioner argues that he received the plan benefits as agent for Mrs. Burton. However, since the Decree did not qualify as a QDRO, the possibility raised by this argument becomes moot.
As noted above, the parties stipulated that if the Court holds that the total amount of the retirement accounts distribution is taxable to petitioner, then petitioner is also liable for the additional tax under section 72(t). Consistent with this stipulation, we so hold.
Decision
will be entered for respondent.
* This case was reassigned to Judge Arthur L. Nims, III, by Order of the Chief Judge.
Internal Revenue Code {CFR Title 26}
Sec.
72 ANNUITIES Subsec. (t) 10-Percent Additional Tax on Early Distributions
from Qualified Retirement Plans.--
72(t)(1) Imposition of additional tax.--If any taxpayer receives any amount from a qualified retirement plan (as defined in section 4974(c)), the taxpayer's tax under this chapter for the taxable year in which such amount is received shall be increased by an amount equal to 10 percent of the portion of such amount which is includible in gross income.
72(t)(2) Subsection not to apply to certain distributions.--Except as provided in paragraphs (3) and (4), paragraph (1) shall not apply to any of the following distributions:
72(t)(2)(A) In general.--Distributions which are--
72(t)(2)(A)(i) made on or after the date on which the employee attains age 591/2,
72(t)(2)(A)(ii) made to a beneficiary (or to the estate of the employee) on or after the death of the employee,
72(t)(2)(A)(iii) attributable to the employee's being disabled within the meaning of subsection (m)(7),
72(t)(2)(A)(iv) part of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the employee or the joint lives (or joint life expectancies) of such employee and his designated beneficiary, or
72(t)(2)(A)(v) made to an employee after separation from service after attainment of age 55, or
72(t)(2)(A)(vi) dividends paid with respect to stock of a corporation which are described in section 404(k).
72(t)(2)(B) Medical expenses.--Distributions made to the employee (other than distributions described in subparagraph (A) or (C)) to the extent such distributions do not exceed the amount allowable as a deduction under section 213 to the employee for amounts paid during the taxable year for medical care (determined without regard to whether the employee itemizes deductions for such taxable year).
72(t)(2)(B) Medical expenses.--Distributions made to the employee (other than distributions described in subparagraph (A), (C), or (D)) to the extent such distributions do not exceed the amount allowable as a deduction under section 213 to the employee for amounts paid during the taxable year for medical care (determined without regard to whether the employee itemizes deductions for such taxable year).
72(t)(2)(C) Payments to alternate payees pursuant to qualified domestic relations orders.--Any distribution to an alternate payee pursuant to a qualified domestic relations order (within the meaning of section 414(p)(1)).
72(t)(2)(D) Distributions to unemployed individuals for health insurance premiums.--
72(t)(2)(D)(i) In general.--Distributions from an individual retirement plan to an individual after separation from employment--
72(t)(2)(D)(i)(I) if such individual has received unemployment compensation for 12 consecutive weeks under any Federal or State unemployment compensation law by reason of such separation,
72(t)(2)(D)(i)(II) if such distributions are made during any taxable year during which such unemployment compensation is paid or the succeeding taxable year, and
72(t)(2)(D)(i)(III) to the extent such distributions do not exceed the amount paid during the taxable year for insurance described in section 213(d)(1)(D) with respect to the individual and the individual's spouse and dependents (as defined in section 152).
72(t)(2)(D)(ii) Distributions after reemployment.--Clause (i) shall not apply to any distribution made after the individual has been employed for at least 60 days after the separation from employment to which clause (i) applies.
72(t)(2)(D)(iii) Self-employed individuals.--To the extent provided in regulations, a self-employed individual shall be treated as meeting the requirements of clause (i)(I) if, under Federal or State law, the individual would have received unemployment compensation but for the fact the individual was self-employed.
72(t)(3) Limitations.--
72(t)(3)(A) Certain exceptions not to apply to individual retirement plans.--Subparagraphs (A)(v), (B), and (C) of paragraph (2) shall not apply to distributions from an individual retirement plan.
72(t)(3)(A) Certain exceptions not to apply to individual retirement plans.--Subparagraphs (A)(v), and (C) of paragraph (2) shall not apply to distributions from an individual retirement plan.
72(t)(3)(B) Periodic payments under qualified plans must begin after separation.--Paragraph (2)(A)(iv) shall not apply to any amount paid from a trust described in section 401(a) which is exempt from tax under section 501(a) or from a contract described in section 72(e)(5)(D)(ii) unless the series of payments begins after the employee separates from service.
72(t)(4) Change in substantially equal payments.--
72(t)(4)(A) In general.--If--
72(t)(4)(A)(i) paragraph (1) does not apply to a distribution by reason of paragraph (2)(A)(iv), and
72(t)(4)(A)(ii) the series of payments under such paragraph are subsequently modified (other than by reason of death or disability)--
72(t)(4)(A)(ii)(I) before the close of the 5-year period beginning with the date of the first payment and after the employee attains age 591/2, or
72(t)(4)(A)(ii)(II) before the employee attains age 591/2,
the taxpayer's tax for the 1st taxable year in which such modification occurs shall be increased by an amount, determined under regulations, equal to the tax which (but for paragraph (2)(A)(iv)) would have been imposed, plus interest for the deferral period.
