QDROs

What is a QDRO?

The term qualified domestic relations order refers to a judgment, decree, or order that creates or recognizes the existence of an alternate payee's right to receive all or a portion of a plan participant's benefits payable under an ERISA-qualified employee benefit plan. A QDRO must further meet a set of specified criteria summarized in Code Section 414(p). QDROs are particularly common in the area of divorce and are used as a means to break through the antialienation provisions required in all ERISA benefit plans which prohibit a benefit plan from distributing a participant's benefits to anyone other than the participant himself. With a properly drafted QDRO, a former spouse of a plan participant can be eligible to receive all or a portion of such participant's accrued pension or profit sharing plan benefits.

QDROs are useful not only in divorce situations. QDROs can be utilized for child support or spousal support purposes, including the collection of past-due child support or spousal support arrearages. Under many 401(k) plans, a child support arrearage could be payable under a QDRO immediately upon approval, even though the participant is not yet eligible for a distribution under the plan.

The plan administrator determines whether a QDRO is qualified. Congress granted this right to the plan administrator when it enacted QDROs in 1984. Even though the QDRO is actually a court order signed by a judge, it is not considered qualified until the plan administrator approves it.

History

The law in effect before 1984, which prohibited a pension plan from the assignment or alienation of a participant's benefits, made it almost impossible for a former spouse to enforce state rights to a marital portion of a plan participant's pension benefits. ERISA's preemption provisions would override a state court's attempt to provide such support obligations to a former spouse. Courts were divided on the issue of whether ERISA's antialienation clause applied to state domestic relations orders and also whether the preemption clause referred to state domestic relations laws and court orders.

QDROs were established under the Retirement Equity Act of 1984 (REA). According to the report submitted by the Committee on Ways and Means, the bill to amend ERISA would improve the delivery of retirement benefits and provide for greater equity under private pension plans for workers and their spouses and dependents by taking into account changes in work patterns, the status of marriage as an economic partnership and the substantial contribution to that partnership of spouses who work both in and outside the home.

Therefore, under REA, any creation, assignment, or recognition of a right to any benefit payable with respect to a participant pursuant to a QDRO is not treated as an assignment or alienation otherwise prohibited by ERISA. Thus, if a plan administrator receives a QDRO that requires the distribution of all or a portion of a plan participant's benefits under a pension, profit sharing, or stock bonus plan to an alternate payee, then the acknowledgment of such alternate payee's right to receive the benefits is not treated as violating the antialienation provisions of ERISA.

This exception to the spendthrift provisions of ERISA applies only to QDROs as defined under ERISA and the Code. If a domestic relations order does not meet the criteria enumerated in Code Section 414(p), then a plan administrator may decline to treat it as a QDRO and such order will be subject to the antialienation and preemption provisions of ERISA.

Requirements

There are specific requirements that must be included in all domestic relations orders before they can be considered qualified. Some of these requirements are quite straightforward, while others are of matchless complexity. Even though QDROs have existed for quite some time, many QDROs are still initially rejected by the plan administrator. Some are rejected for simple reasons, such as leaving the word "Inc." out of the official name of the pension plan.

For a domestic relations order to be considered qualified, it must meet the requirements contained in Code Section 414(p). There are nine items to consider when drafting a QDRO. The QDRO must specify:

It is also important to remember that the QDRO is actually a domestic relations order that must specifically:

In addition to meeting these criteria, the QDRO may not alter the amount, form, or other provisions of benefits otherwise payable under the plan(s). In other words, the QDRO must: