Although a defined contribution plan with an age 50 requirement may not actually distribute amounts pursuant to a QDRO until the participant attains age 50, the alternate payee's proposed share of the participant's account must be separately accounted for until the order is actually qualified. The rules provide that the employer can take up to 18 months to qualify an order. Until the determination is made, those funds may not be paid out to the participant. Upon qualification of the order, the actual separation of funds will be finalized. In a plan that has the age-50 rule, if a participant separates from employment prior to age 50, the QDRO would be distributed to the alternate payee at that time, unless termination of employment is not a distributable event under the plan terms. We do not usually recommend designing plans using the age 50 option.

NOTE: The subject of DB QDROs is more complex and will be further explored in a future alert.

Available Plan Distribution Options Issue
A DRO is not a valid QDRO if it requires a distribution option that is not available under the plan. Thus, if the defined contribution plan only offers a lump sum distribution and the DRO calls for installment payments to the alternate payee, the DRO cannot be qualified unless it is rewritten to select from the plan's available distribution options.

Frequently, the available distribution option requirement is confused with the age 50/earliest distribution date issue. For example, a plan may be designed to only permit distribution at Normal Retirement Age (NRA) and may define NRA as age 65. However, the alternate payee will not have to wait until the participant is age 65 to obtain their distribution. The qualification of a QDRO is a distributable event in its own right. Thus, the alternate payee(s) can receive the distribution as soon as DRO is otherwise determined to be qualified, (assuming the age 50 rule does not apply).