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).
An “alternate payee” may be a spouse, former spouse, child, or other dependent of a participant.
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 also must:
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 to process. For those who process the court orders in-house, there are certain things to keep in mind:
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.