Under the Employment Retirement Income Security Act (ERISA), a private employee pension plan cannot be divided or allocated unless there is a qualified domestic relations order. Pension plans are often one of the largest assets in divorce proceedings, so their division often requires experienced legal counsel.
A qualified domestic relations order (QDRO) is technically a form of domestic relations order. The purpose of a QDRO is to enable the other spouse to share in the pension and retirement benefits gained from a private employee pension plan.
“NOTE – a QDRO is still necessary even if the divorce decree already mentions pension plans.”
Participant & Alternate Payee
There are two parties involved in a QDRO, and they are called the participant and the alternate payee. The participant refers to the spouse who earned the private employee pension plan in the course of his or her employment while the alternate payee refers to the other spouse.
QDRO vs Domestic Relations Order
It is important to distinguish between a QDRO and a domestic relations order. A QDRO is more specific, while the more general category of “domestic relations order” embraces a more expansive definition. 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. Meanwhile, a ‘domestic relations order’ 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.
A QDRO must also adhere to certain statutory requirements. 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 plan to each such alternate payee, or how such an 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.
An order can be said to meet QDRO requirements only if the order:
- Does not require a plan to provide any form of benefit or any option, not otherwise provided under the plan;
- Does not require the plan to provide increased benefits (based on actuarial value); and
- Does not 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.
Technically speaking, a domestic relations order only becomes ‘qualified’ when the plan administrator accepts it. There are certain procedures to be followed once a plan administrator receives a domestic relations order. However, take note that the process of actually determining whether or not a domestic relations order qualifies as a QDRO differs from one plan administrator to another.
Once a domestic relations order is received the participant and the alternate payee must be notified by the plan administrator. As mentioned above, private pension plans have different procedures for determining the qualified status of a domestic relations order and the participant and the alternate payee must also be informed of the procedure followed by the plan provider.
Once this is accomplished, the plan provider determines whether the domestic relations order qualifies as a QDRO. The participant and alternate payee must be informed of the findings of the plan provider.
If the plan administrator does not find that the domestic relations order qualifies as a QDRO, there is a mandatory waiting period of 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.