QDROs

***What is a DRO?

1. An ORDER, judgment, etc. (a partition agreement is not sufficient; it must be signed by the appropriate agency or court) 2. made pursuant to STATE DOMESTIC RELATIONS LAW 3. for CHILD SUPPORT, ALIMONY PAYMENTS OR MARITAL PROPERTY RIGHTS for the benefit of 4. SPOUSE, FORMER SPOUSE, DEPENDENT CHILD, OTHER DEPENDENT 5. there is no need for the parties to sign, but the court must 6. there is no need to make the plan a party to the suit

What requirements must a plan's QDRO procedures meet?

1. Be in writing 2. Be reasonable 3. Require that the PA notify the AP and P of the Plan's procedures for making QDRO determinations upon receipt of a proposed QDRO 4. Permit an AP to designate a representative for receipt of copies of notices and plan information that are sent to the AP

What are the PA's duties with respect to a DRO received by the plan before the beginning of the 18-month period?

1. PA must determine if the DRO is a QDRO in a reasonable period of time; 18 months is not reasonable. 2. PA may not permit distributions to the P of any other person of any amounts that would be payable to the AP if the DRO were determined to be a QDRO 3. If the PA determines that the DRO is a QDRO b/4 the 1st payment is made, the PA has a continuing duty to account and protect the AP's interest in the plan.

Definition of a DCP:

1. Provides for an individual account for each P. 2. P's benefits based solely on his and 'er's contributions to P's account plus or minus any income, expenses, gains or losses and any forfeitures of accounts of other P's that may be allocated to such P's account. Examples: profit sharing plans (401(k)) employee stock ownership plans (ESOPs) money purchase plans 3. P's basic retirement benefit is any given amt in the plan at any given time 4. P's basic retirement benefit is also known as the P's "account balance" 5. Normally provide for "lump sum" payment of entire account balance but it can provide for an annuity. 6. By their nature, they do not offer subsidies.

What are the things that a QDRO cannot require?

1. QDRO cannot require the Plan to provide to the AP increased benefits determined on the basis of actuarial value 2. QDRO cannot require a Plan to provide a type of benefit or any option not otherwise provided under the Plan with the one exception that an AP can have the right to receive payment at the P's earliest retirement age, even if the P has not retired 3. QDRO cannot require the Plan to pay to the AP benefits that have already been allocated to another AP under a previously filed QDRO

What kind of notice is required to be provided by a PA following a QDRO determination?

1. The PA must promptly notify the AP and P, in writing, as to the determination. 2. If it is not a QDRO, the notice should include a. the reasons for the rejection; reference to the Plan provisions; an explanation of any time limits that apply to rights available to the parties under the Plan, b. a description of any additional material, information or modifications necessary for the DRO to be a QDRO and c. an explanation of why such material, information of modifications are necessary

A QDRO that provides for a separate interest distribution method may specify the form in which the AP's benefits will be paid subject to the following limitations:

1. The order cannot provide the AP with a type or form of payment, or any option, not otherwise provided under the plan. 2. The order cannot provide any subsequent spouse of an AP with the survivor benefit rights that Federal law requires be provided to spouses of participants. (In other words, an AP does not have survivor benefits to leave to their new spouse.) 3. For any tax-qualified retirement plan (contributions are generally made on a pretax basis and earnings can accumulate tax deferred), the payment of the AP's benefits must satisfy the Code's requirements for the timing and duration of payment. An order may substitute the AP's life for the life of the P to the extent that the form of payment is based on the duration of an individual's life.

What are a PA's duties with respect to a DRO received on or after the date on which benefits would be payable to the AP under the DRO?

1. Upon receipt of the DRO, the PA must separately account for and preserve the amounts that would be payable to an AP until a determination is made as to the status of the DRO. 2. if the DRO is determined to be a QDRO, the PA must pay the "segregated amounts" to the AP 3. if the DRO is determined not to be a QDRO in the 18-month period, the PA must pay out the segregated amounts to the P 4. if the DRO is later determined to be a QDRO, the QDRO will apply only prospectively

What is a QDRO?

1. a DRO 2. that creates or recognizes 3. the existence of an AP's right to receive, or assigns to an AP the right to receive 4. all or part 5. of the benefits payable to a P 6. under a retirement plan

What are the 4 provisions a QDRO cannot contain?

1. cannot require the Plan to provide an AP or P with any type or form of benefit, or any option, NOT OTHERWISE PROVIDED BY THE PLAN 2. cannot require a Plan to provide for increased benefits determined on the basis of actuarial value 3. cannot require a Plan to pay benefits to an AP that are required to be paid to another AP under another order previously determined to be a QDRO 4. cannot require the Plan to pay benefits to the AP in the form of a QJSA for the AP's life and his/her subsequent spouse.

