Printer
Friendly Version Errata Sheet This publication provides general
information about the qualified domestic relations orders (QDROs)
under the provisions of the Employee Retirement Income
Security Act of 1974 (ERISA) and the Internal Revenue Code of
1986. More information about QDROs submitted to the
Pension Benefit Guaranty Corporation after a pension plan
terminates and PBGC becomes the trustee is available from the Pension
Benefit Guaranty Corporation.
More than 48 million private wage and salary workers are currently covered by
employer-sponsored pension plans in the United States. For
many of these Americans, pension savings represent one of
their most significant assets. For this reason, whether and
how to divide a participant's interest in a pension plan are
often important considerations in separation, divorce, and
other domestic relations proceedings. While the division of
marital property generally is governed by state domestic
relations law, any assignments of pension interests must also
comply with Federal law, namely the Employee Retirement Income
Security Act of 1974 (ERISA) and the Internal Revenue Code of
1986 (the Code). Under ERISA and the Code, pension interests
may be assigned only if the judgment, decree, or order
creating or recognizing a spouse's, former spouse's, child's,
or other dependent's interest in an individual's pension
benefits constitutes a "qualified domestic relations
order" or "QDRO."
This booklet was prepared by the Employee Benefits Security
Administration (EBSA) of the U.S. Department of Labor to
provide general guidance about QDROs(1)
to employers, pension plan administrators, participants,
beneficiaries, employee benefit professionals, and domestic
relations specialists. The views expressed in this booklet
represent the views of the Department of Labor.
Chapter 1 provides a general overview of the QDRO provisions
and the basic rules governing the content of QDROs.
Chapter 2 focuses on the duties of pension plan administrators
in making QDRO determinations and in administering pension
plans for which related QDROs have been issued.
Chapter 3 focuses on issues to be considered in drafting a
QDRO. This chapter also discusses the provisions of section
205 of ERISA, which are substantially parallel to the
provisions contained in sections 401(a)(11) and 417 of the
Code to the extent these sections apply to QDROs. The
provisions of section 205 require that pension plans provide
the spouses of pension plan participants with certain rights
to survivor benefits, which are relevant to the provisions
governing QDROs. Sample QDRO language developed by the
Department of the Treasury and the Internal Revenue Service,
in consultation with the Department of Labor, is provided in Appendix
C.
It is the hope of EBSA that the information furnished in this
booklet will promote better understanding of the rights and
obligations of those involved in domestic relations
proceedings and those responsible for administering pension
plans.(2) A better
understanding of these provisions of law should reduce the
costs and burdens associated with QDRO determinations for both
pension plans and the affected individuals.
The department recognizes that this booklet does not answer
every question that may arise in the development and
administration of QDROs. In this regard, the department is
willing to consider addressing specific issues through its
advisory opinion process (refer to question
1-14 regarding advisory
opinion requests on whether a domestic relations order is a
QDRO). The ERISA Advisory Opinion Procedure governing this
process is set forth in Appendix
B of this booklet.
This chapter includes a general overview of
the provisions of Federal law governing the assignment of
pension benefits in a domestic relations proceeding and the
requirements that apply in determining whether a domestic
relations order is a QDRO. The following areas are addressed:
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Who can be an "alternate payee"?
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What information must be included in a
domestic relations order in order for it to be
"qualified"?
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Who determines whether a domestic
relations order is a QDRO?
In general, ERISA and the Code do not permit a participant to
assign or alienate the participant's interest in a pension
plan to another person. These "anti-assignment and
alienation" rules are intended to ensure that a
participant's pension benefits are actually available to
provide financial support during the participant's retirement
years. A limited exception to the anti-assignment and
alienation rules is provided for assignments of pension
benefits through qualified domestic relations orders (QDROs).
Under the QDRO exception, a domestic relations order may
assign some or all of a participant's pension benefits to a
spouse, former spouse, child, or other dependent to satisfy
family support or marital property obligations if and only if
the order is a "qualified domestic relations order."
ERISA requires that each pension plan pay benefits in
accordance with the applicable requirements of any
"qualified domestic relations order" that has been
submitted to the plan administrator. The plan administrator's
determinations on whether a domestic relations order is a QDRO,
therefore, have significant implications for both the parties
to a domestic relations proceeding and the plan. The following
questions and answers are intended to provide an overview of
the Federal requirements a domestic relations order must
satisfy to be considered a QDRO.
A "qualified domestic relation
order" (QDRO) is:
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A domestic relations order
-
That creates or recognizes the
existence of an "alternate payee's" right
to receive, or assigns to an alternate payee the
right to receive, all or a portion of the benefits
payable with respect to a participant under a
pension plan, and that includes certain information
and meets certain other requirements. Refer to
questions 1-5 and 1-6.
Question 1-4 explains who may be an
"alternate payee."
Reference: ERISA § 206(d)(3)(B)(i);
IRC § 414(p)(1)(A)
To be recognized as a QDRO, an order
must be a "domestic relations order." A
domestic relations order is:
-
A judgment, decree, or order
(including the approval of a property settlement)
-
That is made pursuant to state
domestic relations law (including community property
law)
-
That relates to the provision of
child support, alimony payments, or marital property
rights for the benefit of a spouse, former spouse,
child, or other dependent of a participant
A state authority, generally a court,
must actually issue a judgment, order, or decree or
otherwise formally approve a property settlement
agreement before it can be a "domestic relations
order" under ERISA. The mere fact that a property
settlement is agreed to and signed by the parties will
not, in and of itself, cause the agreement to be a
domestic relations order.
There is no requirement that both
parties to a marital proceeding sign or otherwise
endorse or approve an order. It is also not necessary
that the pension plan be brought into state court or
made a party to a domestic relations proceeding for an
order issued in that proceeding to be a "domestic
relations order" or a "qualified domestic
relations order." Indeed, because state law is
generally preempted to the extent that it relates to
pension plans, the department takes the position that
pension plans cannot be joined as a party in a domestic
relations proceeding pursuant to state law. Moreover,
pension plans are neither permitted nor required to
follow the terms of domestic relations orders purporting
to assign pension benefits unless they are QDROs.
Reference: ERISA §§ 206(d)(3)(B)(ii),
514(a), 514(b)(7); IRC § 414(p)(1)(B)
No. A domestic relations order may be
issued by any state agency or instrumentality with the
authority to issue judgments, decrees, or orders, or to
approve property settlement agreements, pursuant to
state domestic relations law (including community
property law).
Reference: ERISA § 206(d)(3)(B)(ii);
IRC § 414(p)(1)(B)
A domestic relations order can be a
QDRO only if it creates or recognizes the existence of
an alternate payee's right to receive, or assigns to an
alternate payee the right to receive, all or a part of a
participant's benefits. For purposes of the QDRO
provisions, an alternate payee cannot be anyone other
than a spouse, former spouse, child, or other dependent
of a participant.
