Pension Appraisers, Inc.
Experts in Dividing Pension in Divorce
FAQs FOR DEFINED CONTRIBUTION PLAN


1. What is a Defined Contribution Plan?

A Defined Contribution plan is a pension plan which has an account specified for the individual employee where a defined amount is being contributed to the plan by the individual, the employer or both. Examples of this type of plan are 401(k), 401(a), Employee Stock Ownership Plan (ESOP), Savings Plans and Profit Sharing Plans.

2. Can I have the plan write a check directly to me for the amount that I have been awarded from my spouse's defined contribution plan?

Usually not immediately. There are two different options when you are drafting a QDRO against a defined contribution plan. There is the option to have the Alternate Payee set up an account within the Plan, and take advantage of the same options available to participants. If you elect, the money could be released to you in a lump sum. However, it is important to remember that taxes will be due on the sum paid.

The other option is to instruct the Plan to transfer the funds awarded to another tax qualified. This could be a direct transfer to an IRA Account or 401(k) of Savings Plan you have due to employment.

3. What are the tax implications of taking an immediate cash distribution from a defined contribution account?

There is a mandatory 20% withholding for taxes on any funds released in cash. If the money is transferred or rolled to another tax qualified account no taxes will be due.

4. What about the interest and/or investment gains and losses that may happen from the time it was agreed that the account was to be split until I actually get the money in my account?

That also can be written into the QDRO. The Alternate Payee can be awarded any gains or losses attributable to the portion of the account awarded until the money is received by the Alternate Payee.

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