A qualified domestic relations order (QDRO) is not to be confused with a divorce decree or property settlement agreement. A QDRO specifically recognizes a spouse, former spouse, child, or other dependents’ right to receive a predefined portion of a qualified ERISA-sponsored retirement plan. A QDRO must be issued by a state court or authority.
To “qualify” as a QDRO under the Employee Retirement Income Security Act (ERISA), a QDRO must have (or not):
- The name and last known mailing address of the participant and each alternate payee;
- The name of each plan to which the order applies;
- The dollar amount or percentage (or the method of determining the amount or percentage) of the benefit to be paid to the alternate payee;
- The number of payments or time period to which the order applies;
- The order must not require a plan to provide an alternate payee or participant with any type or form of benefit, or any option, not otherwise provided under the Plan;
- The order must not require a plan to provide for increased benefits (determined on the basis of actuarial value);
- The order must not require a plan to pay benefits to an alternate payee that are required to be paid to another alternate payee under another order previously determined to be a QDRO; and
- The order must not require a plan to pay benefits to an alternate payee in the form of a qualified joint and survivor annuity for the lives of the alternate payee and his or her subsequent spouse.
With that, a QDRO must also “qualify” under the terms and conditions of the specific retirement plan. All retirement plan is different, and some have unique terms and conditions such as annual vs. daily valuations dates, ROTH contributions, frozen benefits, vesting requirements, shared vs. independent options, survivors benefits, and timing requirements. Each retirement plan is required to have written QDRO procedures and model language available to Participants upon request but watch out! The model language is designed to protect the interests of the Plan, not the Participant, and never an Alternate Payee. It is suggested you understand the terms and conditions for each account along with the ERISA requirements above, prior to any agreements or the decree language being drafted.
It should also be noted that QDROs are not specific to divorce. A QDRO can be used in several other circumstances including child support, past-due arrears, or even in other court jurisdictions where the circumstances may warrant a non-taxable transfer to a spouse, former spouse, child, or dependent. As long as a state Judge or court commissioner will sign the QDRO, it must be deemed “qualified” under the terms of the plan assuming it meets all of the requirements above.
It can be well worth the time and money to consult with a retirement plan specialist as soon as you identify the need for a Qualified Domestic Relations Order. For more QDRO tips continue to follow our blog or contact Gerard Zielinski as Smarter Divorce Solutions anytime.
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