What information must be included in a DRO to qualify it?

1. name and address of the P 2. name and address of the AP 3. name of the plan 4. $ amount, % or formula for determining the % of the benefit to be paid 5. number of payments or time period to which the order applies

Definition of a DBP:

1. promises to pay a specific benefit at retirement 2. basic retirement benefit is based on a formula 3. that formula takes into account the P's # of years of service and salary 4. basic retirement benefit is provided in the form of periodic payments for the P's life 5. typically begins payments at what the plan calls "normal retirement age" 6. The stream of payments is generally known as an annuity. 7. The basic benefit can increase over time due to a number of factors such as increase in salary or the crediting of additional years of service or through amendment to the plan's provisions including COLA. 8. Sometimes DBPs provide for the payment of benefits under certain circumstances or in alternative forms. Benefits paid at those times may have a greater actuarial value than the basic retirement benefit payable at normal retirement age. When one form of benefit has a greater actuarial value than another form the difference in value is called a subsidy. 9. Can provide for a lump sum payment, but typically it is periodic payments over the lifetime of the P.

What are the duties of a PA upon receipt of a DRO?

1. promptly notify the AP and P of the receipt of the DRO 2. provide a copy of the plan's procedures for determining if a DRO is qualified. 3. Determine if the DRO is a QDRO within a reasonable period of time. 4. Promptly notify the P and AP of the determination

What do you look to to determine what is best?

1. type of plan 2. nature of the participant's benefits 3. why the parties are seeking to divide those benefits 4. survivor benefits

What can a DRO do?

A DRO can assign all or a part of the P's retirement benefits to a spouse, former spouse, child, or other dependent to satisfy family support or marital property obligations if and only if there is a QDRO

What is the PBGC?

A federal agency that insures pension benefits in most private sector defined benefit pension plans. It is for all private sector DBPs.

What is an annuity?

A stream of periodic payments over time; typical to a DBP

How much can be given to an AP in a QDRO?

All or part of the P's retirement benefits

Who is the PA?

An individual or an entity specifically designated in the Plan documents as the PA. If the Plan documents do not specific a PA, it is the employer. The name, address and telephone number of the PA must be included in the summary plan description. The SPD is a document that the PA is required to furnish to each P and each beneficiary receiving benefits. It summarizes the rights and benefits of Ps and beneficiaries and the obligations of the Plan.

Example #2: The P is a DBP that permits retirement benefits to be paid beginning when the P attains age 65 and terminates employment. It does not permit earlier payments. The "ERA" for this plan is the earlier of: a. the date on which the P reaches age 65 and terminates employment b. the later of age 50 or attaining age 65 (whether he terminates employment or not)

Answer: Because under "b" age 65 is later than age 50, the second part of the formula can be simplified to read "age 65" so that the formula now reads: a. age 65 and terminates employment or b. age 65 So the answer is age 65.

Example #1: The Plan is a DCP that permits the P to make withdrawals only when he or she reaches age 59 ½ or terminates from service. As such, the "earliest retirement age" formula for this plan can be simplified to read the earlier of: a. 59 ½ or when he terminates employment, whichever occurs first or b. the later of age 50 or the date the P could begin receiving benefits under the Plan if the P separated from service from the employer

Answer: Since age 50 is earlier than 59 ½, the "ERA" for this Plan will be either age 50 or the date the participant actually terminates from service.

May a PA charge a P or AP for determining the qualified status of a DRO?

As to a DCP, the PA may assess reasonable expenses attributable to a QDRO determination against the individual account of the participant who is a party to the DRO.

Separate interest approach:

Assigns a specific dollar value or percentage as of certain date and can provide for a separate account under which the AP can exercise the rights of a P.

What are the two types of retirement plans?

DBP DCP

What is "earliest retirement age" and why is it important?

ERA: Is the earlier of two dates: 1. the date on which the P is entitled to receive a distribution under the Plan, or 2. The later of either (a) the date the participant reaches age 50 or (b) the date the P could begin receiving benefits under the Plan if the P separated from service from the employer

**Is the duty to separately account for and to preserve the segregated amounts limited in time?

ERISA requires the PA to preserve the segregated amounts for not longer than the end of the 18-month period which begins on the first date after the PA receives the DRO that the DRO would require payment to the AP. The 18-month period begins on the first date on which a payment would be required to be made under an order following receipt by the plan.

What are survivor benefits?

Federal law requires ALL pension plans to provide for a survivor benefit for the P's spouse upon P's death. Plans have different kinds of survivor benefits so read the plan summary. Federal law requires that ALL DCPs provide for a survivor annuity. Federal law requires that some DBPs provide for a survivor annuity.

Separate interest approach:

Make certain the order is based on adequate information from the PA and the plan documents concerning the participant's retirement benefit and the rights, options and features provided under the plan. Consider any subsidies or future benefit increases and address them in the QDRO i.e, whether the AP should receive any of those benefits or not.

