AVOIDING MALPRACTICE WHEN DEALING WITH RETIREMENT ACCOUNTS IN

AVOIDING MALPRACTICE WHEN DEALING WITH RETIREMENT ACCOUNTS IN FAMILY LAW CASES By: Matthew Lundy, Esq. 1 -855 -QDRO-LAW (737 -6529) Matt@Precision. QDRO. com

Basic Questions � Who thinks that they can identify all of the issues that must be addressed in a marital settlement agreement and/or final judgment when it comes to dividing a retirement account? � Who thinks that they can correctly define the word “QDRO”? � How long does a plan have to review a QDRO?

What is so important about retirement accounts? � Frequency as an issue; how much money is in qualified retirement accounts in the United States? � The economy--The housing marketing � Dabblers

Mediation Scenario � � You represent the Wife in a highly contested divorce. The parties have no children, and no assets other than Husband’s retirement account, which was set up by his employer, Bank of America. You are now at mediation, and you never thought the case would settle, but apparently you and opposing counsel did a good job talking your clients down. Miraculously, the parties turn the corner. Husband makes a good offer for alimony, and that leaves only the issue of division of his retirement account. You have statements for the retirement account, but no summary plan description, and you have not consulted with a QDRO attorney. What do you do?

Mediation Scenario (cont. ) � Option 1: Reserve on the issue until you can get full discovery and discuss the issue with someone who regularly deals with QDROs. � Option 2: Draft in the alternative, and clearly lay out the parties’ intent, and leave open the option to modify the agreement solely as to that issue; make sure that appropriate benefits are covered before agreeing to finalize. � Key cases to consider. : Blaine v. Blaine, 872 So. 2 d 383 (Fla. 4 th DCA 2004); Padot v. Padot, 891 So. 2 d 1079 (Fla. 2 d DCA 2005); Jones v. Treasure, 984 So. 2 d 634 (Fla. 4 th DCA 2008); Samaroo v. Samaroo, 193 F. 3 d 185 (3 d Cir. 1999)

Key Terms � Qualified Domestic Relations Order (“QDRO”): A Qualified Domestic Relations Order is a domestic relations judgment, decree or order 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 qualified plan (i. e. employer sponsored). � All QDROs must contain the following to be “qualified”: • The name and last known mailing address of the participant • The name and mailing address of each alternate payee; • The amount or percentage of the participant’s benefit that the alternate payee is to be paid, or the manner in which said benefit is to be determined; • The number of payments or period of time to which the order applies; and • The official name of the plan • (see ERISA § 206(d)(3)) • • QDROs must relate to either support or property division (see IRC § 414(p)(1)(B)(i)) A QDRO may not alter the amount, form, or other provisions of benefits otherwise payable under a qualified plan.

Key Terms � Defined Contribution Plan: a plan that provides for an individual account for each participant and for benefits based solely on the amount contributed to the participant’s account, and any income, expenses, gains and losses, and any forfeitures of accounts of other participants which may be allocated to such participant’s account (see IRC § 414(i)); think of this as a basic 401(k), although there are variations; what you take out will be based on what you actually put in; ERISA does not cover Individual Retirement Accounts (IRAs)

Key Terms � Defined Benefit Plan: The Internal Revenue Code defines these as any qualified plan that is not a defined contribution plan (see IRC § 414(j)); think of this as a pension plan; the plan is generally only funded by the employer and employees earn credits based on years of service and other factors that vest on a predetermined schedule

Purging Contempt, Temporary Relief, and Attorney’s Fees � Contempt of support orders and orders to pay fees � Nowhere does it say that a QDRO has to follow a Final Judgment � Fees: Similar to support (need/ability standard; treated as “support” in bankruptcy and thus nondischargeable; Fla. Stat. § 61. 16 and 742. 045; equity) “Grossing Up”: “X” divided by 0. 8 or “x” times 1. 25 = Amount to be used in QDRO

Penalties and Tax Issues � 1) 10% early withdrawal penalty � 2) 20% withholding � 3) Roth 401(k): Withholdings depend on portion that is contributed by employee, earnings on that portion, and portion contributed by employer (pre-tax vs. after tax) � 4) IRAs

Defined Contribution Plan Benefits 1) Valuation: Make sure that you know the actual value of the account on the date of valuation, and that you are aware of any stock options that vest and/or matching that may occur at the end of the year � Get Mandatory Disclosures (Statements and Summary Plan Description) � Know your vesting schedule 2) Passive Gains and Losses: Changes in value from valuation date to date of segregation of accounts; See Hoffman v. Hoffman, 841 So. 2 d 695 (Fla. 4 th DCA 2003) 3) Outstanding Loans: Will they factor into award?

Defined Benefit Plan Benefits 1) Survivor Benefits a) Qualified Joint and Survivor Annuity b) Qualified Pre-Retirement Survivor Annuity 2) Duration and Benefit Commencement Shared Interest b) Separate Interest c) Lump Sum b) How do you get a valuation? a) 3) 4) 5) Amount—Valuation Cost of Living Adjustments Early Retirement Subsidies

The Florida Retirement System (“FRS”) � Two Plans � FRS Pension Plan (Defined Benefit Plan) Always use a shared interest approach �Survivor Benefits may or may not be available, depending upon whether the employee is active or not; four retirement options �Deferred Retirement Option Program (DROP) �See Pullo v. Pullo, 926 So. 2 d 448 (Fla. 1 st DCA 2006) Always know the marital portion as of the date of valuation � FRS Investment Plan (Defined Contribution Plan) Gains/Losses

Timing � Why you need to hurry when it comes to QDROs � How long should drafting take? � Pre-Approval versus Post-Entry Approval

Preparation and Fees � Who should be responsible for preparing a QDRO? � Attorney versus Non-Attorney Liability Issues: Shifting to another attorney � How should fees and costs be divided? � Who should be required to contact the drafter?

The Engagement Letter � State in your engagement letter that: � you do not handle QDROs; � if a QDRO is necessary, it will require a separate fee to be paid by the client; and, �a retirement account or a claim to the benefits under same may be at risk if the client does not seek and obtain a QDRO immediately upon the execution of a settlement agreement or entry of any Final Judgment or other ordering necessitating a QDRO.