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Everything You Need to Know About QDROs

Everything You Need to Know About QDROs.jpg

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 assets such as pension benefits or retirement plan funds to a participant's spouse, former spouse, child, or other dependents. QDROs should be completed during the court process (divorce, separate maintenance, or as part of mediation agreement) or soon after the divorce is final, however, in most cases it is typically filed years after the divorce process. 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.

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 the marital retirement benefits are divided then a Domestic Relations Order (QDRO) would be required by the plan administrator to authorize transfer of the benefits protected by federal law. after a court awards part of a spouse's retirement plan or benefits to the other spouse. I

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 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/losses, employment changes, unexpected life changes such as death or even remarriage that impacts beneficiary status and survivor benefits.

What is in a QDRO?

Almost all QDROs will contain the following information:

  • The name and last known mailing address of both 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 and tax implications

  • Limitations for the transfer of benefits

Depending on the type of QDRO, there could be other elements needed. There are hundreds of plan providers, each of which may vary.

How Much Does a QDRO cost?

The price of a QDRO typically ranges between $400-$600 for drafting fees based on the state and the quality of the QDRO attorney. Many companies that draft QDROs do not offer a licensed attorney to help with the legal QDRO process. Plan Administrators may also charge a fee for dividing the QDRO which typically ranges between $300.00 to $1,200.00.

Our prices range from $250.00 to $500.00 depending on the type of retirement plan order. Most QDROs for defined contribution plans are $400.00 as a flat fee per plan.

How Do I Get a QDRO?

Please call us at (248) 587-7888 or see contact options below to discuss your QDRO needs. Our QDRO team will review the agreement terms and provide direction on the necessary retirement plan documentation, draft the QDRO, and help submit the signed QDRO to the court for approval. After the order is received back from court, the order is submitted to the plan administrator for the approval process.

Click here to get started with your QDRO

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 requires 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 not a deadline to complete the QDRO process. Still, it is best practice to complete and file the QDRO with the court and then submit to the plan administrator as soon as possible to avoid any further complications in the future.

What are the steps in the QDRO process?

  1. Gather required information such as agreement terms and plan documentation

  2. Draft QDRO

  3. Review and approval by each party to finalize and sign the QDRO

  4. Submit signed QDRO to Judge for review, approval and entry into the court records

  5. Forward court certified QDRO to Plan Administrator along with Attachment page to protect private information from court records

  6. Plan Administrator provides notice of the approval process

Additional Questions?

Please contact us to schedule an appointment to discuss your QDRO situation.

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