Reference: ERISA § 206(d)(3)(K), IRC
§ 414(p)(8)
QDROs must contain the following
information:
-
The name and last known mailing
address of the participant and each alternate payee
-
The name of each plan to which
the order applies
-
The dollar amount or percentage
(or the method of determining the amount or
percentage) of the benefit to be paid to the
alternate payee
-
The number of payments or time
period to which the order applies
Reference: ERISA § 206(d)(3)(C)(i)-(iv);
IRC § 414(p)(2)(A)-(D)
Yes. There are certain provisions
that a QDRO must not contain:
-
The order must not require a plan
to provide an alternate payee or participant with
any type or form of benefit, or any option, not
otherwise provided under the plan
-
The order must not require a plan
to provide for increased benefits (determined on the
basis of actuarial value)
-
The order must not require a plan
to pay benefits to an alternate payee that are
required to be paid to another alternate payee under
another order previously determined to be a QDRO
-
The order must not require a plan
to pay benefits to an alternate payee in the form of
a qualified joint and survivor annuity for the lives
of the alternate payee and his or her subsequent
spouse
Reference: ERISA §§ 206(d)(3)(D)(i)-(iii),
206(d)(3)(E)(i)(III); IRC §§ 414(p)(3)(A)-(C),
414(p)(4)(A)(iii)
Yes. There is nothing in ERISA or the
Code that requires that a QDRO (that is, the provisions
that create or recognize an alternate payee's interest
in a participant's pension benefits) be issued as a
separate judgment, decree, or order. Accordingly, a QDRO
may be included as part of a divorce decree or court-
approved property settlement, or issued as a separate
order, without affecting its "qualified"
status. The order must satisfy the requirements
described above to be a QDRO.
Reference: ERISA § 206(d)(3)(B); IRC
§ 414(p)(1)
No. A domestic relations order that
provides for child support or recognizes marital
property rights may be a QDRO, without regard to the
existence of a divorce proceeding. Such an order,
however, must be issued pursuant to state domestic
relations law and create or recognize the rights of an
individual who is an "alternate payee"
(spouse, former spouse, child, or other dependent of a
participant).
An order issued in a probate
proceeding begun after the death of the participant that
purports to recognize an interest with respect to
pension benefits arising solely under state community
property law, but that doesn't relate to the dissolution
of a marriage or recognition of support obligations, is
not a QDRO because the proceeding does not relate to a
legal separation, marital dissolution, or family support
obligation.
Reference: ERISA § 206(d)(3)(B); IRC
§ 414(p)(1); Advisory Opinion 90-46A (Appendix
A); see
Boggs v. Boggs, No. 97-79 (S. Ct. June 2, 1997)
Yes. If an alternate payee is a minor
or is legally incompetent, the order can require payment
to someone with legal responsibility for the alternate
payee (such as a guardian or a party acting in loco
parentis in the case of a child, or a trustee as agent
for the alternate payee).
Reference: See Staff of the Joint
Committee on Taxation, Explanation of Technical
Corrections to the Tax Reform Act of 1984 and Other
Recent Tax Legislation, 100th Cong., 1st Sess. (Comm.
Print 1987) at 222.
Yes. A QDRO can assign rights to
pension benefits under more than one pension plan of the
same or different employers as long as each plan and the
assignment of benefit rights under each plan are clearly
specified.
Reference: ERISA § 206(d)(3)(C)(iv);
IRC § 414(p)(2)(D)
No. Although every QDRO must contain
certain provisions, such as the names and addresses of
the participant and alternate payee(s) and the name of
the plan(s), the specific content of the rest of the
QDRO will depend, as explained in more detail in Chapter
3, on the type of pension plan, the nature of the
participant's pension benefits, the purposes behind
issuing the order, and the intent of the drafting
parties.
Under Federal law, the administrator
of the pension plan that provides the benefits affected
by an order is the individual (or entity) initially
responsible for determining whether a domestic relations
order is a QDRO. Plan administrators have specific
responsibilities and duties with respect to determining
whether a domestic relations order is a QDRO. Plan
administrators, as plan fiduciaries, are required to
discharge their duties prudently and solely in the
interest of plan participants and beneficiaries. Among
other things, plans must establish reasonable procedures
to determine the qualified status of domestic relations
orders and to administer distributions pursuant to
qualified orders. Administrators are required to follow
the plan's procedures for making QDRO determinations.
Administrators also are required to furnish notice to
participants and alternate payees of the receipt of a
domestic relations order and to furnish a copy of the
plan's procedures for determining the qualified status
of such orders. See Chapter 2 for a detailed discussion
of the duties and responsibilities of plan
administrators in making QDRO determinations.
It is the view of the Department of Labor that a state court (or other state agency or instrumentality with the authority to issue domestic relations orders) does not have jurisdiction to determine whether an issued domestic relations order constitutes a "qualified domestic relations order." In the view of the department, jurisdiction to challenge a plan administrator's decision about the qualified status of an order lies exclusively in Federal court.
Reference: ERISA §§ 206(d)(3)(G)(i)(II),
404(a), 502(a)(3), 502(e), 514; IRC § 414(p)(6)(A)(ii)
The "administrator" of an
employee benefit plan is the individual or entity
specifically designated in the plan documents as the
administrator. If the plan documents do not designate an
administrator, the administrator is the employer
maintaining the plan, or, in the case of a plan
maintained by more than one employer, the association,
committee, joint board of trustees, or similar group
representing the parties maintaining the plan. The name,
address, and phone number of the plan administrator is
required to be included in the plan's summary plan
description. The summary plan description is a document
that the administrator is required to furnish to each
participant and to each beneficiary receiving benefits.
It summarizes the rights and benefits of participants
and beneficiaries and the obligations of the plan.
Reference: ERISA §§ 3(16), 102(b),
29 CFR § 2520.102-3(f); IRC § 414(g), Treas. Reg. §
1.414(g)-1
No. A determination of whether an
order is a QDRO necessarily requires an interpretation
of the specific provisions of the plan or plans to which
the order applies and the application of those
provisions to specific facts, including a determination
of the participant's actual pension benefits under the
plan(s). The department will not issue opinions on such
inherently factual matters.
Reference: See ERISA Procedure 76-1,
41 Fed. Reg. 36281 (1976)(Appendix
B)
This chapter describes the duties of a plan
administrator in determining the qualified status of domestic
relations orders and administering distributions under QDROs.
The following areas are addressed:
-
What are the plan administrator's
responsibilities in furnishing information to a
participant and alternate payee?
-
What measures must a plan administrator
take to protect the plan participant's benefits upon
receipt of a domestic relations order?
-
What procedures must a plan
administrator follow in determining whether a domestic
relations order is a QDRO?
