Security for the Alternate Payee’s Share of the Retirement Account

The order requires that the participant pay the benefits to the alternate payee within a specified period of time. Naming the participant as a constructive trustee does not relieve the Plan Administrator of responsibility to pay the benefits under a properly drafted and accepted order.

All qualified plans are required to have procedures in place for the receipt, notice acceptance and rejection of orders served upon it. It is rare that these procedures break down; however, the alternate payee’s benefits may be paid to the participant. This can happen, for example, when an amended order was not transmitted or sent until after benefits to the participant had begun.

Even though the order may require the participant to pay the benefits, generally the repayment of alternate payee’s benefit creates an enforcement problem. One way to solve this potential problem is to include in the order a provision that requires the Plan Administrator to withhold from future benefits of the participant until the amounts due to the alternate payee have been recouped.

A QDRO can include a make-up provision that anticipates that the participant may receive benefits due to an alternate payee. Upon notice by the alternate payee, the provision directs the Plan Administrator to withhold payments from the participant to make up the past due to the alternate payee under the constructive trust provisions of an order. The Plan Administrator can only activate the make-up provision subsequent to the acceptance of a QDRO. Make-up provisions are a form of revocable assignment contemplated by IRC Section 414(p).

Here is a model of a make-up provision:

“If for any reason the Plan fails to make payments required to the Alternate Payee pursuant to this Order and makes the full payment to the Plan Participant, it is the Plan Participant’s obligation, and Participant hereby agrees to make such payment to the Alternate Payee, and to so notify the Plan Administrator of the error, and to continue to make the required payments to the Alternate Payee until such time as the administrative error is corrected. If the Plan Participant fails to notify the Plan Administrator or fails to make the payments necessary to the Alternate Payee, the Plan Participant hereby authorizes the Plan Administrator to withhold future payments from the Participant’s Plan distributions until such time as the amounts owed to the Alternate Payee are recouped.”

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