Can You Domesticate a Qualified Domestic Relations Order (QDRO)?
Many general civil practitioners may handle a few domestic relations or divorce cases. We frequently hear complaints from clients regarding QDROs. Just mentioning those words can cause some eyes to glance over. The vast number of acronyms found in ERISA and the Internal Revenue Code can be intimidating and confusing. So, if you add into the mix a contentious domestic relations proceeding then you may feel that you have an undesirable and untamable QDRO situation. Laying aside the emotional volatility of clients in domestic relations cases, the QDRO situation can be "domesticated" and made as tame as a house cat. A firm that represents plan administrators has recently provided a few suggestions that are very helpful to make sure you have fully "tamed" the QDRO for your client. Hopefully, the wild QDRO situations that arise will be made fewer if more practitioners follow these helpful tips.
1. Start with the Basics.
A QDRO is a qualified domestic relations order that assigns an alternate payee the right to receive all or a portion of benefits payable to a participant. It can relate to payments due to a former spouse or a child for child support, alimony, or to other dependents of the participant. See Internal Revenue Code 414(p)(1)(B) and ERISA 206(d)(3)(B). To be valid, it must meet the specific requirements noted in the above statutes. If it fails to do so, it could mean that the intended payee does not receive the benefit. It is not difficult to make certain that the specific requirements of the order are met, but it is a critical matter. A very strong state court order awarding such benefits to an alternate payee in a domestic relations case, but which fails to meet the QDRO requirements, may not be binding at all on the plan administrator.
2. Get the Plan Document & Summary Plan Description.
It is always beneficial to know the rules of the game before you start playing the game. Additionally, if the domestic relations proceeding is severing households there may be a lack of cooperation between the two separate households now. Best to get the plan.
3. Try to Avoid Problems by Following These Steps:
Step 1: Contact the plan administrator and ask for a model-qualified domestic relations order. There should be a specific model for a defined benefit plan such as a pension, and a specific model for a defined contribution plan such as a 401(k).
Step 2: Ask the plan administrator, particularly what procedures should be followed for a valid QDRO to be presented and on file. Of course, some plan administrators are more helpful than others. After you have a good model QDRO in your file, you should save it to utilize with other plan administrators who are less helpful. Also, keep a record of the standard procedures from a helpful plan administrator and try to follow those with the less helpful plan administrators.
Step 3: Send in a completed draft of the QDRO with everything filled in, but just not yet signed by the judge. Ask the plan administrator if there are any suggestions or revisions necessary to make certain that the QDRO fully complies with the requirements of the plan.
4. Submit the Fully Executed QDRO to the Plan Administrator.
Please note that there can be fees charged for the review and processing of a QDRO once it is submitted. However, the fees should only be charged for a defined contribution plan such as a 401(k). The fees should be stated in the plan document, such as the summary plan description, which is another reason why you want those documents. It is beneficial of course to require confirmation of the receipt of the QDRO. It certainly helps to send it certified mail with a return receipt requested. Also, faxing the QDRO to the plan administrator and by e-mail if available covers your bases. A helpful plan administrator will confirm receipt.
5. Provide a Letter to Your Client on When the QDRO Distributions will Possibly Start.
There can be different distribution triggers that occur, so identify what those are and the approximate date for each. You can also ask the plan administrator to identify the anticipated payment dates and the amount of the payments that can be anticipated for your client. It can be very difficult to undo an error with a plan administrator's distribution that goes to an uncooperative ex-spouse. You could end up in a scenario where you have to sue them all and let the judge sort them out.