ERISA imposes a number of responsibilities
on the plan administrator relating to the handling of domestic
relations orders. As a plan fiduciary, the administrator is
required to discharge these responsibilities prudently and
solely in the interest of the plan's participants and
beneficiaries. It is the view of the department that the
prudent discharge of a fiduciary's responsibilities with
respect to the handling of domestic relations orders, like
other areas of plan administration, requires plan
administrators to take steps to avoid unnecessary and
excessive administrative burdens and costs to the plan. The department
believes that the adoption of procedures and
policies designed to facilitate, rather than impede, the
timely processing and perfection of domestic relations orders
generally will serve to minimize plan burdens and costs
attendant to QDRO determinations. The following questions and answers are
intended to provide guidance on the discharge of
administrator's obligations under the QDRO and fiduciary
responsibility provisions of ERISA.
Congress conditioned an alternate
payee's right to an assignment of a participant's
pension benefit on the prospective alternate payee's
obtaining a domestic relations order that satisfies
specific informational and other requirements. It is the
view of the department that Congress therefore intended
prospective alternate payees -- spouses, former spouses,
children, and other dependents of a participant who are
involved in a domestic relations proceedings -- to have
access to plan and participant benefit information
sufficient to prepare a QDRO. Such information might
include the summary plan description, relevant plan
documents, and a statement of the participant's benefit
entitlements.
The department believes that Congress
did not intend to require prospective alternate payees
to submit a domestic relations order to the plan as a
prerequisite to establishing the prospective alternate
payee's rights to information in connection with a
domestic relations proceeding. However, it is the view
of the department that a plan administrator may
condition disclosure of such information on a
prospective alternate payee's providing information
sufficient to reasonably establish that the disclosure
request is being made in connection with a domestic
relations proceeding.
It is the department's understanding
that many domestic relations orders fail initially to
qualify when submitted to the plan because they fail to
take into account the plan's provisions or the
participant's actual benefit entitlements. Affording
prospective alternate payees access to plan and
participant information in a timely manner will, in the
view of the department, help drafters avoid making such
obvious errors in preparing orders and, thereby,
facilitate plan administration. Refer to question 2-5.
Reference: ERISA §§ 206(d)(3)(A) -
(C), 404(a); IRC § 414(p)(1) - (3)
Upon receipt of a domestic relations
order, the plan administrator is required to promptly
notify the affected participant and each alternate payee
named in the order of the receipt of the order and to
provide a copy of the plan's procedures for determining
whether a domestic relations order is a QDRO.
Notification should be sent to the address included in
the domestic relations order.
The administrator is required to
determine whether the order is a QDRO within a
reasonable period of time after receipt of a domestic
relations order and to promptly notify the participant
and each alternate payee of such determination. Refer to question
2-10.
Reference: ERISA § 206(d)(3)(G)(i);
IRC § 414(p)(6)(A)
Yes. Every pension plan is required
to establish written procedures for determining whether
domestic relations orders are QDROs and for
administering distributions under QDROs.
Reference: ERISA § 206(d)(3)(G)(ii);
IRC § 414(p)(6)(B)
The QDRO procedures must:
-
Be in writing
-
Be reasonable
-
Provide that each person
specified in a domestic relations order received by
the plan as entitled to payment of benefits under
the plan will be notified (at the address specified
in the domestic relations order) of the plan's
procedures for making QDRO determinations upon
receipt of a domestic relations order
-
Permit an alternate payee to
designate a representative for receipt of copies of
notices and plan information that are sent to the
alternate payee with respect to a domestic relations
orders
[ERISA § 206(d)(3)(G)(ii); IRC § 414(p)(6)]
Yes. It is the view of the Department
of Labor that a plan's QDRO procedures should be
designed to ensure that QDRO determinations are made in
a timely, efficient, and cost-effective manner,
consistent with the administrator's fiduciary duties
under ERISA. The department believes that unnecessary
administrative burdens and costs attendant to QDRO
determinations and administration can be avoided with
clear explanations of the plan's determination process,
including:
-
An explanation of the information
about the plan and benefits that is available to
assist prospective alternate payees in preparing
QDROs, such as summary plan descriptions, plan
documents, individual benefit and account
statements, and any model QDROs developed for use by
the plan (refer to questions 2-1,
2-7)
-
A description of any time limits
set by the plan administrator for making
determinations
-
A description of the steps the
administrator will take to protect and preserve
pension assets or benefits upon receipt of a
domestic relations order (for example, a description
of when and under what circumstances plan assets
will be segregated or benefit payments will be
delayed or suspended) (refer to questions 2-12,
2-13)
-
A description of the process
provided under the plan for obtaining a review of
the administrator's determination as to whether an
order is a QDRO
It is the view of the department that
the plan administrator's adoption and use of clear QDRO
procedures, coupled with the administrator's provision
of information about the plan and benefits upon request,
will significantly reduce the difficulty and expense of
obtaining and administering QDROs by minimizing
confusion and uncertainty about the process.
Reference: ERISA §§ 206(d)(3)(G),
206(d)(3)(H), 404(a); IRC §§ 414(p)(6), 414(p)(7)
The department has taken the position
that in the context of a defined contribution plan, an administrator may assess reasonable expenses attributable to a QDRO determination against the individual account of the participant who is a party to the domestic relations order. The document of the plan should be
reviewed to determine how plan expenses are
allocated.
Reference: ERISA § 404(a); see Field Assistance Bulletin 2003-3 (Appendix
A)
Yes. Although they are not required
to do so, plan administrators may develop and make
available "model" QDRO forms to assist in the
preparation of a QDRO. Such model forms may make it
easier for the parties to prepare a QDRO and reduce the
time and expenses associated with a plan administrator's
determination of the qualified status of an order.
Examples of sample language that may be included in such
forms are provided in Appendix C.
Plan administrators are required to
honor any domestic relations order that satisfies the
requirements to be a QDRO. In the view of the department, therefore, a plan may not condition its
determinations of QDRO status on the use of any
particular form.
No. A plan administrator is generally
not required to determine whether the issuing court or
agency had jurisdiction to issue an order, whether state
law is correctly applied in the order, whether service
was properly made on the parties, or whether an
individual identified in an order as an alternate payee
is in fact a spouse, former spouse, child, or other
dependent of the participant under state law.
Reference: See Advisory Opinion
92-17A (Appendix
A)
No. In many cases, an order that is
submitted to a plan may clearly describe the identity
and rights of the parties, but may be incomplete only
with respect to factual identifying information within
the plan administrator's knowledge or easily obtained
through a simple communication with the alternate payee
or the participant. For example, an order may misstate
the plan's name or the names of participants or
alternate payees, and the plan administrator can clearly
determine the correct names, or an order may omit the
addresses of participants or alternate payees, and the
plan administrator's records include this information.
In such a case, the plan administrator should supplement
the order with the appropriate identifying information,
rather than rejecting the order as not qualified.
