Qualified Domestic Relations Orders (QDROs)

a. Defined Contribution QDRO Issues

A "defined contribution plan" is a retirement 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 and losses, and any forfeiture of accounts of other participants which may be allocated to such participant's account. Examples of defined contribution plans include a profit sharing plan (including a "401(k)" plan), an employee stock ownership plan (an "ESOP") and a money purchase pension plan. Defined contribution plans commonly permit retirement benefits to be paid in the form of a lump sum payment of the participant's entire account balance.

Investment of the amount assigned to the alternate payee when the account is invested in more than one investment vehicle and division of any future allocation of contributions or forfeitures to the participant's account are among the matters that should be considered when drafting a QDRO that allocates the alternate payee a separate interest under a defined contribution plan. The participant's account may be invested in more than one investment fund. If the plan provides for participant-directed investment of the participant's account, consideration should be given to how the alternate payee's interest will be invested. A participant's account balance may later increase due to the allocation of contributions or forfeitures after the QDRO has been entered. A QDRO may provide that the amounts assigned to the alternate payee will include a portion of such future allocations.

b. Defined Benefit QDRO Issues

A "defined benefit plan" promises to pay each participant a specific benefit at retirement. The basic retirement benefits are usually based on a formula that takes into account factors such as the number of years a participant has worked for the employer and the participant's salary. The basic retirement benefits are generally expressed in the form of periodic payments for the participant's life beginning at the plan's normal retirement age. This stream of periodic payments is generally known as an "annuity." There are special rules that apply if the participant is married; these rules are discussed in greater detail in section E below. A plan may also provide that these retirement benefits may be paid in other forms, such as a lump sum payment.

The treatment of subsidies provided by a plan and the treatment of future increases in benefits due to increases in the participant's compensation, additional years of service, or changes in the plan's provisions are among the matters that should be considered when drafting a QDRO that uses the separate interest approach to allocate benefits under a defined benefit plan.

Defined benefit plans may promise to pay benefits at various times and in alternative forms. Benefits paid at certain times or in certain forms may have a greater actuarial value than the basic retirement benefits payable at 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. Plans usually provide that a participant must meet specific eligibility requirements, such as working for a minimum number of years for the employer that maintains the plan, in order to receive the subsidy. For example, a defined benefit plan may offer an "early retirement subsidy" to employees who retire before the plan's normal retirement age but after having worked for a specific number of years for the employer maintaining the plan. In some cases, this subsidized benefit provides payments in the form of an annuity that pays the same annual amount as would be paid if the payments commenced instead at the normal retirement age. Because these benefits are not reduced for early commencement, they have a greater actuarial value than benefits payable at normal retirement age. This subsidy may be available only for certain forms of benefit. A QDRO may award to the alternate payee all or part of the participant's basic retirement benefits. A QDRO can also address the disposition of any subsidy to which the participant may become entitled after the QDRO has been entered.

c. Practice Pointers

A domestic relations order (DRO) is an order that grants alimony and/or property rights to the pension owner's spouse, or child support under domestic relations law. For example, a property settlement could trigger the distribution of the retirement benefit plan to anyone who is not the plan participant. For the non-participant spouse to receive payment from the plan, the payment must be made in accordance with the qualified domestic relations order (QDRO). A DRO is qualified if it "(1) creates or recognizes the existence of an ultimate payee's right to, or assigns to an alternate payee the right to receive benefits with respect to a participant under the plan, and (2) complies with other statutory requirements." An alternate payee can be a spouse, a child, former spouse, or other dependent that is recognized by the QDRO as having a right to receive either a portion of or all of the benefits payable under the participant's plan.

For a domestic relations order to become qualified, the plan administrator must join the suit as a party, and then decide if the DRO is qualified, and be permitted to represent the important interests. When determining if the DRO is qualified the plan administrator must determine if it fulfills several requirements. First, there must be a transfer of ownership. Thus, the order must "be one which 'creates or recognizes the existence of an alternate payee's right to...receive all or a portion of the benefits' payable to the owner." Second, the DRO must specify the names and addresses of each participant in the suit and the alternate payee; the amount that each alternate payee will receive; the number of payments that the order will be effective for; and the exact retirement plan the order governs. Third, DRO must specify the amount and duration of the payments. Fourth, when talking about retirement plans, the DRO must "provide that the court may not order the plan to provide to an alternate payee any type, form, or amount of benefit not normally available to the owning spouse. It also may not order the plan administrator to provide to one alternate payee any benefit already being paid to an alternate payee under another QDRO."

Drafting a proper QDRO depends largely on the companies your clients have retirement accounts with. It is good practice to contact the companies where these accounts are located and ask if they have a sample QDRO they like their clients to use. Often this can save you and your client time and money. After you have drafted the QDRO but before you have a judge sign off on it, it is a good idea to send the QDRO to the plan administrator and see if it will be acceptable. The plan Administrator can then either approve the QDRO as is or make suggestions as to how to change the document. Following this extra step would prevent having to take multiple QDROs to the judge for their signature and it will often save you and your client time and money in the long run. Once the plan administrator informs you the QDRO will work, you can then proceed with obtaining a judge's signature.


Employee Benefits Security Administration, Drafting a Qualified QDRO, United States Department of Labor, http://www.dol.gov/ebsa/publications/qdros_appd.html/.

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Employee Benefits Security Administration, Drafting a Qualified QDRO, United States Department of Labor, http://www.dol.gov/ebsa/publications/qdros_appd.html/.

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2 Equit. Distrib. of Property, 3d § 6:19.

11 Ohio Forms Legal & Bus. § 27:62 (2014 ed.).

11 Ohio Forms Legal & Bus. § 27:62 (2014 ed.).

2 Advising the Elderly Client § 19:212.

2 Equit. Distrib. of Property, 3d § 6:19.

2 Equit. Distrib. of Property, 3d § 6:19.