Thursday, September 12, 2013
The QDRO and Divorce Decree/Decree of Dissolution
4:37 AM
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Recently I read an article in QDRO Desk.com which may be of some help in addressing issues in the drafting of a divorce or dissolution decree where there is a division of a retirement account through a Qualified Domestic Relations Order ( QDRO).
QdroDesk.com - September 2013 QDRO Newsletter -
Volume 2, Issue 3
THE QDRO AND THE DIVORCE
DECREE/SETTLEMENT AGREEMENT
________________________________________________________
Some family law attorneys do not
appreciate that the QDRO only effectuates the agreement between the parties, so
the two must be consistent. The agreement need not contain the technical
language of a QDRO; however, a generalized statement invites trouble.
At a minimum, every agreement that
divides a retirement plan should include the following:
1.
Exact legal plan name or names. The most common reason a QDRO is
rejected by the plan administrator is because the plan name provided is
incorrect. There are circumstances however when additional general provisions
would be appropriate if a question arises as to unknown plans.
2.
Clear, precise expression of the award, whether by percentage or dollar
amount. Attorneys should be aware of the payment options available under the
plan before finalizing the agreement. For example, many defined benefit plans
do not allow lump sum distributions beyond a certain amount (often $5,000).
Therefore, an agreement awarding the alternate payee $100,000 from a plan that
does not allow such a distribution will force the parties back into
negotiations when the order is rejected by the plan administrator.
3. Date when the division occurs,
such as date of divorce or other specific date. This normally corresponds with
the date on which marital property rights end but may be a different date. Some
plans will only divide benefits at the end of a particular fiduciary period
(e.g. the end of a month or end of a quarter). The practitioner should know
this when negotiating the agreement.
4. The disposition and the extent of
a post-retirement surviving spouse benefit should be addressed for all plans
that do not allow for a separate interest approach. This includes both federal
government plans and most state and local government plans as well as the
military and some private plans.
5.
In the Civil Service Retirement System or Federal Employees Retirement
System Plan, whether the division is for the gross, net or self-only benefit.
Both parties and their attorneys should understand the difference between these
terms. The gross benefit under the federal government plans does not have the
same meaning that most people infer. Additionally, most non-ERISA, government
plans have unique terms or language that should be included in the agreement.
6.
For all defined benefit plans, a statement indicating whether the award
includes cost of living increases (COLA).
Moreover, every agreement that
applies to defined benefit plans should state whether the alternate payee
should be considered a surviving spouse and entitled to any pre-retirement
death benefit if the participant dies prior to either party commencing benefits
and whether the alternate payee should receive benefits for his/her lifetime or
the lifetime of the participant.
Every decree that applies to a
defined contribution plan should additionally state the following:
1. Whether or not earnings and
losses should apply to the alternate payee’s award from the date of division to
the date of distribution.
2. The disposition of the award if
the alternate payee dies before receipt of his/her benefit.
3. Which party is responsible for
any outstanding loan balances.
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