Questions and Answers about Pensions and QDRO’s

Why are Orders to Divide Pensions Important?
For many families, a retirement plan is the second largest (after a house) asset.  A wide range of benefits may be considered as marital property including government (federal, state, and local) retirement plans, company pensions and 401 (k) or similar plans, Individual Retirement Accounts (IRAs) and military pensions.  In order to have access to a part of your spouse’s benefits under these plans, you must have a court order.  The exact name of the order will vary based on the type of plan (private or government).  The most common order for a private pension is called a Qualified Domestic Relations Order.  This section will address QDRO’s specifically but the general information is useful in considering a government pension as well.  A Qualified Domestic Relations Order (QDRO) is the only way to divide up the interest of one spouse in his/her private retirement plan.

What is a Qualified Domestic Relations Order (QDRO)? 
A QDRO (pronounced “quad row”) is a specific type of domestic relations order that recognizes the right of an “alternate payee” to receive all or part of a pension plan, which belongs to another person.  (Pension orders dividing up governmental benefits will have different names but the general information in this section will still be useful.)

A QDRO is usually used to:  

•  provide support payments (temporary or permanent) to an “alternate payee” or

•  divide marital property during a divorce proceeding.

A QDRO must meet certain rules under federal law in order for it to be valid.  There is no requirement that both parties (in most cases you and your spouse) sign an agreement.

A QDRO must be issued by a “state authority” (usually a court) through a judgment, order or decree, which addresses a property settlement.  Not all domestic relations orders “qualify” and can divide a pension plan.

The administrator of the pension plan must, under certain guidelines, decide whether a domestic relations order can be a “qualified” domestic relations order (QDRO).

Any of the following can be an “alternate payee”. 

A pension plan participant’s: 

• spouse,

• former spouse,

• child, and/or

•  other dependent.

Can I do My Own QDRO?
No, a legally enforceable Qualified Domestic Relations Order (QDRO) must be part of a judgment order or decree issued by the state authority (usually a court).

You and your spouse can write and sign property settlement agreement, but it will not meet the federal requirements for a QDRO unless it is formally approved by a court and it must include certain information to be valid.

Practically speaking, this is an area for trained specialists.  For this document which will not make such a big difference in your future financial security) you want to have someone who regularly handles cases like yours and has been doing the work for awhile.  Even some attorneys will have the knowledge or expertise to draft a good QDRO.  Ask an attorney how many QDRO’s s/he has done and what percentage of their practice involves divorce or related matters.  An attorney who does not specialize in the area will take much longer to investigate, research and then draft the appropriate document (and therefore cost you more) and will be more likely to make a mistake.

What Kind of Benefits Could I Expect Under a QDRO?
The amount, type and timing of benefits payable under a QDRO will depend on your individual circumstances and the specifics of the retirement plan and how the QDRO is written.  However, there are a few general principles which can give you an idea of the range of possibilities.

• A plan must be a retirement plan in order to be part of a QDRO. 
• A QDRO cannot change the basic rules of the retirement plan.  For example, a QDRO cannot require a plan to increase benefits or require the plan to provide an option not already a part of the plan.  The scope of the plan will control the options available to be considered under a QDRO.
• A QDRO can require your spouse’s retirement plan to assign your spouse’s benefits to you or your dependent child.
• A QDRO can assign part or all of your spouse’s benefits to you (or to others).
• The benefits may not be payable until your spouse (ex-spouse) becomes eligible for benefits (i.e., retires or dies)
• When a QDRO splits a benefit by assigning a portion of it to an alternate [you or your child(ren)] you are treated by the plan as if you were a participant.
• If you are a spouse or former spouse, your benefit under a QDRO will be taxable even if the payment is being made to you in place of child support (which is otherwise not taxable)
• If you, as a former spouse, receive a benefit you can defer the tax by rolling the amount over into an individual retirement account (IRA) within 60 days.
• If the “alternate payee” is someone other than the spouse of the plan participant (such as the child of the participant), the participant pays the tax on the payments.
• In many employee plans, there is a benefit payable when the former employee dies.  Whether or not, a QDRO can be used to assign you a benefit will depend on several factors such as whether the plan had already started paying benefits when the QDRO was issued, the type of plan (defined benefit or defined contribution) and who the alternate payees are.

Is There a Limit on What Percentage of the Retirement Plan Benefit that can be Assigned to Someone Else Under a QDRO?
The federal law does not impose a limit.  An alternate payee can receive all or part of the participant’s benefits.  An alternate payee is the spouse, former spouse, child, or other dependent of the “participant” as identified in the QDRO.  The participant is the employee covered by the retirement plan.  

