Frequently Asked Questions About Defined Contribution Plans
Question: Can the Alternate Payee be awarded a lump sum dollar amount?
Answer: Any benefit to be awarded to an Alternate Payee usually must be stated in terms of a monthly amount.
Question: If it is the intent of the parties that the Alternate Payee receive benefits for his/her lifetime, is it always necessary for the Participant to elect a "Joint & Survivor" annuity.
Answer: No. Some plans will convert the Alternate Payee's share of the Participant's benefit into a benefit based on his/her lifetime.
QUESTIONS ABOUT ERISA DEFINED CONTRIBUTION PLANS
Question: Once the plan distributes the lump sum payment to the Alternate Payee, must the Alternate Payee rollover the money into an IRA Account or another similar entity?
Answer: No. However, he/she could be assessed a significant tax penalty if it is not. (in some cases, the tax could be 20% or more!)
QUESTIONS ABOUT FEDERAL GOVERNMENT PLANS
Question: Can the Alternate Payee be awarded a share of either the Net Benefit (amount of the annuity after health insurance premiums, medicare premiums, etc. have been deducted from the gross benefit) or the Gross Benefit.
Question: Are their a number of different Former Spouse Survivor Annuities available to a Former Spouse under these plans.
Answer: Yes. However, the cost of such annuity must be deducted from either the Employee's annuity or the Former Spouse's share of the Employee's annuity or both shares equally.
QUESTIONS ABOUT UNITED STATES MILITARY PLAN
Question: Must the parties have been married for 10 years while the member was on active duty in order to effectuate a division of a benefit for purposes of equitable distribution?
Answer: Yes. If they have not been married for 10 years of active duty service, the order must be structured to effectuate support payments.
Question: In order for the Alternate Payee to be eligible for a Survivor Benefit Plan Annuity (SBP) must the Member make such an election within one year of the divorce?
Answer: Yes. If this election is not made, the Alternate Payee loses all rights to this benefit.
QUESTIONS ABOUT STATE & LOCAL GOVERNMENT AND PUBLIC SCHOOL EMPLOYEES PLANS
Question: Do all state and local plans permit DRO's?
Question: Is it true that some plans will only pay a benefit to an Alternate Payee for as long as the Participant is alive?
Answer: Yes. This should be investigated with the plan.
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