Can a QDRO be used to effectuate an award to one spouse of a portion of the other spouse's 401k, profit sharing plan, ESOP, or similar type of Defined Contribution Plan?
Yes. An Alternate Payee may be awarded a portion of the Employee's account pursuant to a QDRO. In fact, it is important that the award be done via a QDRO form so that early withdrawal penalties are avoided. The process is straightforward. The Plan will establish a separate account for the Alternate Payee, and offer the Alternate Payee the same investment opportunities that are available for other participants. If the Alternate Payee chooses, it is usually possible to transfer the funds awarded to an IRA or other tax qualified account of his/her choice.
Can the QDRO provide for an Award of a Percentage of the Account Balance, Rather than a Specific Dollar Amount?
Yes. Under most plans, it is possible to award the Alternate Payee a portion of the Employee's account balance as of a specific date (Frequently, the date on which the divorce action was commenced), plus any investment gains or losses attributable thereon from that date until the date the Alternate Payee receives a distribution from the Plan.
ANSWERS TO FREQUENTLY ASKED QUESTIONS REGARDING
Are there Different Methods for Dividing a Pension Plan?
DEFINED BENEFIT PLANS (PENSIONS)
What Issues Should be Considered in Preparing a QDRO for a Pension Plan?
Yes. In general, there are two different ways to formulate a QDRO form for a pension. Our downloadable forms provide you with the option of choosing between these approaches, which are briefly summaries as follows:
- Shared Interest Approach
- payments to the Alternate Payee cannot begin until the Participant chooses to retire and begins to receive a retirement allowance;
- payments to the Alternate Payee must end upon the Participant's death unless the Alternate Payee was designated in the QDRO as the surviving spouse of the Participant for the purpose of electing a Qualified Joint and Survivor Annuity and such election was elected by the Participant at the time of the Participant's retirement.
- Separate Interest Approach:
A "separate interest" is carved out for the Alternate Payee and adjusted to his or her actuarial life expectancy. In addition, the Alternate Payee controls the timing and manner of his or her receipt of the benefit payments. The Alternate Payee can commence receiving benefits at the Participant's earliest retirement date, rather than wait for the Participant to begin to receive a retirement allowance. This approach may not be available for certain plans.
- Should the alternate payee receive a pro-rata share of any post-retirement cost of living adjustments (if offered by the plan)?
- Should the alternate payee be treated as the surviving spouse of the participant if the participant dies prior to retirement?
- If the alternate payee dies prior to commencement of benefits, what happens to his/her share?
- Should the alternate payee receive a pro-rata share of any early retirement supplements, interim supplements or temporary benefits that become payable to the participant which are not considered by the Plan Administrator to be a part of the participant's accrued benefit?
- Should the alternate payee receive a pro-rata share of any early retirement subsidies?
- Should the alternate payee be treated as the surviving spouse of the participant, to the extent of the marital property component, in the event the participant dies prior to reaching retirement?
- Should the alternate payee receive a postretirement survivor annuity if the participant predeceases the alternate payee after the date of their benefit commencement?
Your downloadable QDRO form will contain sample language that you may select regarding each of the issues/options set forth above.
ANSWERS TO FREQUENTLY ASKED QUESTIONS REGARDING QDRO FORMS
How Can an Alternate Payee Avoid Having His or Her Benefits Cut Off Upon the Death of the Plan Participant?
What Information is Required in a QDRO?
Many plans provide "model orders" - most of which contain language that is highly prejudicial to the rights of the Alternate Payee. In particular, the plans' model QDRO forms typically provide only for the distribution of payments using the Shared Interest Approach. When this approach is used, the Plan Participant has total control over the timing of the receipt of payments by both the Participant and Alternate Payee.
Typically, an Alternate Payee will benefit from a QDRO form that used the "Separate Interest Approach," which gives Alternate Payee (rather than Plan Participant) control over the timing of payments to him or her. Under a QDRO that uses the Separate Interest Approach, the Alternate Payee may elect to receive payments at any time, even if the Plan Participant has not yet retired (provided that the Participant has attained the Early Retirement Age as set forth by the Plan). The Alternate Payee receives payments for the duration of his or her life - even after the Participant's death.
What Issues can Result in the Rejection of a QDRO by a Retirement Plan?
An exhaustive list is not practicable because of the different types of QDRO's and variations in language and terms based on the circumstances in particular cases. However, the following is a partial list and will be required in all QDRO's:
- State the Names, social security numbers and addresses of both the Plan Participant and the Alternate Payee;
- Identify the relationship between the Plan Participant and Alternate Payee (spouse, former spouse, child).
- Identify the particular state domestic relations law that controls the issuance of the order, and the order's purpose (maintenance/alimony; division of marital property; alimony);
- Identify the name of the Plan;
- If the QDRO is being issued for purposes of distributing marital property and/or alimony or maintenance, it must set forth the date of the parties' marriage and date of divorce; if it is being issued in connection with a child support order, it must set forth the date of the birth of the subject child[ren];
- Starting and ending dates, or events, for payments to the Alternate Payee that will be issued under the QDRO.
To be a valid QDRO, the domestic relations order must comply with specific requirements set forth in ERISA. See, e.g., 29 U.S.C. §§ 1056(d)(3)(C), (d)(3)(D) (2000). The domestic relations order meets those requirements only if the order "(i) does not require a plan to provide any type or form of benefit, or any option, not otherwise provided under the plan"; and "(ii) does not require the plan to provide increased benefits (determined on the basis of actuarial value)." 29 U.S.C. §§ 1056(d)(3)(D)(i), (d)(3)(D)(ii) (2000).
If a domestic relations order contains a provision requiring a plan to pay more than it would otherwise be required to pay to the participant, or provide a benefit not provided for under the plan, it may be rejected by the Plan.