Reference: ERISA §§ 206(d)(3)(C),
206(d)(3)(I); IRC § 414(p)(2); see S. Rep. 575, 98th
Cong., 2d Sess. at 20
Plan administrators must determine
whether a domestic relations order is a QDRO within a
reasonable period of time after receiving the order.
What is a reasonable period will depend on the specific
circumstances. For example, a domestic relations order
that is clear and complete when submitted should require
less time to review than an order that is incomplete or
unclear. Refer to question 2-12.
Plans are required to adopt
reasonable procedures for determining the qualified
status of domestic relations orders. Compliance with
such procedures should ensure that determinations of the
qualified status of an order take place within a
reasonable period of time. Procedures that unduly
inhibit or hamper the QDRO determination process will
not be considered reasonable procedures. Refer to
question
2-4.
Reference: ERISA § 206(d)(3)(G)(i)(II);
IRC § 414(p)(6)(A)(ii)
During any period in which the issue
of whether a domestic relations order is a QDRO is being
determined (by a plan administrator, by a court of
competent jurisdiction, or otherwise), ERISA requires
that the plan administrator separately account for the
amounts that would be payable to an alternate payee
under the terms of the order during such period if the
order had been determined to be qualified. These amounts
are referred to as "segregated amounts."
During the period in which the status of a domestic
relations order is being determined, the plan
administrator must take steps to ensure that amounts
that would have been payable to the alternate payee, if
the order were a QDRO, are not distributed to the
participant or any other person.
The plan administrator's duty to
separately account for and to preserve the segregated
amounts is limited in time. ERISA provides that the plan
administrator must preserve the segregated amounts for
not longer than the end of an "18-month
period." This "18-month period" does not
begin until the first date (after the plan receives the
order) that the order would require payment to the
alternate payee.
It is the view of the department that, in order to ensure the availability of a full 18-
month protection period, the 18 months cannot begin
before the plan receives a domestic relations order.
Rather, the "18-month period" will begin on
the first date on which a payment would be required to
be made under an order following receipt by the plan.
Refer to questions 2-12 and 2-13,
which discuss how benefits should be treated when
determinations on qualified status are made either
before or after the beginning of the "18-month
period."
Reference: ERISA §§ 206(d)(3)(H),
404(a); IRC § 414(p)(7)
As explained in question
2-10, a plan administrator must determine whether
a domestic relations order is a QDRO within a reasonable
period following receipt. In the view of the department,
the "18-month period" during which a plan
administrator must preserve the "segregated
amounts" (refer to question 2-11)
is not the measure of the reasonable period for
determining the qualified status of an order and in most
cases would be an unreasonably long period of time to
take to review an order.
It is further the view of the department
that, during the determination period, the
administrator, as a plan fiduciary, may not permit
distributions to the participant or any other person of
any amounts that would be payable to the alternate payee
if the domestic relations order were determined to be a
QDRO. If the domestic relations order is determined to
be a QDRO before the first date on which benefits are
payable to the alternate payee, the plan administrator
has a continuing duty to account for and to protect the
alternate payee's interest in the plan to the same
extent that the plan administrator is obliged to account
for and to protect the interests of the plan's
participants. The plan administrator also has a
fiduciary duty to pay out benefits in accordance with
the terms of the QDRO.
The department understands that
orders that are initially rejected by the plan
administrator as not qualified are frequently revised
and resubmitted within a short period of time. The department
also recognizes that in some instances plan
administrators who reject an order may receive requests
from participants for immediate distribution of benefits
under circumstances that suggest that the rejected order
is being revised and will shortly be resubmitted to the
plan. In such circumstances, the plan administrator may
be subject to conflicting claims for either paying the
benefit or failing to pay the benefit. The department suggests that plan administrators may wish to consider
the establishment of a process for providing preliminary
or interim review of orders, and postponing final
determinations for limited periods, to permit parties to
correct defects within the 18-month segregation period.
Such a process would reduce the likelihood of
conflicting claims.
Reference: ERISA §§ 206(d)(3)(H),
404(a)
Upon receipt of a domestic relations
order, the administrator must separately account for and
preserve the amounts that would be payable to an
alternate payee until a determination is made with
respect to the status of the order. Refer to questions
2-11, 2-12. If, within the "18-month
period" -- beginning with the date (after receipt
of the order by the plan) on which the first payment
would be required to be made to an alternate payee under
the order -- the plan administrator determines that the
order is a QDRO, the plan administrator must pay the
segregated amounts to the alternate payee in accordance
with the terms of the QDRO. If, however, the plan
administrator determines within the "18-month
period" that the order is not a QDRO, or if the
status of the order is not resolved by the end of the
"18-month period," the plan administrator must
pay out the segregated amounts to the person or persons
who would have been entitled to such amounts if there
had been no order. If the order is later determined to
be a QDRO, the order will apply only prospectively; that
is, the alternate payee will be entitled only to amounts
payable under the order after the subsequent
determination. Refer to question 2-12.
Reference: ERISA §§ 206(d)(3)(H),
404(a); IRC § 414(p)(7); but see H.R. Conf. Rep. No.
841, 99th Cong., 2d Sess. II-858 (describing 1986
amendments to the Retirement Equity Act of 1984,
including clarification of the procedures to be followed
during the 18-month segregation period for QDRO
determinations)
The plan administrator is required to
notify the participant and each alternate payee of the
administrator's determination as to whether the order
constitutes a QDRO. This notice should be in writing and
furnished promptly following a determination.
In the case of a determination that
an order is not qualified, the notice should include the
reasons for the rejection. It is the view of the department
that, in most instances where there has been
a reasonable good faith effort to prepare a qualified
domestic relations order, the parties will attempt to
correct any deficiencies in the order and resubmit a
corrected order for the plan administrator to review.
The department believes that, where a reasonable good
faith effort has been made to draft a QDRO, prudent plan
administration requires the plan administrator to
furnish to the parties the information, advice, and
guidance that is reasonably required to understand the
reasons for a rejection, either as part of the
notification process or otherwise, if such information,
advice, and guidance could serve to reduce multiple
submissions of deficient orders and therefore the
burdens and costs to plans attendant on review of such
orders.
The notice of the plan
administrator's determination should be written in a
manner that can be understood by the parties. Multiple
submissions and unnecessary expenses may be avoided by
clearly communicating in the rejection notice:
-
The reasons why the order is not
a QDRO;
-
References to the plan provisions
on which the plan administrator's determination is
based;
-
An explanation of any time limits
that apply to rights available to the parties under
the plan (such as the duration of any protective
actions the plan administrator will take); and
-
A description of any additional
material, information, or modifications necessary
for the order to be a QDRO and an explanation of why
such material, information, or modifications are
necessary.