Are DCP's protected by the PBGC?

No

Are all pension plans that terminate trusteed by the PBGC?

No

Is a PA required to determine the validity of the DRO under state domestic relations laws?

No

Must all QDROs contain the same provisions?

No because there are different types of retirement plans and different purposes for QDROs.

Do ERISA and the Internal Revenue Code allow a participant to assign or alienate his interest in a retirement plan?

No, in general, ERISA and the Code do not allow a participant to assign or alienate his interest in a retirement plan.

Does a DRO have to be issued as part of a divorce proceeding?

No, it just has to be issued pursuant to state domestic relations law. That's how it can be used for child support and spousal support.

Are all pension plans insured by PBGC?

No.

Must a DRO be issued by a state court?

Not necessarily. It can be issued by any state agency or instrumentality with the authority to issue judgments, decrees or orders or to approve property settlements, pursuant to state domestic relations law.

Will a DRO fail qualification just because of the timing of the issuance?

Not so long as it meets the requirements to be a QDRO. It can be issued after the P's death, divorce or annuity start date or subsequent to an existing QDRO.

What happens to the rights created by a QDRO if a defined benefit plan is terminated and the Pension Benefit Guaranty Corporation b/cs trustee of the plan?

PBGC pays the plan benefits subject to certain limitations; it does not pay certain death and supplemental benefits.

What info is a PA required to provide a prospective AP before the PA receives the DRO?

Plan and participant information sufficient to prepare a QDRO. However, the PA may require some sort of proof that a domestic relations proceeding is pending before providing the information.

What is a QJSA?

Qualified Joint and Survivor Annuity. Federal law requires that all DCPs and some DBPs provide for a survivor annuity for a spouse who was married to the P on the annuity state date. When benefits are paid as a QJSA, the P receives a periodic payment during his life and after the P dies, the surviving spouse receives a periodic payment for the remainder of the surviving spouse's life

What is a QPSA?

Qualified Pre-retirement Survivor Annuity. Federal law requires that if a married P has a non-forfeitable benefit under a plan and dies before his annuity start date, the plan must pay the SS of the P a monthly survivor benefit.

What are the 2 methods under which a DCP can be divided?

Shared payment Separate interest approach

What are the different methods a DBP can be allocated?

Shared payment Separate interest approach

Who can be an alternate payee?

Spouse, former spouse, child or other dependent

Can the QDRO specify the form in which the AP is to receive benefits?

Sure, and it can also give the AP the same right that the P would have had under the plan to elect the form of benefit payment. Oftentimes, a Plan may give an AP more rights that a P to receive benefits, such as a lump-sum payment which a P typically does not have a right to receive.

What disclosure rights does an AP have under a QDRO?

The AP is treated as a beneficiary of the plan for ERISA purposes. As such, the PA must disclose, if requested: 1. summary plan description 2. latest annual report 3. any final annual report 4. the bargaining agreement, trust agreement, contract or other instrument under which the plan is established or operated. 5. The PA can impose a reasonable charge for cover the cost of furnishing such copies. 6. Once the AP begins receiving benefits, the PA must automatically send the AP the summary plan description, summaries of material plan changes, and the plan's summary annual report.

What effect does an order that a PA has determined to be a QDRO have on the administration of the Plan?

The PA must act in accordance with the QDRO as if it were a part of the Plan and let the AP do what they want provided it is in accordance with the terms that would apply to the P.

What must the PA provide the AP if a plan is terminated?

The PA must provide the AP with the notification, consent, payment or other rights that it would have provided to the P.

Who determines if a DRO is qualified?

The Plan Administrator who is charged by the plan to have reasonable procedures to determine if the DRO is qualified and to administer distributions pursuant to a QDRO. The PA must also furnish notice of the receipt of a DRO and a copy of the plan's procedures for determining the qualified status of the DRO to the P and the AP.

Definition of annuity start date:

The first day of the first period for which an amount is payable to the P.

If a QDRO designates a former spouse as a surviving spouse for all or part of the survivor benefit, how does that affect the new spouse?

The new spouse would not be a SS. I can't tell if she would be the SS to the part that was not allocated to the former spouse, but I would think she would.

With a DBP or DCP, if the parties divorce before the P's annuity start date, what happens to the survivor benefit?

The spouse loses the right to any survivor benefit under Federal law unless a QDRO states otherwise.

What if the P dies with a spouse, was a P in a DCP and the plan does not require a QJSA or QPSA?

Then Federal law requires that the Plan pay the balance in the account to the SS. If the SS signs a consent, the beneficiary can be someone other than him/her, like the parties' children. During the marriage, a spouse's consent is not required to withdraw any portion or all of the account balance.

What if the P remarries?

