Impact of QDROs on Top Heavy Determinations (Posted August 22, 2004) Technical Tip 127: The following question and answer were from the IRS Q&A Session at the 2003 ASPPA Annual Conference: A question on QDROs and top-heavy testing for DC plans. Could you provide your opinion on how distributions to, and accounts established for, Alternate Payees (AP) are treated for top-heavy testing? For example, would a distribution to an AP be treated as an in-service distribution from the participant’s account, with the proceeds paid to the AP (five-year rule)? (A) If the distribution is not an in-service, would it be treated as a distribution made to the AP during the determination year, even though the AP was never an employee and did not work during the determination year (one-year rule)? (B) What if no immediate distribution is made to the AP and a separate account is maintained pursuant to the QDRO? Is this separate account counted for top-heavy and for how long? (C) Does it matter if the AP is the former spouse of a key or non-key employee (relating to the different treatment of account balances for non-key and former key employees)? For example, if the AP of a key employee leaves their separate account in the plan, is the separate account that of a non-key, former key or an account of someone who has not worked for the employer during the determination year? What if the AP is the former spouse of a non-key employee? (D) What if a DRO (received today) provides that an account is to be split 50/50 as of June 30 of last year, but the APs account is not distributed until January of next year? Assuming a calendar year plan, which date(s) apply in determining when account balances are/are not counted? Response: A distribution to the alternate payee is considered to be a distribution to the participant for top heavy purposes and would be added back for the top-heavy valuation under the SBJPA rules based on whether the participant has separated from service at the time of the distribution. View all Tips © 2010 Reish Luftman Reicher & Cohen, a Professional Corporation Important notice: Answers are provided as general guidance on the subjects covered in the question and are not provided as legal advice to the questioner's situation. Any legal issues should be reviewed by your legal counsel to apply the law to the particular facts of your situation.