Reference: ERISA §§ 206(d)(3)(G)(i)(II),
206(d)(3)(I);IRC § 414(p)(6)(A)(ii)
The plan administrator must act in
accordance with the provisions of the QDRO as if it were
a part of the plan. In particular, if, under a plan, a
participant has the right to elect the form in which
benefits will be paid, and the QDRO gives the alternate
payee that right, the plan administrator must permit the
alternate payee to exercise that right under the
circumstances and in accordance with the terms that
would apply to the participant, as if the alternate
payee were the participant.
Reference: ERISA §§ 206(d)(3)(A),
206(d)(3)(E)(i)(III); IRC §§ 401(a)(13)(B),
414(p)(4)(A)(iii)
ERISA provides that a person who is
an alternate payee under a QDRO generally shall be
considered a beneficiary under the plan for purposes of
ERISA. Accordingly, the alternate payee must be
furnished, upon written request, copies of a variety of
documents, including the latest summary plan
description, the latest annual report, any final annual
report, and the bargaining agreement, trust agreement,
contract, or other instrument under which the plan is
established or operated. The administrator may impose a
reasonable charge to cover the cost of furnishing such
copies. It is the view of the department that, at such
time as benefit payments to the alternate payee commence
under the QDRO, the alternate payee must be treated as a
"beneficiary receiving benefits under the
plan" and automatically furnished the summary plan
description, summaries of material plan changes, and the
plan's summary annual report.
Reference: ERISA §§ 104, 105,
206(d)(3)(J), 404(a); 29 CFR § 2520.104b-1 et seq.
The rights of an alternate payee
under a QDRO are protected in the event of plan
amendments, a plan merger, or a change in the sponsor of
the plan to the same extent that rights of participants
or beneficiaries are protected with respect to benefits
accrued as of the date of the event.
Reference: ERISA §§ 204(g),
206(d)(3)(A), 403(c)(1); IRC §§ 401(a)(13)(B),
411(d)(6); see Staff of the Joint Committee on Taxation,
Explanation of Technical Corrections to the Tax Reform
Act of 1984 and Other Recent Tax Legislation, 100th
Cong., 1st Sess. (Comm. Print 1987) at 224
In the view of the department, the
rights granted by a QDRO must be taken into account in
the termination of a plan as if the terms of the QDRO
were part of the plan. To the extent that the QDRO
grants the alternate payee part of the participant's
benefits, the plan administrator, in terminating the
plan, must provide the alternate payee with the
notification, consent, payment, or other rights that it
would have provided to the participant with respect to
that portion of the participant's benefits.
Reference: ERISA §§ 206(d)(3)(A),
403(d)
The Pension Benefit Guaranty
Corporation (PBGC) is a Federal agency that insures
pension benefits in most private-sector defined benefit
pension plans. It is important to note that not all
plans are insured by PBGC and not all plans that
terminate become trusteed by PBGC. For example, defined
contribution plans (including 401(k) plans) are
generally not covered by PBGC's insurance. In addition,
most defined benefit plans that terminate have
sufficient assets to pay all benefits. PBGC does not
trustee these plans. Refer to question 3-4 for a discussion
of these basic types of pension plans.
When an insured plan terminates
without enough money to pay all guaranteed benefits,
PBGC becomes trustee of the terminating plan and pays
the plan benefits subject to certain limits on amount
and form. For instance, PBGC does not pay certain death
and supplemental benefits. In addition, benefit amounts
paid by PBGC are limited by ERISA, and the forms of
benefit PBGC pays are also limited.
PBGC has special rules that apply to
payment of benefits under QDROs. For example, if a QDRO
is issued prior to plan termination, PBGC will not
modify the form of benefit payable to an alternate payee
specified in the QDRO. If, in contrast, a QDRO is issued
after plan termination, PBGC will generally limit the
form of benefit that PBGC will pay under the QDRO to the
form permitted by PBGC in other circumstances (generally
a single life annuity). There are other special rules
that apply to the administration by PBGC of QDROs. These
rules are explained in PBGC's booklet, Divorce Orders
& PBGC.
For information about a specific
domestic relations order or QDRO affecting a plan
trusteed by PBGC, write to:
PBGC QDRO Coordinator
P.O. Box 15170
Alexandria, VA 22315-1750
For information about terminated
pension plans that PBGC has trusteed, benefit
information with respect to a participant in a
PBGC-trusteed plan, or to request a copy of PBGC's
booklet, call PBGC's Customer Service Center at 1.800.400.PBGC.
The booklet is also available on the internet at Pension
Benefit Guaranty Corporation.
This chapter provides guidance for the process of drafting
domestic relations orders that qualify as QDROs. The following areas are
addressed:
-
What are the most common and useful ways of dividing pension
benefits?
-
What are survivor benefits, and why are they important?
-
When can an alternate payee receive the benefits assigned by
a QDRO?
-
In what form will the alternate payee receive the assigned
benefits?
Although domestic relations orders that involve pension plans
are issued under and governed by state law, Federal law (ERISA and the Code) and
the terms of the relevant pension plan determine whether these orders can be
QDROs. This chapter discusses how to draft orders that will qualify as QDROs
while accomplishing the purposes for which the pension benefits are being
divided.
This chapter also discusses the most common methods of dividing
pension benefits under the two separate types of pension plans: defined benefit
plans and defined contribution plans. The following questions and answers
emphasize the importance of understanding the nature of a participant's pension
benefits and of making decisions about the assignment of any survivor benefits
payable under the pension plan.
There is no single "best" way to divide pension
benefits in a QDRO. What will be "best" in a specific case will depend
on many factors, including the type of pension plan, the nature of the
participant's pension benefits, and why the parties are seeking to divide those
benefits.
In deciding how to divide a participant's pension benefits in a
QDRO, it is also important to consider two aspects of a participant's pension
benefits: the benefit payable under the plan directly to the participant for
retirement purposes (referred to here as the "retirement benefit"),
and any benefit that is payable under the plan on behalf of the participant to
someone else after the participant dies (referred to here as the "survivor
benefit"). These two aspects of a participant's pension benefits are
discussed separately in this booklet only in order to emphasize the importance
of considering how best to divide pension benefits.
The following four questions and answers introduce the basic
concepts that should inform decisions about drafting QDROs. Question 3-2
explains the scope of assignment permitted by the QDRO provisions; Questions 3-3
and 3-4 relate primarily to the retirement benefit; Question 3-5 describes
survivor benefits. Later questions present more specific information about how
to draft QDROs.
A QDRO can give an alternate payee any part or all of the
pension benefits payable with respect to a participant under a pension plan.
However, the QDRO cannot require the plan to provide increased benefits
(determined on the basis of actuarial value); nor can a QDRO require a plan to
provide a type or form of benefit, or any option, not otherwise provided under
the plan (with one exception, described in Questions 3-9 and
3-10, for an
alternate payee's right to receive payment at the participant's "earliest
retirement age"). The QDRO also cannot require the payment of benefits to
an alternate payee that are required to be paid to another alternate payee under
another QDRO already recognized by the plan.