72(t)(4)(B) Deferral period.--For purposes of this paragraph, the term “deferral period” means the period beginning with the taxable year in which (without regard to paragraph (2)(A)(iv)) the distribution would have been includible in gross income and ending with the taxable year in which the modification described in subparagraph (A) occurs.
72(t)(5) Employee.--For purposes of this subsection, the term “employee” includes any participant, and in the case of an individual retirement plan, the individual for whose benefit such plan was established.
72(t)(6) Special rules for simple retirement accounts.--In the case of any amount received from a simple retirement account (within the meaning of section 408(p)) during the 2-year period beginning on the date such individual first participated in any qualified salary reduction arrangement maintained by the individual's employer under section 408(p)(2), paragraph (1) shall be applied by substituting “25 percent” for “10 percent”.
Sec. 414 DEFINITIONS AND SPECIAL RULES Subsec. (p) Qualified Domestic Relations Order Defined.--
For purposes of this subsection and section 401(a)(13)--
414(p)(1) In general.--
414(p)(1)(A) Qualified domestic relations order.--The term “qualified domestic relations order” means a domestic relations order--
414(p)(1)(A)(i) which creates or recognizes the existence of an alternate payee's right to, or assigns to an alternate payee the right to, receive all or a portion of the benefits payable with respect to a participant under a plan, and
414(p)(1)(A)(ii) with respect to which the requirements of paragraphs (2) and (3) are met.
414(p)(1)(B) Domestic relations order.--The term “domestic relations order” means any judgment, decree, or order (including approval of a property settlement agreement) which--
414(p)(1)(B)(i) relates to the provision of child support, alimony payments, or marital property rights to a spouse, former spouse, child, or other dependent of a participant, and
414(p)(1)(B)(ii) is made pursuant to a State domestic relations law (including a community property law).
414(p)(2) Order must clearly specify certain facts.--A domestic relations order meets the requirements of this paragraph only if such order clearly specifies--
414(p)(2)(A) the name and the last known mailing address (if any) of the participant and the name and mailing address of each alternate payee covered by the order,
414(p)(2)(B) the amount or percentage of the participant's benefits to be paid by the plan to each such alternate payee, or the manner in which such amount or percentage is to be determined,
414(p)(2)(C) the number of payments or period to which such order applies, and
414(p)(2)(D) each plan to which such order applies.
414(p)(3) Order may not alter amount, form, etc., of benefits.--A domestic relations order meets the requirements of this paragraph only if such order--
414(p)(3)(A) does not require a plan to provide any type or form of benefit, or any option, not otherwise provided under the plan,
414(p)(3)(B) does not require the plan to provide increased benefits (determined on the basis of actuarial value), and
414(p)(3)(C) does not require the payment of benefits to an alternate payee which are required to be paid to another alternate payee under another order previously determined to be a qualified domestic relations order.
414(p)(4) Exception for certain payments made after earliest retirement age.--
414(p)(4)(A) In general.--A domestic relations order shall not be treated as failing to meet the requirements of subparagraph (A) of paragraph (3) solely because such order requires that payment of benefits be made to an alternate payee--
414(p)(4)(A)(i) in the case of any payment before a participant has separated from service, on or after the date on which the participant attains (or would have attained) the earliest retirement age,
414(p)(4)(A)(ii) as if the participant had retired on the date on which such payment is to begin under such order (but taking into account only the present value of the benefits actually accrued and not taking into account the present value of any employer subsidy for early retirement), and
414(p)(4)(A)(iii) in any form in which such benefits may be paid under the plan to the participant (other than in the form of a joint and survivor annuity with respect to the alternate payee and his or her subsequent spouse).
For purposes of clause (ii), the interest rate assumption used in determining the present value shall be the interest rate specified in the plan or, if no rate is specified, 5 percent.
414(p)(4)(B) Earliest retirement age.--Purposes of this paragraph, the term “earliest retirement age” means the earlier of--
414(p)(4)(B)(i) the date on which the participant is entitled to a distribution under the plan, or
414(p)(4)(B)(ii) the later of--
414(p)(4)(B)(ii)(I) the date the participant attains age 50, or
414(p)(4)(B)(ii)(II) the earliest date on which the participant could begin receiving benefits under the plan if the participant separated from service.
414(p)(5) Treatment of former spouse as surviving spouse for purposes of determining survivor benefits.--To the extent provided in any qualified domestic relations order--
414(p)(5)(A) the former spouse of a participant shall be treated as a surviving spouse of such participant for purposes of sections 401(a)(11) and 417 (and any spouse of the participant shall not be treated as a spouse of the participant for such purposes), and
414(p)(5)(B) if married for at least 1 year, the surviving former spouse shall be treated as meeting the requirements of section 417(d).
414(p)(6) Plan procedures with respect to orders.--
414(p)(6)(A) Notice and determination by administrator.--In the case of any domestic relations order received by a plan--
414(p)(6)(A)(i) the plan administrator shall promptly notify the participant and each alternate payee of the receipt of such order and the plan's procedures for determining the qualified status of domestic relations orders, and
414(p)(6)(A)(ii) within a reasonable period after receipt of such order, the plan administrator shall determine whether such order is a qualified domestic relations order and notify the participant and each alternate payee of such determination.
414(p)(6)(B) Plan to establish reasonable procedures.--Each plan shall establish reasonable procedures to determine the qualified status of domestic relations orders and to administer distributions under such qualified orders.
414(p)(7)