A QDRO (pronounced ‘Quad-ro’ for those in the know) stands for a Qualified Domestic Relations Order. This is basically an order from the court that recognizes a non-account holder’s (or an alternate payee’s) right to receive some portion (or even all) of the benefits payable to the retirement plan participant. QDROs are used if you and your divorcing spouse decide to split up certain kinds of retirement plans.
QDROs are specific to each plan, and are often highly complex. They are required to actually award the other spouse the retirement plan (or a portion), even if the parties have included the division in a decree, signed it and had it approved of by a judge. That’s because retirement accounts are very often controlled by federal ERISA law. In fact, retirement plans are not required to follow other orders concerning alternate payees UNLESS it is a QDRO. State courts are permitted to issue these kinds of orders, but they are usually drafted by experienced lawyers or even other companies which specialize in drafting QDROs, usually after preliminary approval by the plan administrator itself.
QDROs must contain the following to be recognized under ERISA: the name and last known mailing address of both the participant and alternate payee (i.e. both spouses), the name of each plan (and usually the account number), the dollar amount or percentage of the benefit that will be paid to the alternate payee, the number of payments or time period that the order references, and the plan administrator’s contact information. These must match with the final order of divorce, or there can be confusion and ambiguity in its division. There are additional, more complex requirements to be a QDRO – for example, the order cannot require a plan to provide for increased benefits, or for the alternate payee to be provided with any other benefit not otherwise provided under the plan. While all QDROs need this information, the bulk of the QDRO will depend on the type of plan, the nature of the benefits, and the intent of the drafting parties. That is why there are several companies that specialize in creating these kinds of orders.
There can be multiple QDROs on a single plan – something that is possible if the original beneficiary was previously married. Additionally, QDROs can be modified and can revise a previously issued QDRO. Typically, the timing of a QDRO does not affect its validity or ability to appropriate divide funds, even after an annuity begins to be distributed.
Once the QDRO is drafted, it is sent to the plan administrator (such as SFERS) who can determine whether the order is a QDRO; state courts do not have the power to determine whether the order is a QDRO. If an administrator determines that the order is not qualified to be a QDRO, said decision can be challenged only in federal court. In some cases, the plan administrator will work closely with the QDRO drafter to advise him/her on any initial deficiencies in the submitted order, helping ensure it will become an acceptable QDRO. After the plan administrator preliminarily approves the QDRO, it should be submitted to the court to become a final, binding order. Once signed by the judge, the plan administrator should receive a certified copy to complete the division.