Reference: ERISA §§ 206(d)(3)(B)(i)(I), 206(d)(3)(D), 206(d)(3)(E); IRC
§§ 414(p)(1)(A)(i), 414(p)(3), 414(p)(4)
Generally, QDROs are used either to provide support payments
(temporary or permanent) to the alternate payee (who may be the spouse, former
spouse or a child or other dependent of the participant) or to divide marital
property in the course of dissolving a marriage. These differing goals often
result in different choices in drafting a QDRO. This answer describes two common
different approaches in drafting QDROs for these two different purposes.
One approach that is used in some orders is to "split"
the actual benefit payments made with respect to a participant under the plan to
give the alternate payee part of each payment. This approach to dividing
retirement benefits is often called the "shared payment" approach.
Under this approach, the alternate payee will not receive any payments unless
the participant receives a payment or is already in pay status. This approach is
often used when a support order is being drafted after a participant has already
begun to receive a stream of payments from the plan (such as a life annuity).
An order providing for shared payments, like any other QDRO,
must specify the amount or percentage of the participant's benefit payments that
is assigned to the alternate payee (or the manner in which such amount or
percentage is to be determined). It must also specify the number of payments or
period to which it applies. This is particularly important in the shared payment
QDRO, which must specify when the alternate payee's right to share the payments
begins and ends. For example, when a state authority seeks to provide support to
a child of a participant, an order might require payments to the alternate payee
to begin as soon as possible after the order is determined to be a QDRO and to
continue until the alternate payee reaches maturity. Alternatively, when support
is being provided to a former spouse, the order might state that payments to the
alternate payee will end when the former spouse remarries. If payments are to
end upon the occurrence of an event, notice and reasonable substantiation that
the event has occurred must be provided for the plan to be able to comply with
the terms of the QDRO.
Orders that seek to divide a pension as part of the marital
property upon divorce or legal separation often take a different approach to
dividing the retirement benefit. These orders usually divide the participant's
retirement benefit (rather than just the payments) into two separate portions
with the intent of giving the alternate payee a separate right to receive a
portion of the retirement benefit to be paid at a time and in a form different
from that chosen by the participant. This approach to dividing a retirement
benefit is often called the "separate interest" approach.
An order that provides for a separate interest for the alternate
payee must specify the amount or percentage of the participant's retirement
benefit to be assigned to the alternate payee (or the manner in which such
amount or percentage is to be determined). The order must also specify the
number of payments or period to which it applies, and such orders often satisfy
this requirement simply by giving the alternate payee the right that the
participant would have had under the plan to elect the form of benefit payment
and the time at which the separate interest will be paid. Such an order would
satisfy the requirements to be a QDRO.
Federal law does not require the use of either approach for any
specific domestic relations purpose, and it is up to the drafters of any order
to determine how best to achieve the purposes for which pension benefits are
being divided. Further, the shared payment approach and the separate interest
approach can each be used for either defined benefit or defined contribution
plans. Refer to question 3-4 for a discussion of the two basic types of pension
plans. However, it is important in drafting any order to understand and follow
the terms of the plan. An order that would require a plan to provide increased
benefits (determined on an actuarial basis) or to provide a type or form of
benefit, or an option, not otherwise available under the plan cannot be a QDRO.
Refer to questions 3-4, 3-6, and 3-7 for further information on dividing retirement
benefits under defined benefit and defined contribution plans.
In addition to determining whether or how to divide the
retirement benefit, it is important to consider whether or not to give the
alternate payee a right to survivor benefits or any other benefits payable under
the plan. Refer to question 3-5 for a discussion of survivor benefits.
Reference: ERISA § 206(d)(3)(C)(ii) - (iv); IRC § 414(p)(2)(B) -
(D)
Understanding the type of pension plan is important because the
order cannot be a QDRO unless its assignment of rights or division of pension
benefits complies with the terms of the plan. Parties drafting a QDRO should
read the plan's summary plan description and other plan documents to understand
what pension benefits are provided under the plan.
Pension plans may be divided generally into two types:
A defined benefit plan promises to pay each participant a
specific benefit at retirement. This basic retirement benefit is usually based
on a formula that takes into account factors like the number of years a
participant works for the employer and the participant's salary. The basic
retirement benefit is generally provided in the form of periodic payments for
the participant's life beginning at what the plan calls "normal retirement
age." This stream of periodic payments is generally known as an
"annuity." A participant's basic retirement benefit under a defined
benefit plan may increase over time, either before or after the participant
begins receiving benefits, due to a variety of circumstances, such as increases
in salary or the crediting of additional years of service with the employer
(which are taken into account under the plan's benefit formula), or through
amendment to the plan's provisions, including some amendments to provide cost of
living adjustments.
Defined benefit plans may promise to pay benefits at various
times, under certain circumstances, or in alternative forms. Benefits paid at
those times or in those forms may have a greater actuarial value than the basic
retirement benefit payable by the plan at the participant's normal retirement
age. When one form of benefit has a greater actuarial value than another form,
the difference in value is often called a "subsidy." See Appendix C
for further discussion of the benefits provided under defined
benefit plans.
A defined contribution plan, by contrast, is a type of pension
plan that provides for an individual account for each participant. The
participant's benefits are based solely on the amount contributed to the
participant's account and any income, expenses, gains or losses, and any
forfeitures of accounts of other participants that may be allocated to such
participant's account. Examples of defined contribution plans include
profit-sharing plans (like "401(k)" plans), employee stock ownership
plans ("ESOPs"), and money purchase plans. A participant's basic
retirement benefit in a defined contribution plan is the amount in his or her
account at any given time. This is generally known as the participant's
"account balance." Defined contribution plans commonly provide for
retirement benefits to be paid in the form of a lump sum payment of the
participant's entire account balance. Defined contribution plans by their nature
do not offer subsidies.
It should be noted, however, that some defined benefit plans
provide for lump sum payments, and some defined contribution plans provide for
annuities.
Reference: IRS Notice 97-11, 1997-2 IRB 49 (Jan. 13, 1997) (Appendix C)
Federal law requires all pension plans, whether they are defined
benefit plans or defined contribution plans, to provide benefits in a way that
includes a survivor benefit for the participant's spouse. The provisions
creating these protections are contained in section 205 of ERISA and sections
401(a)(11) and 417 of the Code. The type of survivor benefit that is required by
Federal law depends on the type of pension plan. Plans also may provide for
survivor (or "death") benefits that are in addition to those required
by Federal law. Participants and alternate payees drafting a QDRO should read
the plan's summary plan description and other plan documents to understand the
survivor benefits available under the plan.
