Module 5

Question 1

A retirement plan that is paid for with after-tax income, doesn’t have to follow ERISA guidelines, and does not have contribution limits

Answer 1

non-qualified plan

Question 2

A tax-deferred retirement plan that must follow ERISA guidelines and contribution limits

Answer 2

qualified plan

Question 3

What are the two main types of qualified plans?

Answer 3

1. defined contribution plans
2. defined benefit plans

Question 4

This type of qualified plan has cash value and provides a separate account for each employee

Answer 4

defined contribution plan

Question 5

A qualified plan that obligates an employer to pay a specified annual or monthly pension to each employee upon their retirement

Answer 5

defined benefit plan

Question 6

Do defined benefit plans have cash value?

Answer 6

no

Question 7

What are the three methods of transferring IRAs in a divorce?

Answer 7

1. Change the owners name on the IRA
2. Trustee-to-trustee transfer
3. Rollover

Question 8

Is a QDRO needed to transfer or divide an IRA?

Answer 8

no, it is not a qualified plan

Question 9

What is the coverture fraction?

Answer 9

[number of years married while working / total number of years worked until retirement] x final benefit … divided by 2

Question 10

What is the inflation adjusted formula?

Answer 10

[(1+discount rate/1+inflation rate) - 1] x 100

Question 11

Do public employee pensions typically divide pursuant to a QDRO?

Answer 11

no

Question 12

Describe 5 year cliff vesting:

Answer 12

An employee who has at least 5 years of service must have a non forfeitable right to 100% of the employee’s accrued benefit

Question 13

Describe 3 to 7 year vesting (aka 7 year graded):

Answer 13

20% after three years, 40% after four years, 60% after five years, 80% after six years, and 100% after seven years

Question 14

Which plans typically use 3 year cliff vesting or 7 year graded vesting?

Answer 14

top heavy plans or matching contributions

Question 15

What is a common interest rate used in pension valuations?

Answer 15

the 20 year average of the 20 year Treasury bond rates

Question 16

A QDRO isn’t qualified until when?

Answer 16

until the plan administrator approves it

Question 17

When should the QDRO be drafted?

Answer 17

before the parties are divorced and entered into court concurrently with the divorce decree

Question 18

What is the number one reason plan administrators reject the first attempted QDRO?

Answer 18

the plan name is incorrect, followed by unclear or omitted provisions

Question 19

What is the most difficult part of drafting a QDRO?

Answer 19

survivor benefits (because they are the least understood)

Question 20

Is there mandatory 20% withholding for IRAs?

Answer 20

no

Question 21

Payments are made to the retiree for their lifetime and stop upon death

Answer 21

single life annuity payout

Question 22

Payments are made to the retiree for a set number of years and will continue to the retiree’s estate if the retiree dies before the term is over

Answer 22

term certain payout

Question 23

A set amount is paid to the retiree during their lifetime and an amount is continued to be paid to the spouse after death

Answer 23

QJSA payout

Question 24

This method of dividing pensions is where no present value is determined - each spouse is awarded a share of the benefits when they are paid

Answer 24

deferred division or future share method

Question 25

This method of dividing pensions is where the non-employee spouse is paid a lump-sum settlement from the pension or receives a marital asset of equal value to the non-employee spouse’s interest in the pension

Answer 25

present value or cash-out method

Question 26

This method of dividing pensions is one where the court retains the authority to order distributions from a pension plan at some point in the future

Answer 26

reserved jurisdiction (should be considered last resort option)

Question 27

T or F: Defined benefit plans can be divided equally or unequally by using a QDRO

Answer 27

true

Question 28

Do you need a QDRO to divide a medical savings account?

Answer 28

no

Question 29

this act established laws relating to the attachment of pension benefits, thereby putting family law courts into a quandary as to how to treat retirement plan assets that state courts determined were marital property

Answer 29

Employee Retirement Income Security Act of 1974 (ERISA)

Question 30

enacted in 1982, this act recognizes military retirement benefits as marital property

Answer 30

Uniformed Services Former Spouses' Protection Act (USFSPA)

Question 31

direct payments of benefits to an ex-spouse of a military person may not exceed how much of the benefit

Answer 31

one-half (50%)

Question 32

an ex-spouse is entitled to receive benefits from a military member as long as:

Answer 32

the military spouse was in the service for at least 10 years and the 10 years of service overlap with the marriage

Question 33

this act provides that all qualified plans subject to ERISA may segregate assets for the benefit of an alternate payee through a court order, the QDRO

Answer 33

Retirement Equity Act of 1984 (ERA)

Question 34

this act added a section which allows marital property to be transferred back and forth between spouses without creating a tax on the transfer

Answer 34

Tax Reform Act of 1984 (TRA)

Question 35

the basis of each marital asset is what when it's transferred to the transferee?

Answer 35

the same basis of the asset when it was in the hands of the transferor (no step up)

Question 36

for a Domestic Relations Order to be qualified, what has to happen?

Answer 36

it must be approved by the qualified plan administrator

Question 37

what is a typical area of liability when drafting a QDRO?

Answer 37

when the pension documents do not allow for the ex-spouse to receive benefits before the employee spouse is retired

Question 38

what is an often overlooked (and potentially lucrative) part of a pension plan?

Answer 38

an early retirement supplement, subsidy, or temporary benefit

Question 39

early retirement supplements are usually given to what kind of employee?

Answer 39

higher paid employees - given as an incentive to retire early

Question 40

how can ancillary benefits for a pension be incorporated into a QDRO?

Answer 40

these benefits must be specifically awarded in the judgment of divorce

Question 41

what are the main problems that can occur regarding division of retirement plans?

Answer 41

1. timeliness 2. failure to address key issues 3. an incomplete understanding of the process by the professional and/or clients

Question 42

when should the QDRO be drafted?

Answer 42

before the parties are divorced and entered in court concurrently with the divorce decree

Question 43

what is the number one reason plan administrators reject the first attempted QDRO?

Answer 43

the plan name is incorrect

Question 44

what is the most difficult part of the QDRO and why?

Answer 44

survivor benefits, because they are the least understood

Question 45

when a distribution is paid from an IRA, the trustee must withhold what percentage of taxes?

Answer 45

0% (it is not a qualified plan)

Question 46

a plan administrator is required to do what when participants ask for a distribution from a qualified plan?

Answer 46

provide a direct rollover option to the participant

Question 47

the rules for splitting up medical savings accounts follow the IRA rules, which means:

Answer 47

a QDRO cannot be used, a copy of the divorce decree must be provided to the administrator

Question 48

can a QDRO be used as collateral for a property settlement note?

Answer 48

yes