About QDROs


Glossary of Terms


Participant: The spouse who worked for the company who sponsors the plan or signed up for the account. The retirement benefit is held in this person's name. 

Alternate Payee: The spouse who will receive a portion of the benefit as a result of the QDRO. The alternate payee does not have any access or rights to the retirement benefit until a QDRO is completed. 

Plan: The retirement benefit. This can be a pension plan, a 401(k) plan, etc. Each company or institution designs its own Plan. QDROs are complicated by the fact that each Plan has its own rules, which change over time along with ownership and contract changes. QDROs must conform to each individual Plan's requirements.

Plan Administrator: The company, firm, or practice that administers QDRO services for the retirement benefit. This can be an employee of the company (such as an HR manager), contracted out to the investment company itself, or a third-party firm. The Plan Administrator varies widely from company to company, and from Plan to Plan. It is important to distinguish between the financial institution that handles the recordkeeping for the plan and the plan administrator, because they are not always the same. 

Valuation Date: The date on which the portion of the defined contribution plan that is being transferred out of the plan is valued. This can be the parties' date of separation, the date that the asset actually is transferred by the financial institution, or other agreed-upon dates that the Plan Administrator will accept. The valuation date is important because it determines the actual value of the alternate payee's award. It is required by the Plan. 

Gains/Losses: The result of market fluctuations on a defined contribution account, causing the account value to raise or lower over time. This affects the real time value of the percentage or dollar amount that is to be transferred to the alternate payee. Most QDRO awards include gains/losses, so that any increase or decrease in Plan value is shared between the parties. The other option is for the alternate payee to receive a "lump sum" or "fixed amount," which would not consider gains/losses. Market fluctuations on defined contribution plans can be quite dramatic. When gains/losses are considered on account values over long periods of time, they can translate into significant amounts. 


Defined Contribution Plan: 26 U.S.C § 414(i) defines a defined contribution Plan as: A plan which provides for an individual account for each participant and for benefits based solely on the amount contributed to the participant's account, and any income, expenses, gains and losses, and any forfeitures of accounts of other participants which may be allocated to such participant's account. 

In layman's terms, defined contribution plans have a "what you see is what you get," or cash balance account value. Statements generated for these accounts show the entire account value
Example: 401(k)s, Savings Plans, Profit Sharing Plans

Defined Benefit Plans: 26 U.S.C § 414(i) defines a defined benefit plan as any plan that is not a defined contribution plan. 

A defined benefit plan only defines the benefit for the employee upon the employee's retirement. The total benefit is based on a formula which takes into account the age of the employee at retirement, total years of service, and salary at retirement. These plans are divided in California by using the "time rule" fraction. These Plans are based entirely on employer contributions; the employee does not make contributions into this Plan. 

Hybrid Plans: Many plans today are not technically defined benefit plans, but include benefits that are not defined until retirement. These accounts do have a cash value portion because employees make contributions into the plan, but they also have an additional, employer-contributed value that is not determined until the employee retires. Examples are PERS, STRS, and a wide variety of other pension and retirement plans. 

Community Portion: The part of the retirement benefit that holds contributions or credits which were accrued between the date of marriage and the date of separation. Accurately determining the community portion of a defined contribution plan involves excluding any pre- or post-marital contributions, as well as determining the gains/losses to the community portion of the account as of the valuation date. The community portion of a defined benefit account is determined by the "time rule" fraction. 

How would a QDRO use the terms above? 
401(k) Plan QDRO Example: "The alternate payee is hereby awarded a separate property ownership interest of fifty percent (50%) of the participant's vested account balance valued as of the date of separation, adjusted to reflect the investment gains or losses attributable to this amount between the date of separation and the date the benefits are segregated into a separate account in the alternate payee's name."

What is a QDRO?

A Qualified Domestic Relations Order (QDRO) applies to plans which are considered "qualified" under the Employee Retirement Income Security Act (ERISA) of 1974.  

26 U.S.C § 414(p) defines a QDRO as a domestic relations order "which creates or recognizes the existence of an alternate payee's right to, or assigns to an alternate payee the right to, receive all or a portion of the benefits payable with respect to a participant under a plan," and fulfills other specific requirements in order to do this. There are many other plans that are not considered "qualified" under ERISA. Examples are federal and municipal Plans such as FERS, STRS, PERS, & TSPs, as well as IRAs. These Plans are divided by similar court Orders that fulfill their individual, differing requirements for division. Elizabeth Strasen divides both qualified and non-qualified plans.

Why is a QDRO necessary?

The short answer to this question is that QDROs are required by both the IRS and the Plans. Their importance differs between defined contribution and defined benefit plans.

For defined contribution plans, assets held within the plan can only be moved without a QDRO by the employee taking a loan or distribution from the plan with which to pay their ex-spouse. This would be a taxable event to the employee. QDROs allow the transfer of assets to be a non-taxable event for the employee.

For defined benefit plans, the QDRO divides a future stream of income today. It allows that future stream to be paid directly to the alternate payee by the Plan. A QDRO also gives the alternate payee some control over their share of the benefit, such as when to start receiving benefits and whether to receive the benefits for their lifetime, or the employee's lifetime.

Please be aware that it is not sufficient to have language in your Judgment of Dissolution of Marriage that specifies your agreed-upon division of retirement benefits. Judgments are not QDROs. Judgments are instructions to you and your ex-spouse on how to divide your property. QDROs are instructions to the Plan on how to divide your property. A QDRO includes many pages of language written to fulfill the requirements of the plan for a QDRO as well as language to protect both parties. The IRS will not accept using a Judgment to do the work of a QDRO.

What are the steps to complete a QDRO?

In Elizabeth Strasen's practice, we proceed as follows:

1. All information is gathered from clients (names, addresses, dates of birth, SSNs, date of marriage & separation, statements, copies of divorce settlement or relevant court orders, etc.). 
2. QDRO is drafted and circulated to attorneys and/or clients for them to review. Resolution is reached on a single draft that all parties approve. 
3. Agreed-upon draft QDRO is sent to the company's plan administration for a pre-approval.
4. Plan administrator reviews QDRO. Revisions required by the Plan, if any, are made. QDRO is circulated to parties for signature. 
5. Fully signed QDRO is sent to court clerk by our office for filing & endorsement.
6. QDRO is returned to our office by the court clerk. We send the court endorsed QDRO to the plan administrator for execution, and provide all parties with copies for their records.
7. Plan administrator receives QDRO as final court order, and executes QDRO within 30-60 days. This is when they will mail out final paperwork and transfer funds (if applicable). 
8. Once our office confirms that the QDRO has been executed, we close our file and issue a refund of any remaining retainer funds. Files are kept in storage for seven years or until earliest retirement age of the participant (if longer).

I have a specific, technical question about QDROs that is not addressed here. How can I get an answer ?

Please contact our office and we will do our best to assist you.

Elizabeth Strasen does not offer counsel unless you are a client of her practice. Truly accurate answers must be a product of reviewing all applicable information relative to your specific case. QDRO work varies widely from the requirements/options of the plan(s) involved to the nature of your divorce settlement, and so forth.

Please see our Terms & Conditions for the limitations on relying on this information.