December 1, 2017
Your new client, Mark, arrives at your office armed with a pile of documents. You’ve asked him to bring statements for all of the couple’s assets and liabilities, a pay stub, tax returns and a company benefits statement. As you sift through everything you notice that Mark has a pension with his company. This should set off a bell in your head: Start the QDRO Process!!
A Qualified Domestic Relations Order (QDRO) is required to divide an ERISA-sponsored retirement plan. This includes pensions, which are called “defined benefit plans”.
A QDRO is a very specific document that will instruct the plan administrator (the company that oversees and manages the pension) on how to distribute the pension to both parties. The manner in which the pension is split depends on the specifics of the plan. Some plans allow for a “separate interest” in which the pension is divided in two and each spouse controls their own account. This means the non-employee spouse can decide when to begin taking withdrawals, independent of when the employee spouse retires or begins payments. A “shared interest” account is very different; here the non-employee spouse shares in the pension payment when it begins, the date of which is at the discretion of the employee.
Who controls the start of pension payments is an important piece of information to know as you negotiate the divorce. If you are dealing with a shared-interest pension, and your client must wait for her spouse to retire before she can begin to receive pension income, this could impact the decision of whether to divide the pension at all. Some spouses do not want their income to depend on the ex-spouse’s retirement. They might opt for more assets instead, or alimony until the employee retires.
Therefore, you should request a copy of the plan document at the earliest opportunity, so you know what kind of plan you are dealing with.
Every pension plan is different, which means every QDRO is written specifically for that plan. If a QDRO is not drafted correctly it will be rejected and the non-employee spouse could lose benefits that were expected.
Drafting the QDRO as early as possible is very important. The employee’s company must approve the QDRO, so you will want to know as soon as possible if they will accept your instructions. It can take months for a company to review and respond.
There are other details that are important to include; the document should include instructions for providing payments to the spouse if the employee dies or remarries before retirement. And it must be drafted in a way that complies with the plan’s normal payout provisions.
Given these pension nuances and the details needed to produce an acceptable QDRO, this important document should be started as soon as possible.
