QUESTIONS & ANSWERS
What is the process for filing a QDRO?
A copy of the draft QDRO should be submitted to the Plan Administrator (as instructed in the cover letter that comes with the draft QDRO) to find out in writing whether they require any changes.
1. Plan Revisions: If there are any revisions requested by the plan administration, notify our office and we will make them without cost.
2. Signature page: You and your spouse sign the QDRO in the presence of your attorney. If you are not represented by attorneys, you must both sign the order in the presence of notaries.
3. Filing: You or your attorney will then file the QDRO with the court after it has been approved by the Plan and signed by you & your ex-spouse. If you are not represented by an attorney, you must call the Clerk of the Court (in the county where the divorce took place) for instructions on obtaining the judge’s signature so it can be filed with the court. Keep a copy for yourself.
4. Final step: After the QDRO is filed with the court, it is certified. You or your attorney will then send it to the plan administrator who contacts the Alternate Payee (your ex-spouse) confirming that the QDRO is in place. This completes the QDRO process.
Commonly Asked QDRO Questions
1. What is a domestic relations order?
Any judgment, decree, or order (including approval of a property settlement agreement) that (1) relates to the provision of child support, alimony payment, or marital property rights to a spouse, former spouse, child or other dependent of a participant, and (2) is made pursuant to a state domestic relations law (including community property law).
2. How do I know what kind of information is required under a qualified domestic relations order (QDRO)?
All of the requirements for QDROs are contained in Section 206(d)(3) of ERISA and Section 414(p) of the Internal Revenue Code.
3. What does ERISA stand for?
Employee Retirement Income Security Act of 1974, as amended.
4.Who is the alternate payee?
The alternate payee is 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.
5. What is a defined benefit pension plan?
Pension plan qualified under ERISA and the IRC that provides a specific pre-determinable amount of benefits to a participant at the individual's projected date of retirement. Normally, the benefits are based on a formula that incorporates the participant's projected years of service and final average compensations. Defined benefit plan are required to be funded on an ongoing basis in accordance with actuarial principles enumerated in ERISA and the IRC. A participant's benefits under a defined benefit pension plan are referred to as accrued benefits.
6. What is a defined contribution plan?
A plan qualified under ERISA and the IRC that provides for contributions directly to individual accounts established and maintained for each plan participant. The contributions may consist of either employee or employer contributions or both. The participant is generally entitled to receive the account balance (together with any interest accrued thereon as well as investment gains and/or losses) when the employee retires or otherwise terminates employment with the company. There are several types of defined contribution plans, including profit sharing plans, thrift plans, 401(k) plans, retirement savings plan, stock bonus plans, and employee stock ownership plans (ESOPs).
7. What is the participant's "accrued benefit" under the defined benefit pension plan?
This refers to the amount of benefits that a participant has earned under a defined benefits pension plan as of any particular date and is usually stated in terms of a monthly pension annuity. It is generally based on the employee's years of service with the company and his/her final average compensation as of the calculation date.
8. What is a vested accrued benefit?
The accrued benefit in which the plan participant is vested based on the individual's years of vesting service with the company. Normally, a plan participant becomes fully vested in pension benefits after five years of service. However, some pension plans use a graded vesting schedule in which a participant's vesting percentage increases each year until it reaches 100 percent. Under current law, a plan participant must be fully vested in the accrued benefit after no later than seven years of vesting service. The participant's vested accrued benefit refers to the portion of benefits the participant has a non-forfeitable right to receive under the plan.
9. What are matching employer contributions?
Contributions made to a defined contribution benefit plan, such as a 401(k) Retirement Savings Plan, by the employer based on a certain percentage of the employee's own contribution. For example, an employer may contribute 50 cents on the dollar for each dollar which an employee contributes to the plan on a payroll deduction basis, up to 6 percent of his/her base salary.
10. What is meant by the earliest retirement age?
The age at which a plan participant may first commence pension benefits under the provisions of the plan. Normally, benefits payable to someone before normal retirement age are actuarially reduced to reflect the earlier commencement of benefits.
11. What is an actuarial equivalent?
The actuarial adjustment necessary to convert a participant's benefits into different forms and/or payment periods so that the total value of a participant's pension benefits remains equal (on an actuarial basis) regardless of the form of benefit or the commencement date the participant may elect.