Federal law generally requires that defined benefit plans and
certain defined contribution plans pay retirement benefits to participants who
were married on the participant's "annuity starting date" (this is the
first day of the first period for which an amount is payable to the participant)
in a special form called a "qualified joint and survivor annuity" (QJSA)
unless the participant elects a different form and the spouse consents to that
election. When benefits are paid as a QJSA, the participant receives a periodic
payment (usually monthly) during his or her life, and the surviving spouse of
the participant receives a periodic payment for the rest of the surviving
spouse's life upon the participant's death. See Appendix C
for a
description of the QJSA. Federal law also generally requires that, if a married
participant with a non-forfeitable benefit under one of these types of plans dies
before his or her "annuity starting date," the plan must pay the
surviving spouse of the participant a monthly survivor benefit. This benefit is
called a "qualified preretirement survivor annuity" (QPSA). Appendix C
also describes the QPSA.
Those defined contribution plans that are not required to pay
pension benefits to married participants in the form of a QJSA or QPSA (like
most 401(k) plans) are required by Federal law to pay any balance remaining in
the participant's account after the participant dies to the participant's
surviving spouse. If the spouse gives written consent, the participant can
direct that upon the participant's death any balance remaining in the account
will be paid to a beneficiary other than the spouse, for example, the couple's
children. Under these defined contribution plans, Federal law does not require a
spouse's consent to a participant's decision to withdraw any portion (or all) of
his or her account balance during the participant's life.
If a participant and his or her spouse become divorced before
the participant's annuity starting date, the divorced spouse loses all right to
the survivor benefit protections that Federal law requires be provided to a
participant's spouse. If the divorced participant remarries, the participant's
new spouse may acquire a right to the Federally mandated survivor benefits. A
QDRO, however, may change that result. To the extent that a QDRO requires that a
former spouse be treated as the participant's surviving spouse for all or any
part of the survivor benefits payable after the death of the participant, any
subsequent spouse of the participant cannot be treated as the participant's
surviving spouse. For example, if a QDRO awards all of the survivor benefit
rights to a former spouse, and the participant remarries, the participant's new
spouse will not receive any survivor benefit upon the participant's death. If
such a QDRO requires that a defined benefit plan, or a defined contribution plan
subject to the QJSA and QPSA requirements, treat a former spouse of a
participant as the participant's surviving spouse, the plan must pay the
participant's benefit in the form of a QJSA or QPSA unless the former spouse who
was named as surviving spouse in the QDRO consents to the participant's election
of a different form of payment.
It should also be noted that some pension plans provide that a
spouse of a participant will not be treated as married unless he or she has been
married to the participant for at least a year. If the pension plan to which the
QDRO relates contains such a one-year marriage requirement, then the QDRO cannot
treat the alternate payee as a surviving spouse if the marriage lasted for less
than one year.
In addition, it is important to note that some pension plans may
provide for survivor benefits in addition to those required by Federal law for
the benefit of the surviving spouse. Generally, however, the only way to
establish a former spouse's right to survivor benefits such as a QJSA or QPSA is
through a QDRO. A QDRO may provide that a part or all of such other survivor
benefits shall be paid to an alternate payee rather than to the person who would
otherwise be entitled to receive such death benefits under the plan. As
discussed above (refer to question 3-3), a spouse or former spouse can also
receive a right to receive (as a separate interest or as shared payments) part
of the participant's retirement benefit as well as a survivor's benefit.
Reference: ERISA §§ 205, 206(d)(3)(F); IRC §§ 401(a)(11), 414(p)(5),
417
An order dividing a retirement benefit under a defined
contribution plan may adopt either a "separate interest" approach or a
"shared payment" approach (or some combination of these approaches).
Refer to question 3-3 for a discussion of these two approaches. Orders that provide
the alternate payee with a separate interest, either by assigning to the
alternate payee a percentage or a dollar amount of the account balance as of a
certain date, often also provide that the separate interest will be held in a
separate account under the plan with respect to which the alternate payee is
entitled to exercise the rights of a participant. Provided that the order does
not assign a right or option to an alternate payee that is not otherwise
available under the plan, an order that creates a separate account for the
alternate payee may qualify as a QDRO.
Orders that provide for shared payments from a defined
contribution plan should clearly establish the amount or percentage of the
participant's payments that will be allocated to the alternate payee and the
number of payments or period of time during which the allocation to the
alternate payee is to be made. A QDRO can specify that any or all payments made
to the participant are to be shared between the participant and the alternate
payee.
In drafting orders dividing benefits under defined contribution
plans, parties should also consider addressing the possibility of contingencies
occurring that may affect the account balance (and therefore the alternate
payee's share) during the determination period. For example, parties might be
well advised to specify the source of the alternate payee's share of a
participant's account that is invested in multiple investments because there may
be different methods of determining how to derive the alternate payee's share
that would affect the value of that share. The parties should also consider how
to allocate any income or losses attributable to the participant's account that
may accrue during the determination period. If an order allocates a specific
dollar amount rather than a percentage to an alternate payee as a shared
payment, the order should address the possibility that the participant's account
balance or individual payments might be less than the specified dollar amount
when actually paid out.
Reference: ERISA §§ 206(d)(3)(C); IRC § 414(p)(2)
As indicated earlier, an order may adopt either the shared
payment or the separate interest approach (or a combination of the two) in
dividing pension benefits in a defined benefit plan. Refer to question 3-3 for a
discussion of these two approaches.
If shared payments are desired, the order should specify the
amount of each shared payment allocated to the alternate payee either by
percentage or by dollar amount. If the order describes the alternate payee's
share as a dollar amount, care should be taken to establish that the payments to
the participant will be sufficient to satisfy the allocation, and the order
should indicate what is to happen in the event a payment is insufficient to
satisfy the allocation. The order must also describe the number of payments or
period of time during which the allocation to the alternate payee is to be made.
This is usually done by specifying a beginning date and an ending date (or an
event that will cause the allocation to begin and/or end). If an order specifies
a triggering event that may occur outside the plan's knowledge, notice of its
occurrence must be given to the plan before the plan is required to act in
accordance with the order. If the intent is that all payments made under the
plan are to be shared between the participant and the alternate payee, the order
may so specify.
As discussed in Appendix C, a defined benefit
plan may provide for subsidies under certain circumstances and may also provide
increased benefits or additional benefits either earned through additional
service or provided by way of plan amendment. A QDRO that uses the "shared
payment" method to give the alternate payee a percentage of each payment
may be structured to take into account any such future increases in the benefits
paid to the participant. Such a QDRO does not need to address the treatment of
future subsidies or other benefit increases, because the alternate payee will
automatically receive a share of any subsidy or other benefit increases that are
paid to the participant. If the parties do not wish to provide for the sharing
of such subsidies or increases, the order should so specify.
