IRS issues

IRS Offers Some QDRO Help

T he Pension Benefit Guaranty Corporation already has issued sample language to help make sure qualified domestic relations orders (QDROs) are in full compliance with pension plans under its authority (see “QDROs Made Simple,” JofA, Jan.97). Now, the Internal Revenue Service has done the same. The Small Business Job Protection Act of 1996 assigned the IRS the task of developing model language. Notice 97-11 (published as part of IRS bulletin 1997-2) provides both a description of key issues and model language. The Department of Labor, which shares QDRO enforcement authority with the IRS, reviewed the services language and found it consistent with its view of the statutory requirements. Use of the IRS language is not necessarily required to create a legal QDRO, however, and its use does not guarantee the QDRO will be in compliance. However, the sample language will help ensure QDROs are prepared correctly.

QDROs are a thorny issue for CPAs and lawyers. They can be used to divide a 401(k), for example, at the time of divorce. The language must be absolutely correct—a problem the new IRS guidance hopes to alleviate. But one problem that any sample language cant solve is the QDROs inability to override a plans rules. “For example,” David Rooney, CPA, told the Journal , “if a 401(k) plan allows only for lump-sum, 10-year installments or lifetime annuities, you cant have a QDRO calling for monthly payments to a spouse.” Rooney, a partner of Rooney, Plotkin & Wiley in Newport, Rhode Island, consults frequently with lawyers who draft QDROs for their clients. “Most defined contribution plans contain a clause saying they will make payments pursuant to any QDRO, but if that statement isnt there,” said Rooney, “the QDRO may not supersede the plan rules.”

Issues for CPAs and lawyers
Rooney emphasized the role CPAs could play in helping lawyers draft QDROs. Although CPAs themselves may not draft them, Rooney does provide “language for counsels consideration” which usually, after review, is adopted verbatim. He said CPAs and lawyers should review at least the summary plan description. He personally looks at the entire plan document.

“The IRS language is helpful although we do not simply use boilerplate in drafting QDROs,” Jeffrey Weinstock, a divorce lawyer with the Washington, D.C., firm of Sherman, Meehan, Curtin & Ain, told the Journal . He agreed with Rooney that it was a good idea to look at the entire plan document.