12. How can I obtain information about a Plan Participant?
In order to obtain information regarding the status of a certain Plan participant, you must furnish the Plan Administrator with a written, signed release from the participant or a subpoena.
13. What is the earliest date on which the alternate payee can begin to receive benefits under a QDRO?
With respect to a defined contribution plan, an alternate payee is entitled to commence his/her share of the benefits as soon as administratively feasible following the date the QDRO is approved by the Plan Administrator and upon completion by the alternate payee of the necessary distribution forms and other paperwork as may be required by the Plan Administrator.
Under a defined benefit pension plan, an alternate payee must wait until the participant attains the "earliest retirement age" as defined under Section 414(p)(4) of the Internal Revenue Code, before he/she can commence his/her share of the benefits and upon completion of the necessary paperwork. Also, depending on the age of the participant when the alternate payee elects to commence his/her share of the benefits, the alternate payee 's benefits may be further reduced by any applicable early commencement reduction factors.
14. Are benefit payments to the Alternate Payee automatic once the QDRO is qualified?
No. Even if the QDRO includes a specific date when the alternate payee is to commence his/her share of the benefits, the alternate payee will not commence his/her benefits until a benefit distribution election form and any other associated paperwork as may be required by the Plan Administrator, is properly completed by the alternate payee. Remember, the alternate payee must contract the plan administrator to request the necessary distribution application forms. These must be properly completed and returned to the Plan Administrator before any distribution will occur.
15. Under a defined benefit pension plan con an alternate payee's share of the benefits be given to his/her beneficiary or estate in the event of the alternate payee's death?
Generally no. If the alternate payee dies before he/she elects to commence benefits in accordance with the terms of the QDRO, in almost all cases no benefits are payable to alternate payee's beneficiary or estate. Even if the QDRO includes language that provides for payments to be made to the beneficiary or estate of the alternate payee, it will be rejected by the Plan Administrator.
If the alternate payee dies after his/her benefit commencement date and if he/she elected a form of benefit payment that provides for continued payments to a designated beneficiary in the event of his/her death, then such payments will be made to such beneficiary following his/her death.
16. Will the alternate payee be entitled to growth on his/her share of the benefits "automatically" under a defined contribution plan?
No. If the intent is to provide the alternate payee with interest and investment income or losses that are attributable to his/her share of the benefits from the date of assignment to the date of distribution, the QDRO must include specific language to this effect. If the QDRO does not include a specific reference regarding investment growth, the alternate payee's share of the benefits may be "frozen" as of the effective date of assignment. In California, the alternate payee is entitled to gains/losses on their awarded share (unless the Judgment/MSA specifically states that gains/losses will not be included), so the QDRO must include language to match such intent.
17. How are interest and investment earnings/losses calculated on the alternate payee's share of the benefits?
Retroactive calculation of growth on the alternate payee's share of the account balance from effective date of assignment to the current date (QDRO approval date): Annual interest and investment growth factors will be applied with partial year adjustments for the first and final year of the calculation.
Growth from current date to date of distribution: If the alternate payee does not elect immediate distribution of his/her share of the benefits upon approval of the QDRO, benefits will be segregated and maintained in separate account(s) in the name of the alternate payee. Once new accounts are established, the alternate payee's share of the benefits will grow with interest and investment income or losses in the some manner as the participant's benefits under such accounts.
18. How will the alternate payee's share of the benefits be "allocate" among the participant's various accounts and/or subaccounts under a defined contribution plan?
Not only should your QDRO include specific details regarding the amount of the alternate payee's benefits, it should also include instructions regarding the allocation of benefits form the participant's accounts. Alternatively, you may include an instruction in the QDRO that requires the Plan Administrator to carve out the alternate payee's share of the benefits on a "pro-rata" basis among all of the participant's accounts.
19. Can a QDRO provide the alternate payee with a portion of the participant's "future" benefits under the Plan ?
No. The QDRO must include an effective date of assignment that is on or before the date that such QDRO is submitted to the Plan Administrator. This requirement is necessary due to loan and withdrawal provisions. Therefore a QDRO submitted on June 1, 1996, cannot include language that provides the alternate payee with, say 50%, of the participant's total account balance under the Plan as of December 31 1998. This would deprive the participant of contractual Plan rights and entitlements and be in strict contravention of ERISA.
