What is a Qualified Domestic Relations Order (QDRO)?
Millions of Americans are covered by private employer-sponsored plans. In order to properly divide this valuable asset upon divorce, a “Qualified Domestic Relations Order” (“QDRO”) is required. Virtually every private employee-benefit plan in the United States today is qualified under, and governed by, the Employee Retirement Income Security Act of 1974, known as “ERISA,” and the Retirement Equity Act of 1984, which provided that certain domestic relations orders, containing specific terms, must be accepted and honored by ERISA-qualified pension plans.
When Is a QDRO Needed?
Under the federal ERISA/REA statutory scheme, any judgment, decree, or order dealing with alimony or support for a spouse, former spouse, child, or other dependent made according to local domestic relations law is considered a “domestic relations order” under federal law. It becomes a “qualified” order, or QDRO, and must be recognized and enforced by an ERISA-qualified plan, when it creates or recognizes one of the listed classes of persons as an “Alternate Payee” with a right to receive all or any portion of the benefits normally payable to a participant in that plan.
How is a QDRO Drafted?
The drafting of QDROs can be a time-consuming and complicated process. The governing statutes require specific language and information to be included into every ERISA-based QDRO, and prohibits certain other terms. In addition to federal regulation, each individual pension plan usually adopts its own rules and regulations when determining whether to accept/honor a proposed QDRO. Some plans are very specific and will not honor a QDRO unless it complies exactly with their rules. This requires a certain amount of patience and specific experience dealing with varying pension plan policies and procedures.
This is where QDRO Masters at the Willick Law Group comes in. We have decades of experience drafting these orders and are well-versed in the intricacies of plan procedures. Should you require the drafting of a QDRO we hope you choose the professionals at QDRO Masters.
What is a Defined Contribution Plan?
A defined contribution plan is one in which the employee has an individual account made up of contributions made by the employee (and, if any, by the employer), plus investment gains and or losses.
What are the Different Types of Defined Contribution Plans?
These plans come in many varieties, including profit-sharing plans (employer contributions vary according to company performance), stock bonus plans (the plan invests in the securities of the company itself), “401(k)” plans (employee chooses either taxable salary or nontaxable contribution to plan), and money purchase plans (like profit-sharing, but with a fixed employer contribution). The key concept for such plans is that they have a specific balance of funds belonging to each particular employee. These plans still necessitate the drafting of a QDRO for proper division, which requires the inclusion of specific terms and language in order to properly divide each party’s share upon divorce. The amount that needs to be divided is determined by either the contribution, or the time rule formula. Let QDRO Masters help determine which is most appropriate for you.
QDRO Masters at the Willick Law Group has been drafting QDROs for defined contribution plans for over two decades, and its vast experience will help ensure that your QDRO is properly drafted, while accounting for the intricacies required in the drafting process.
What is a 401(k)?
A 401(k) is a type of retirement savings account. It gets its name from subsection 401(k) of the Internal Revenue Code. The 401(k) has become an increasingly popular retirement account for employers over the past three decades (since its implementation), in lieu of the traditional employer-sponsored retirement pensions due to its tax implications.
Employers usually administer the 401(k) accounts for their employees; however, most 401(k) accounts are “participant-directed”, which gives the employee options on how best to invest their savings. Most employees choose to invest their savings in fairly low-risk mutual funds, bonds, or money market investments, or simply adopt a combination of these securities.
Like other retirement plans, 401(k)s require the drafting of a QDRO to properly apportion each party’s share upon divorce. Since the benefit is readily ascertainable, many QDROs require disbursement by lump-sum payment, or by way of a rollover into an alternate payee’s separate retirement account.
What is a 403(b)?
A 403(b) retirement plan is a fairly specific retirement plan that is generally only available to public education organizations, some non-profit organizations – 501(c)(3) organizations, or self-employed ministers. It is very similar to the 401(k) in treating employee contributions as salary deferrals before income tax is paid, which allows the distributions to grow tax-deferred until the money is actually taxed when funds are withdrawn. In essence, the primary advantage to 403(b) plans over 401(k) plans, is its inherent simplicity. The requirements for accounting and annual reporting to the Internal Revenue Service (IRS) for 403(b) plans are far less stringent.
What is a Defined Benefit Plan?
A defined benefit plan (often called a pension plan) is usually funded by employer contributions, although in some plans, employees can contribute, and is intended to provide certain specified benefits to the employee after retirement, usually in the form of a monthly annuity for life. These plans appear in both the public and private sectors. Often, the benefit is determined by a formula taking into account the highest salary received and the total number of years worked for the employer (such as a “high-three” or “high-five” plan). Plans are typically funded by employer contributions based upon employee earnings outlined above.
Do You Need a QDRO for Divorce?
Upon divorce, no matter the plan (as long as it is covered by ERISA), the drafting of a “qualified domestic relations order”, or QDRO, is required to adequately disburse all the types and forms of benefits outlined above to an alternate payee, generally, a former spouse. QDRO Masters at the Willick Law Group has been drafting QDROs for defined contribution plans and defined benefit plans for over three decades, and its vast experience will help ensure that your QDRO is properly drafted, while accounting for the intricacies required in the drafting process.