Ask the Experts August 9, 2022

Can an Alternate Payee Designate a Beneficiary?

Experts from Groom Law Group and CAPTRUST answer questions concerning retirement plan administration and regulations.

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“Can an alternate payee in our retirement plan designate a beneficiary?”

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Charles Filips, Kimberly Boberg, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:

OK, before the Experts answer your question, we should probably explain to those who may not be aware who exactly an alternate payee is.

An alternate payee is defined in the Internal Revenue Code as any spouse, former spouse, child or other dependent of a participant who is recognized by a domestic relations order as having a right to receive all, or a portion of, the benefits payable under a plan with respect to such participant. Thus, in order to have an alternate payee, you must have a domestic relations order that recognizes that payee, and the plan must further determine that the domestic relations order is qualified—hence the term “qualified domestic relations order.”

A QDRO may be either a “separate interest” order or a “shared payment” order. A separate interest order gives the alternate payee a separate right to receive a portion of the participant’s retirement benefit, to be paid at a time and in a form elected by the alternate payee. A shared payment order “splits” the actual benefit payments made with respect to a participant under the plan to give the alternate payee part of each payment, in the form of benefit elected by the participant—the alternate payee does not have the right to make any elections regarding the payment of benefits under this form of QDRO.

Once DROs are qualified, alternate payees are essentially treated as if they were beneficiaries under the plan. However, there is nothing in the IRC or ERISA that would prohibit the plan from granting the same rights to an alternate payee as a participant in the plan, except when restricted under the IRC and/or ERISA (for example, an alternate payee may NOT make elective deferrals to a retirement plan). The right to name a beneficiary is one such participant right that can be granted to an alternate payee, and indeed many plans grant an alternate payee the right to name a beneficiary. However, that right is limited to an assignment under a separate interest QDRO, as the payment of benefits under a shared payment QDRO is subject to the participant’s elections.

Incidentally, it is a best practice for a plan to have QDRO procedures and even sample QDROs (vendors may also offer these). If possible, you may wish to look to those and see what they say.

NOTE: This feature is to provide general information only, does not constitute legal advice and cannot be used or substituted for legal or tax advice.

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