Everything You Need to Know About QDROs
What is a QDRO?
A Qualified Domestic Relations Order, known as a “QDRO”, is a court order submitted to the Plan Administrator for approval to transfer marital pension benefits or retirement plan funds to a participant's spouse or former spouse. The “participant” is the person that originally received the retirement benefits (usually from an employer) and the alternate payee is typically the spouse or former spouse who will receive an assigned share of the benefits. QDROs should be completed during the court process (divorce, separate maintenance, or as part of mediation agreement) or soon after the divorce is final.
Why is a QDRO necessary?
Federal law protects retirement benefits from creditors and a Domestic Relations Order is required to transfer the retirement benefits to a spouse or former spouses to comply with the federal Employee Retirement Income Security Act (ERISA) of 1974, 29 USC 1001 et seq. Typically, a Judgment of Divorce (also known as a divorce decree) is not sufficient to divide retirement benefit(s) because it does not include the necessary languages. It is also preferable to do a separate court order for the retirement benefits to limit the information sent to the retirement plan administrator. Some companies provide sample model QDROs and others provide required forms to reduce applicable approval fees.
Do I Need a QDRO?
A QDRO is typically not required if a participant is solely awarded his/her retirement benefits. If retirement benefits are divided then a court order such as a QDRO would be required by the plan administrator to authorize the transfer of the benefits protected by federal law.
Is there a time limit to file a QDRO?
The sooner the better! In some cases, the QDROs have been approved by the Judge within weeks after the case filing date. Some Judges prefer to approve the QDRO at the final court hearing. In most cases, the goal should be to resolve the QDRO during the court process while everyone is motivated to work together for an overall resolution. The QDRO submission process becomes more complex as time goes by with various changes that may occur that could impact the benefits awarded such as market gains or losses, employment changes, unexpected life changes such as death, or even remarriage that impact beneficiary status and survivor benefits.
What is in a QDRO?
Most QDROs contain the following information:
The full name and current mailing address of the participant and alternate payee;
The specific name of the plan to which the order applies;
The percentage or specific dollar amount of the benefit to be paid to the alternate payee;
The payment terms;
Limitations for the transfer of benefits.
How Much Does a QDRO cost?
The preparation fee for a QDRO typically ranges between $400-$600. Many companies that draft QDROs do not offer a licensed attorney to help with the legal QDRO process. Many plan administrators may also charge a fee ranging from $300 to $1,200 for processing a QDRO. Our prices range from $250 to $500 depending on the type of retirement plan order. If more than 30 minutes are requested for consultations related to the retirement benefits then the hourly rate would apply for further assistance.
How Do I Get a QDRO?
Please call us at (248) 587-7888 or use the on-line contact options to discuss your QDRO needs. Our QDRO team will provide step-by-step directions with the required plan documentation, QDRO preparation, and court process for the signed QDRO. After the order is received back from the court, the order is submitted to the plan administrator for the approval process.
Are all QDROs the Same?
Many people refer to the acronym QDROs for all types of retirement plans, however, there are many types of Domestic Relations Orders. EDROs are Eligible Domestic Relations Orders to divide retirement plans such as the State of Michigan retirement plans. The federal government also offers a variation of a QDRO for the Thrift Saving Plans, CERS, and FERS plans (court orders acceptable for processing). Other plans simply require DROs.
How Long Does a QDRO Take?
In general, it takes 60 - 90 days after drafting the QDRO to complete the process when all goes smoothly. Once the QDRO is reviewed and then signed by each party, it is first sent to the court for entry into the case file. After the court approves it, the QDRO is sent to the plan administrator for the qualification process. It is important to note that a plan administrator is allowed 18 months to respond with the approval status of the QDRO (See 26 USC 414(p)(7); 29 USC 1056(d)(3)(H) (which provides an 18-month time frame for plan administrators to reject or approve a domestic-relations order). The timeline may vary based on the complexity of the QDRO, the time spent gathering the necessary documents to help draft the order, and the response time of the plan administrator, to name a few. If the parties cannot agree to the terms of a QDRO then either party may file a motion for the order to be approved by the Court without the party’s signatures which may delay the process. The plan administrator may also reject a QDRO which means the process basically starts over with the draft stage.
Does a QDRO Expire?
Certain QDROs may expire such as an indemnification QDRO depending on the agreement terms. Typically, there is no deadline to complete the QDRO process. Still, it is best practice to complete the QDRO as soon as possible to avoid any further complications.
What are the steps in the QDRO process?
Gather required information such as agreement terms and plan documentation such as the Summary Plan Description (SPD), plan statements, and any model QDRO language or procedures;
Draft the QDRO;
Review and approval by each party to finalize and sign the QDRO;
Submit signed QDRO to the assigned Judge for review, approval, and entry into the court records;
Forward the court-certified QDRO to the Plan Administrator along with the Attachment page to protect private information from court records;
Plan Administrator provides notice of the approval process.
Additional Questions?
Please contact us to schedule an appointment to discuss your QDRO situation.