If a separate interest is desired for the alternate payee, it is
important that the order be based on adequate information from the plan
administrator and the plan documents concerning the participant's retirement
benefit and the rights, options, and features provided under the plan. Refer to
question 2-1. In particular, the drafters of a QDRO should consider any
subsidies or future benefit increases that might be available with respect to
the participant's retirement benefit. The order may specify whether, and to what
extent, an alternate payee is to receive such subsidies or future benefit
increases. See Appendix C
for a discussion of subsidies and
possible future increases in a participant's benefits in a defined benefit plan.
Reference: ERISA §§ 206(d)(3)(C), 206(d)(3)(D); IRC §§ 414(p)(2),
414(p)(3)
A QDRO that provides for a separate interest may specify the
form in which the alternate payee's benefits will be paid subject to the
following limitations:
-
The order may not provide the alternate payee with a
type or form of payment, or any option, not otherwise provided under the plan
-
The order may not provide any subsequent spouse of an alternate payee with
the survivor benefit rights that Federal law requires be provided to spouses of
participants under section 205 of ERISA (refer to question 3-5)
-
For any
tax-qualified pension plan, the payment of the alternate payee's benefits must
satisfy the requirements of section 401(a)(9) of the Code respecting the timing
and duration of payment of benefits. In determining the form of payment for an
alternate payee, an order may substitute the alternate payee's life for the life
of the participant to the extent that the form of payment is based on the
duration of an individual's life. As discussed in Appendix C,
however, the timing and forms of benefit available to an alternate payee under a
tax-qualified plan may be limited by section 401(a)(9) of the Code.
Alternatively, a QDRO may (subject to the limitations described
above) give the alternate payee the right that the participant would have had
under the plan to elect the form of benefit payment. For example, if a
participant would have the right to elect a life annuity, the alternate payee
may exercise that right and choose to have the assigned benefit paid over the
alternate payee's life. However, the QDRO must permit the plan to determine the
amount payable to the alternate payee under any form of payment in a manner that
does not require the plan to pay increased benefits (determined on an actuarial
basis).
A plan may by its own terms provide alternate payees with
additional types or forms of benefit, or options, not otherwise provided to
participants, such as a lump-sum payment option, but the plan cannot prevent a
QDRO from assigning to an alternate payee any type or form of benefit, or
option, provided generally under the plan to the participant.
Reference: ERISA §§ 206(d)(3)(A), 206(d)(3)(D), 206(d)(3)(E)(i)(III);
IRC §§ 401(a)(9), 401(a)(13)(B), 414(p)(3), 414(p)(4)(A)(iii)
A QDRO that provides for shared payments must specify the date
on which the alternate payee will begin to share the participant's payments.
Such a date, however, cannot be earlier than the date on which the plan receives
the order. With respect to a separate interest, an order may either specify the
time (after the order is received by the plan) at which the alternate payee will
receive the separate interest or assign to the alternate payee the same right
the participant would have had under the plan with regard to the timing of
payment. In either case, a QDRO cannot provide that an alternate payee will
receive a benefit earlier than the date on which the participant reaches his or
her "earliest retirement age," unless the plan permits payments at an
earlier date. Question 3-10 describes how to determine this "earliest
retirement age," which is often a date earlier than the earliest date on
which the participant would be entitled to receive his or her retirement
benefit.
The plan itself may contain provisions permitting alternate
payees to receive separate interests awarded under a QDRO at an earlier time or
under different circumstances than the participant could receive the benefit.
For example, a plan may provide that alternate payees may elect to receive a
lump sum payment of a separate interest at any time. As discussed in question
3-8 and in Appendix C, section 401(a)(9) of the Code may affect
when benefits must be paid under tax-qualified pension plans.
Reference: ERISA §§ 206(d)(3)(C), 206(d)(3)(D), 206(d)(3)(E); IRC §§
401(a)(9), 414(p)(2), 414(p)(3), 414(p)(4)
For QDROs, Federal law provides a very specific definition of
"earliest retirement age," which is the earliest date as of which a
QDRO can order payment to an alternate payee (unless the plan permits payments
at an earlier date). The "earliest retirement age" applicable to a
QDRO depends on the terms of the pension plan and the participant's age.
"Earliest retirement age" is the earlier of two dates:
Drafters of QDROs should consult the plan administrator and the
plan documents for information on the plan's "earliest retirement
age." The following examples illustrate the concept of "earliest
retirement age."
Example 1 - The pension plan is a defined contribution plan that
permits a participant to make withdrawals only when he or she reaches age 59½
or terminates from service. The "earliest retirement age" for a QDRO
under this plan is the earlier of:
-
When the participant actually terminates
employment or reaches age 59½, or
-
The later of the date the participant
reaches age 50 or the date the participant could receive the account balance if
the participant terminated employment.
Since the participant could terminate
employment at any time and thereby be able to receive the account balance under
the plan's terms, the later of the two dates described above is "age
50." The "earliest retirement age" formula for this plan can be
simplified to read the earlier of:
-
Actually reaching age 59½ or terminating
employment or
-
Age 50. Since age 50 is earlier than age 59½, the
"earliest retirement age" for this plan will be the earlier of age 50
or the date the participant actually terminates from service.
Example 2 - The pension plan is a defined benefit plan that
permits retirement benefits to be paid beginning when the participant reaches
age 65 and terminates employment. It does not permit earlier payments. The
"earliest retirement age" for this plan is the earlier of:
-
The
date on which the participant actually reaches age 65 and terminates employment,
or
-
The later of age 50 or the date on which the participant reaches age 65
(whether he or she terminates employment or not).
Because age 65 is later than
age 50, the second part of the formula can be simplified to read "age
65" so that the formula reads as follows: the "earliest retirement
age" is the earlier of
-
The date on which the participant reaches age 65
and actually terminates or
-
The date the participant reaches age 65. Under
this plan, therefore, the "earliest retirement age" will be the date
on which the participant reaches age 65.
Reference: ERISA § 206(d)(3)(E); IRC § 414(p)(4)
-
The Department of Labor has jurisdiction to interpret
the QDRO provisions set forth in section 206(d)(3) of
ERISA and section 414(p) of the Code (except to the extent
provided in section 401(n) of the Code) and the provisions
governing fiduciary duties owed with respect to domestic
relations orders and QDROs. This booklet was developed in
consultation with the Department of the Treasury and the
Internal Revenue Service.
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As used in this booklet, the term "pension
plan" refers to that term as defined in section 3(2)
of ERISA and means generally any plan established or
maintained by an employer or an employee organization (or
both) that provides retirement income to employees or
results in the deferral or income by employees for periods
extending to the termination of covered employment or
beyond.
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Appendix
A - Advisory Opinion Letters
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Field
Assistance Bulletin 2003-3
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Appendix
B - ERISA Advisory Opinion Procedure
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Appendix
C - IRS Sample Language for a QDRO
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