If you’ve been researching QDROs, you’ve probably come across a lot of acronyms, terms and legalese that is causing confusion (and maybe a headache or two).
First, it’s important to understand how you will be referred to during the process (and in our resources):
- If you are the employee with the retirement plan being divided: You will be referred to as the participant, the employee or the employee member.
- If you are the spouse who will be taking funds from your ex’s retirement plan: You will be referred to as the nonmember, alternate payee, payee or former spouse.
Now, let me break down the rest of the jargon for you:
Defined Benefit Plan
Offered by both public and private employers, this type of retirement plan is either (1) a traditional pension or retirement plan that will pay monthly over time once you start taking your benefits or (2) a cash balance plan that provides a lump sum payment with the option to take monthly payments over time.
Defined Contribution Plan
Offered by both public and private employers, a Defined Contribution Plan deposits pretax money directly into an account for each employee. Contributions may be made by the employee, the employer, or a combination of both.
The retirement plan could be any of the following: a 401(k) plan, profit-sharing plan, savings plan, money purchase pension plans, employee stock ownership plans, 401(a) plans, 457(b) plans, 403(b) plans, tax-sheltered annuities, thrift plans or deferred compensation plans.
(Domestic Relations Order) DRO
A Domestic Relations Order (DRO) is required to divide a public retirement plan. (State, federal and military employees, this is you.)
ERISA is an acronym for the Employee Retirement Income Security Act of 1974. All qualified retirement plans are governed by ERISA. This federal law has a subsection that specifically allows for direct payment of a retirement benefit to a former spouse for marital or community property or for payment of support for a child or dependent.
A “joinder” is a California-only procedure in which the retirement plan is made a party to the divorce by filing “joinder pleadings,” which formally put a retirement plan on notice that there may be a marital property claim against those benefits.
You must “join” the retirement plan in a dissolution action before the domestic relations order will be processed for all California public plans and some private plans if required in their plan rules. Most private plans governed by ERISA do not require the service of joinder pleadings.
Notice of Adverse Interest
A Notice of Adverse Interest provides notice to a plan of a divorce or pending divorce. In many cases, service of this notice will trigger a hold on the plan benefits until a QDRO is served on the plan.
A Qualified Domestic Relations Order (QDRO) is a court order used to divide a private retirement plan.