• A pension plan must stipulate the distribution procedures in the event of a QDRO.

Often as a result of a divorce settlement, it is determined that all or a portion of a participant’s retirement plan benefit — whether from a defined contribution plan or a defined benefit plan — should be split and paid to the former spouse or “alternate payee.” An “alternate payee” may be a spouse, former spouse, child, or other dependent of a participant. A court order that creates the existence of an “alternate payee’s” right to receive all or a portion of the benefits payable with respect to a participant under a qualified retirement plan is referred to as a Qualified Domestic Relations Order (QDRO).

Components

Just the fact that a property settlement in a divorce situation is agreed to and signed by the parties does not necessarily cause the agreement to become a QDRO. It must be issued by a state authority, generally a court, before it qualifies. Basic information must be included in a QDRO such as names, mailing addresses of both parties, name of the plan, dollar amount or percentage to be paid to the alternate payee, and the number of payments or time period to which the order applies.

Every pension plan is required to establish written procedures for determining whether a domestic relations order is actually a QDRO and for administering distributions under it. An employer can process each QDRO in-house or pay an attorney, record keeper, or actuary to process it.

How are QDROs processed?

For employers who process the QDROs in-house, there are certain things to keep in mind:

• Plan administrators may develop a “model” QDRO form with acceptable language to assist attorneys in the preparation of a QDRO.
• Upon receipt of a “draft” copy of the QDRO, the plan administrator should make sure that all the information is complete and accurate. The proposed QDRO cannot require a benefit or form of benefit not otherwise provided under the plan.
• The plan administrator must promptly notify participants and all alternate payees of the draft copy, as well as provide a copy of the plan’s procedures to them.
• Once the plan administrator has determined the draft to be “qualified,” the approval should be sent to the attorney for final revisions and submission to the court.
• Upon receipt of the final court order, the plan administrator is required to notify the participants and all alternate payees promptly.

Timeframe

Processing of the retirement plan benefit per the stipulations of the QDRO should be done within a reasonable time period upon receipt of the final court documentation. These are mandatory orders which a plan sponsor must abide by and should be conscientiously followed.