20. When will the Plan Administrator begin to segregate an separately account for the alternate payee's share of the benefits?
Pursuant to section 414(p)(7) of the Internal Revenue Code, during any period in which the issue of whether an executed domestic relations order is a qualified domestic relations order is being determined, the Plan Administrator shall withhold and separately account for the amounts which would have been payable to the alternate payee during such period if the order had been determined to be a qualified domestic relations order. In order words, the Plan Administrator shall be required to withhold and separately account for the called-for portion of the participant's benefits during the period in which it is determining whether the Order is a QDRO, but only for a maximum of 18 months.
21. Is it proper if a QDRO directs payments to someone other than the alternate payee?
In limited circumstances, it is permissible for a QDRO to permit payments directly to someone other than the Alternate Payee. According to the legislative history, the QDRO provisions do not prevent the payment of amounts in pay status with respect to an alternate payee to a state agency that is an agent of an alternate payee or the payment of such amounts if the alternate payee consents to such payment (for example, to meet the requirements relating to Aid to Families with Dependent Children). In such a case, payments to the agency does not result in disqualification of the order and, under normal principles of constructive receipt, the alternate payee is treated as having received the amounts paid under the order.
22. Do QDROs apply to welfare benefit plans?
No. Welfare benefit plans as described in ERISA §3(1), which include an employer's medical, dental, and disability plans, are exempt from the provisions relating to QDROs which are contained in Part 2 of Title 1 of ERISA. Section 210 (1) of ERISA specifically excludes welfare benefit plans from the provisions of Part 2 Title 1.
23. Do QDROs apply to plans sponsored by the government and churches?
No. The Omnibus Budget Reconciliation Act of 1989 (OBRA 1989) subsection 7841 (a)(2) added a new subsection 11 to §414(p) of the IRC regarding the application of QDROs to governmental and church plans.
24. How should a plan administrator handle a domestic relations order that was submitted before the effective date of the provisions relating to QDROs under the Retirement Equity Act of 1984?
According to the legislative history, a plan administrator may choose to treat a domestic relations order that was issued on or before December 31, 1984 (the effective date of the QDRO rules) as if it were a QDRO even though the order does not satisfy all of the IRC §414(p) requirements for qualification. However, the terms of such order must be generally consistent with the qualification requirements for QDROs.
25. Can a QDRO provide that all of the participant's accrued benefits are to be paid to the alternate payee?
Yes. It is a common misconception that an alternate payee is only entitled to half of the participant's vested accrued benefit under the plan. If a state domestic relations court decides that the alternate payee is entitled to 100 percent of the participant's pension benefits, the plan administrator will be obligated to follow the order pursuant to its terms if the order otherwise satisfies the qualification requirements for QDROs.
26. Do the reporting and disclosure provisions of ERISA and the Code apply to alternate payees receiving plan benefits under a QDRO?
Yes, because an alternate payee has all the rights and privileges of a beneficiary under the plan, the payee should receive summary plan descriptions, summary annual reports, and an explanation of ERISA rights as appropriate.
27. Are alternate payee's under a QDRO treated a "Beneficiaries" under ERISA?
The answer is yes. It is important to remember when drafting a QDRO that an alternate payee is essentially treated under ERISA with all of the rights and privileges of a plan beneficiary.
28. Does the distribution of a portion of the plan participant's benefits under a plan constitute a garnishment of such participant's wages as defined under federal or state law?
No. According to §206(d)(3)(M) of ERISA, benefit payments made to alternate payees under the terms of a QDRO do not constitute a garnishment for purposes of §303(a) of the Consumer Credit Protection Act.
29. What happens if the participant dies before the QDRO is approved by the Plan Administrator?
This issue should be of central concern to the attorney representing a potential alternate payee under a QDRO. A QDRO is not a QDRO until a certified executed copy is received and approved by the Plan Administrator. If the participant dies before a certified copy of the QDRO has been reviewed and approved by the Plan Administrator, the alternate payee will not be entitled to any portion of the participant's benefits nor will the alternate payee be entitled to any pre-retirement survivor annuity benefits or post-retirement joint & survivor annuity benefits that may become payable under the Plan. This is true even if the Plan Administrator has already pre-approved a draft Order. It may therefore be in the best interests of your client to get your QDRO signed by the judge before submitting it to the Plan Administrator for review.