Then the new spouse would probably acquire the right to the Federally mandated survivor benefits.

What is the best way to divide a P's retirement benefits in a QDRO?

There is no single best way.

Is the PA required to reject a DRO as defective if the order fails to specify factual identifying information that is easily obtainable by the PA?

They are not supposed to.

What happens to the AP's rights created by the QDRO is the Plan is amended, merged or is maintained by a successor employer?

They are protected just as the P's.

What is the one way that a participant's pension benefits can be allocated to someone else?

Through a QDRO.

What can a DRO be used for?

To satisfy family support or marital obligations such as division of property.

What is the "separate-interest" approach?

Typical in a marital property division This is when you take the P's retirement benefit (rather than payment) and divide it into two separate portions with the intent of giving the AP a separate right to receive a portion of the retirement benefits to be paid at a time and in a form different from that chosen by the participant. Can be used in DBP and DCP.

What is the "shared payment" approach?

Typically ordered when the P is already receiving a stream of payments. The AP receives a percentage of the P's monthly benefit amounts The AP does not receive a payment unless and until the P begins receiving payments. Typical for support-type QDRO which must set forth the % or a formula and the duration of the payments such as "until age of majority" "until remarriage" for 235 payments, etc. Also typical for marital property division when the P is in pay status. Can be used in DBP and DCPs.

What if the P and his new spouse have been married less than 1 year?

Under some plans, the new spouse could not be considered a SS.

What is a subsidy?

When a DBP pays a benefit higher in actuarial value than the basic retirement benefit payable at normal retirement age.

What must the PA do during the determination process to protect against wrongly paying retirement benefits to the P that would be paid to the OP if the DRO had been determined to be a QDRO?

When a DRO is being reviewed, ERISA requires that the PA separately account for the amounts that would be payable to an AP under the terms of the DRO. These amounts are referred to as "segregated amounts." The PA is to take steps to make certain that the segregated amounts are not inadvertently paid to the P.

How long can a PA take to determine whether a DRO is a QDRO?

Within a reasonable period of time after receiving the order. Reasonable period of time depends on the circumstances and how complete and clear the DRO's wording is.

Can a QDRO provide for the payment to be made to a guardian of an AP?

Yes

Is the Plan required to have procedures for determining whether a domestic relations order is qualified?

Yes

Are there other matters that should be addressed in a Plan's QDRO procedures manual? And if so, what are they?

Yes 1. the procedures must ensure that QDRO determinations are made in a timely, efficient and cost-effective manner consistent with the fiduciary duties of the PA. 2. Clear explanation of the Plan's determination process, including: a. an explanation of the info about the plan and benefits such as a summary plan description, plan documents, individual benefit and account statements and any model QDROs developed for use by the Plan. b. a description of the time limits for the PA to make determinations c. a description of the steps the PA will take to protect and preserve retirement assets or benefits upon receipt of a DRO d. a description of the process provided under the plan for obtaining a review of the PA's determination as to whether an order is a QDRO

May PA's provide parties with a model form?

Yes, but they are not required to do so.

Can QDRO be part of the divorce decree or property settlement?

Yes, it just needs to meet all the requirements to make it qualified.

Can a QDRO cover more than one plan?

Yes, provided you identify each plan and the assignment of benefit rights under each Plan.

Shared payment approach:

be specific as to the percentage or dollar amount of the benefit the AP should receive. If you specify a dollar amount, make certain that the monthly benefit to the P will be sufficient to pay the amount and indicate what is to happen if it is not. The order should also specify the beginning and end date. Since a DBP can provide for subsidies and increases in the benefit payment, if you do not want the AP to get any you must so state b/c the AP will automatically receive her percentage of the increase or subsidy otherwise.

Shared payment approach:

should clearly establish the percentage or amount of the P's payments that will be allocated to the AP as well as the number or duration of the payments. Consider how to allocate any increases or losses in the value of the benefits. If the order specifies a specific dollar amount instead of a percentage, the order should address the possibility that a P's account balance or individual payments might be less than the specific dollar amount when paid out.

In either case, a QDRO cannot provide

that an AP will receive a benefit earlier than the date on which the P reaches his or her earliest retirement age, unless the Plan permits an earlier date. Example: a Plan can provide that an AP can elect to receive a lump sum payment of a separate interest at any time. The Code may affect when benefits must be paid under tax-qualified retirement plans.

When can the AP get the benefits assigned under a QDRO? Separate interest:

the QDRO can specify the time after the PA receives the QDRO that the AP will receive the separate interest OR it can assign to the AP the same right the P would have under the plan with regard to the time of the payment.

When can the AP get the benefits assigned under a QDRO? Shared payments:

the QDRO must specify the date on which the AP will begin to receive the payments, but the date cannot be a date earlier than with the PA received the QDRO.