When can a QDRO be Issued?
Qualified Domestic Relations Orders (QDRO’s) are used most often as part of a divorce.  They can also be issued during a legal separation or to pay a support obligation.

How can a QDRO be Used as Part of a Divorce?
A Qualified Domestic Relations Order (QDRO) can be used to assign future / or current retirement benefits as part of a property settlement.

Can a QDRO be Used After a Divorce?
Yes – A Qualified Domestic Relations Order (QDRO) could be used to pay past due spousal support (during a separation), alimony or child support payments.

Reminder – In Maryland, there is no law governing a “legal separation”, however a type of divorce called a “limited” divorce is essentially a legal separation.  See the section on types of divorce in Maryland for more information on limited divorces.

What Paperwork Should I Find to Take to My Attorney?

• The plan summary booklet for each pension
• The plan document (full set of the rules) for each pension.  (The rules for most government pensions will be in the law and regulations and can be found at a law library.)
• Proof of your relationship (and that of your child(ren) to the plan participant.

Will the Type of Plan Make a Difference in How Complex and Expensive it will be to Create a QDRO?
Yes – Generally a defined contribution plan offers fewer challenges to the attorney who drafts the QDRO and may be less expensive to draft.  An attorney working with a QDRO for a defined benefit plan may face more difficulties and may need to charge more for the drafting. S/he may need to hire a person with specialized financial knowledge (called an actuary) to determine the formula for calculating the benefit to be assigned under the QDRO.

How do I Know What Type of Plan My Spouse or I Have?
The employee’s copy of the plan summary or the plan administrator (organization, committee person - responsible for overseeing the plan) will indicate whether the plan is a defined contribution or a defined benefit plan. The contact information will be in the front of the plan document.

What are Some of the Options for Dividing a Pension Under a QDRO?
Often the approach to dividing a pension will differ depending on whether the QDRO is designed to provide support or to be part of a property settlement agreement. FYI – If you are seeking to have your spouse’s pension divided – your spouse is called the “participant” and you are the “alternate payee”.

Marital Property Settlement Agreement – These QDRO’s often (but not always) divide the participant’s retirement total benefit into two parts.  The alternate payee (you) can then receive the payment at a different time and in a different way than the plan participant.  The alternate payee (you) would have the same options that the plan participant (your spouse) would have.  For example, you might be able to take benefits at the “early retirement age” while your ex-spouse waited until full retirement.  Both of you would still have to follow the plan rules.

Some plans will pay a lump sum rather than an annuity to an alternate payee.

Support – Alimony, Marital or Child Support – Another approach is to divide each benefit payment.  This approach is often used when the participant has already begun to receive benefits and has an ongoing support obligation.  Agreements usually specify a percentage and a time period.

Under this approach the alternate payee (you) will not receive any payment unless the participant (your spouse) receives a benefit or is in pay status.

Other questions to be resolved include whether there are survivor benefits and, if so, will and how they be divided.

How Do I Get Information About My Spouse’s Retirement Plan?  My Spouse Refuses to Give Me a Copy.
Call your spouse’s employer to find out who administers the pension plan.  Usually the human resources department will have that information.  They are unlikely to give you any personal information over the phone, but you should be able to obtain the general contact information for the pension plan administrator. Ask the administrator how to handle the request. You should make the request in writing. They may require that your request be in writing and there may be a charge.

The plan administrator for your spouse’s employer (or former employer) can be the best source of information about the plan for potential “alternate payees” such as the plan participant’s spouse, child(ren) or other dependents. Ask for a copy of the summary plan description and a statement of the participant’s benefit entitlements.  The Federal Department of Labor (DoL), which interprets the QDRO law, recommends that plan administrators provide this information.  DoL notes that a plan administrator may require you to provide enough information to prove that you are making the request in connection with domestic relations or divorce case.

When Can I Receive Benefits Under a QDRO?
See also the question on benefit options for an explanation.

•  If your benefit is a share of the participant’s benefit that s/he is already receiving, you will be eligible for benefits on the date listed in the QDRO (assuming it is not before the date that the plan gets a copy of the QDRO).  
  

•  If your benefit under a QDRO is based on a separate interest (like that described for marital property settlements under the “options” question of this section) you may receive benefits at the “earliest retirement date” of the participant unless the plan allows an earlier date.
  

•  In general, the earliest date you could receive benefits is a time defined by federal law called “earliest retirement age”.  If plan rules set an earlier date, you may receive benefits then.

Last legal review: 5/12/01 (MLAN/AC)

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