Qualified Domestic Relations Order (QDRO)
During divorce proceedings, one of the most overlooked yet sizeable assets are pension and retirement plans. This may be due to the fact that pension plans are difficult to value and divide. Under the Employment Retirement Income Security Act (ERISA), a private employee pension plan may not be assigned or alienated except by a qualified domestic relations order (QDRO).
What are QDROs?
A QDRO is technically a form of domestic relations order. The purpose of a QDRO is so that a spouse can receive his or her share of retirement benefits from a private employee pension plan.
Participant & Alternative Payee
Under a QDRO, there are two parties: the participant and the alternate payee. The participant refers to the spouse who was employed and earned the private employee pension plan during the course of his or her employment. The alternate payee refers to the other spouse.
Domestic Relations Order
Although a QDRO is a form of domestic relations order, it is important to note that the two are not exactly similar. A QDRO is a domestic relations order which recognizes the existence of an alternate payee’s right to receive all or a portion of the benefits payable to a participant under a plan. On the other hand, the term ‘domestic relations order’ is more general and can refer to any judgment, decree or order that relates to the provision of child support, alimony payments, or marital property rights to a spouse, former spouse, child, or other dependent of a participant.
There are certain statutory requirements that a qualified domestic relations order must meet. They are as follows:
- The name and the last known mailing address (if any) of the participant and the name and mailing address of each alternate payee covered by the order.
- The amount or percentage of the participant’s benefits to be paid by the pan to each such alternate payee, or the manner in which such amount or percentage is to be determined.
- The number of payments or period to which such order applies; and
- Each plan to which such order applies.
In addition to these, the order must not:
- Require a plan to provide any type of form of benefit or any option, not otherwise provided under the plan;
- Require the plan to provide increased benefits (determined on the basis of actuarial value); and
- Require the payment of benefits to an alternate payee that are required to be paid to another alternate payee under another previously determined qualified domestic relations order.
A qualified domestic relations order does not become ‘qualified’ unless it is accepted by the plan provider. As such, there are procedures that must be followed once a domestic relations order is submitted to the plan provider.
First, the participant and the alternate payee must be notified by the plan administrator when a domestic relations order is received. Since private pension plans have different procedures for determining the qualified status of a domestic relations order, the participant and the alternate payee must also be informed of the procedure followed by the plan provider.
After this, the plan provider must determine whether the domestic relations order qualifies as a QDRO. The participant and alternate payee must be informed of the decision after the determination.
If the plan administrator does not believe that the domestic relations order qualifies as a QDRO, then the administrator must wait 18 months after receiving the domestic relations order before paying benefits to the person who would have been entitled to it originally. During the pendency of these 18 months, the benefits must be separately accounted.
It is important that your divorce lawyer and you are aware of the requirements for a QDRO. Take note that a QDRO is still required even if the divorce decree already mentions pension plans. QDROs may only be obtained during the pendency of divorce proceedings and not after a final decree has been issued. The remedy for the latter is to reopen the divorce proceedings.