QUALIFIED DOMESTIC RELATIONS ORDERS
The information provided in this report is written for attorneys and divorcing individuals to provide practical tips and techniques in dealing QDROs. QDROs are a complicated subject for which we attempt to offer clarification concerning duties of all parties. The paper is a primmer on the subject, including a complete checklist for items to look for or include in the QDRO.
Qualified
Also called a tax-qualified plan or ERISA-qualified plan. A plan that meets IRC requirements allowing for income and gains on plan assets to avoid taxation, with the participant paying no income tax until beginning distributions. There are two different types of qualified plans.
A Benefit Plan is a plan qualified by ERISA, fully funded by the employer that provides the employee a benefit upon retirement. Actuarial calculations are utilized to determine benefits. This is frequently called an Employee Pension Benefit Plan.
A Defined Contribution Plan is a qualified ERISA plan allowing before-tax contribution by the employee, as well as matching contributions by the employer. Account value is readily determined at any time by the plan administrator or statement. Common examples are the 401k plan or 403b plan.
Procedures required by ERISA:
ERISA requires that each employee benefit plan establish reasonable procedures to determine the qualified status of the order and to administer distributions. These procedures must be in writing and provide for notification of each person named as entitled to payment. Additionally, they must permit an Alternate Payee to designate a representative for receipt of copies of notices sent by the plan regarding the QDRO. This is usually an attorney. Note that the participant is not allowed to appoint a representative to receive notices from the plan.
Key ERISA Concepts:
Although correspondence is with the company, in actuality, the Plan is a separate legal entity. ERISA requires the plan fiduciary to act “solely in the interest of the Participant and beneficiaries, and for the exclusive purpose of providing benefits to Participants and their Beneficiaries”. Each plan must have at least one named fiduciary in its governing plan document however, others working with the plan can also be considered fiduciaries if they exercise control respecting management of a plan or has any discretionary authority in the administration of the plan.
Note that each fiduciary is individually liable for breaches of duty, since ERISA forbids the employer indemnifying them against liability. This provision can be useful when dealing with a plan that is not cooperative, since you can casually mention the ERISA rules.
Plans may be sued by either a participant or beneficiary to “recover benefits due to him under the terms of his plan, (b) to enforce his rights under the terms of the plan, or (c) to clarify his rights to future benefits under the terms of the plan” (29 U.S.C. Section 1132(a)(1).
ERISA provisions “supersede any and all State laws insofar as they may now or hereafter relate to any Employer Benefit Plan…” (29 U.S.C. Section 1144(a). This includes any laws, rulings, or decisions made by State courts.
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