RETIREMENT PLAN INFORMATION
Military and Non-Military
BASIC QDRO INFORMATION
What is a Domestic Relations Order?
A domestic relations order is a court order, judgment, or decree issued under a state's domestic relations law that recognizes the right of a spouse, former spouse, child, or other dependent of a participant in an employee benefit plan to receive all or part of the participant's vested account balance or accrued benefit in the plan. Typically domestic relations orders are required to divide all pensions and 401(K) plans. Occasionally, an IRA plan may require a domestic relations order; even if they do not there are typically forms and documents that need to be drafted to transfer a spouse's interest in an IRA.
What is a Qualified Domestic Relations Order?
A Qualified Domestic Relations Order (QDRO) is a domestic relations order that has been determined by the Plan Administrator to meet specific requirements mandated by federal law and the provisions of the plan.
Why is a QDRO necessary?
The Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code of 1986 (IRC) require tax-qualified retirement plans to contain provisions that prohibit the payment of benefits to individuals other than plan participants or their beneficiaries. However, the Retirement Equity Act of 1984 (REA) created an exception to this prohibition by stating that a participant's interest in his or her retirement plans may be transferable to his or her spouse, former spouse, child, or other dependent if payment is mandated under a QDRO.
The domestic relations order must be qualified by the plan before any payments may be made to an alternate payee. If the QDRO does not meet this requirement, it cannot be accepted, and payment will not be made to the alternate payee. Alternatively, a pending domestic relations order will not prohibit the participant from commencing his or her benefit with the portion of the benefit not impacted by the pending domestic relations order.
What Does the QDRO Process Involve?
First the Plan Administrator is contacted to determine the exact paramaters of the plan and what type of language is or is not allowed in the drafting process. Once all the documents relating to the plan have been obtained, a model QDRO is drafted. Some Plan Administrators will review a draft QDRO to determine if it qualifies under there unique provisions and federal law. Once complete, the QDRO is sent to a judge for approval and entry with the court. Finally, the completed QDRO is sent to the Plan Administrator who distributes benefits as directed in the QDRO.
Frequently Used Terminology
The alternate payee is any spouse, former spouse, child, or other dependent of a participant who is recognized by a domestic relations order as having a right to receive all or a portion of the benefits payable under the plan with respect to the participant
The liquidation date is the date a portion of the participant's defined contribution account is liquidated to allow for payment to the alternate payee's account in accordance with the terms of the order. An assignment as of the liquidation date assigns a portion of the participant's current account balance.
The Plan Administrator is the body who establish procedures for the administration of QDROs, determines whether or not a domestic relations order is in fact "qualified", and distributes benefits under the plan.
The valuation date is the date on which the participant's vested account balance or accrued benefit is valued in order to determine the alternate payee's designated portion in accordance with the terms of the order. Defined contribution accounts are valued on a daily basis. If, however, the QDRO requires a historical division of the participant's account and a daily valuation is not available for such date, the participant's account will be divided as of the valuation date immediately preceding the date specified in the order.
The participant's vested account balance is the participant's benefit as if he or she terminated employment and received a distribution on the valuation date.
The participant's vested accrued benefit is the participant's benefit as if he or she terminated employment on the valuation date and began receiving a distribution from the plan. For benefits accrued after the cash balance conversion date, the vested accrued benefit is the greater of: (a) the annuity formula's actuarial equivalent present-value lump sum, or (b) the participant's cash balance benefit
Requirements of a domestic relations order to "qualify"
There are 11 requirements that a domestic relations order must meet before it will qualify as a QDRO. It must:
1. Be a court order, judgment, or decree. [IRC 414(p)(1)(B)/ERISA 206(d)(3)(B)(ii)] A QDRO must be certified and signed by a judge or other state-approved court official.
2. Relate to the alimony payments or marital property rights of a spouse or former spouse, or to the support of a child or other dependent of a plan participant. [IRC 414(p)(1)(B)(i)/ ERISA 206(d)(3)(B)(ii)(I)]
3. Be issued under a state's domestic relations law. [IRC 414(p)(1)(B)(ii)/ERISA 206(d)(3)(c)(iv)]
4. Clearly identify the plan. A QDRO must name the plan under which the benefits are being assigned. [IRC 414(p)(2)(D)/ERISA 206(d)(3)(c)(iv)]
5. Include the name and complete last-known mailing address of the participant and alternate payee. [IRC 414(p)(2)(A)/ERISA 206(d)(3)(c)(I)]
Although not a legal requirement, benefit processing requires the Social Security Number and date of birth of the participant and alternate payee.
6. Describe the amount or percentage of benefits to be paid and when to calculate the amount or percentage. [IRC 414(p)(2)(B)/ERISA 206(d)(3)(c)(ii)]
7. Not require the plan to pay more benefits than the participant has earned or will earn. [IRC 414(p)(3)(B)/ERISA 206(d)(3)(D)(ii)]
8. Describe the manner of payment and when payments may begin. [IRC 414(p)(2)(C)/ERISA 206(d)(3)(c)(iii)]
9. Not require the plan to provide any benefit not otherwise provided by the plan. [IRC 414(p) (3)(A)/ERISA 206(d)(3)(D)(I)]
10. Not require payments to an alternate payee that are required to be paid to another alternate payee under a previously issued QDRO. [IRC 414(p)(3)(C)/ERISA 206(d)(3)(D)(iii)]
11. Be approved by the Plan Administrator. [IRC 414(p)(6)(A)(ii)/ERISA 206(d)(3)(G)(i)(II)]
MILITARY RETIREMENT PAY
The Military has requirements and rules for dividing retirement unique to any other type of benefit plans.
Since military retired pay is a Federal entitlement, and not a qualified pension plan, there is no requirement that a Qualified Domestic Relations Order (QDRO) be used; however, the award must be specifically set forth in a manner that is acceptable to properly process the award.
The regulatory body who is in charge of keeping track of and distributing military retirement benefits is Defense Finance and Accounting Services (DFAS)
The Uniformed Services Former Spouses' Protection Act (USFSPA) was passed by Congress in 1982. The USFSPA gives a State court the authority to treat military retired pay as marital property and divide it between the spouses.
For a division of retired pay as property award to be enforceable under the USFSPA, the former spouse must have been married to the member for a period of 10 years or more during which the member performed at least 10 years of service creditable towards retirement eligibility. This requirement does not apply to the Court's authority to divide military retired pay, but only to the ability of the former spouse to get direct payments from DFAS.
The Language Problem
The amount of a former spouse's award is entirely a matter of state law. However, in order for the award to be enforceable under the USFSPA, it must be expressed in a manner consistent with the USFSPA, and the court order must provide DFAS with all the information necessary to compute the award. This is why it is best to consult an attorney regarding orders dividing military retirement.
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