Weren’t invited to the wedding? Well, you’re in on the divorce
The Tax Cuts and Jobs Act repeals the deduction for alimony for couples who divorce, beginning in 2019. That’s putting a lot of pressure on couples to get their ducks in a row this year. And it also means that you may be facing an onslaught of qualified domestic relations orders, or QDROs. QDROs direct pension plan administrators to divvy up an employee’s pension assets, with some assets going to an alternate payee, who is usually the ex-spouse or children.
Do you know QDRO? All QDROs are domestic relations orders, but not all domestic relations orders are QDROs. A domestic relations order can be a QDRO only if it creates or recognizes the existence of an alternate payee’s right to receive, or assigns to an alternate payee the right to receive, all or a part of an employee’s retirement benefits. QDROs must contain the following information:
- The name and last known mailing address of the employee and each alternate payee
- The name of each plan to which it applies
- The dollar amount or percentage (or the method of determining the amount or percentage) of the benefit to be paid to the alternate payee
- The number of payments or time periods to which the order applies.
A QDRO won’t fail to be treated as a QDRO solely because it’s issued after or revises another domestic relations order or QDRO. Example: It’s OK if a QDRO assigns benefits to an ex-spouse and a later QDRO assigns benefits that weren’t assigned to the first ex to a second ex-spouse. Watch out: An order will fail to be a QDRO if previously assigned benefits are reassigned to a later ex-spouse.
There are certain provisions that a QDRO can’t contain:
- It can’t require a plan to provide the alternate payee or employee with any type or form of benefit, or any option, not otherwise provided under the plan.
- It can’t require a plan to provide for increased benefits that are determined on the basis of actuarial value.
- It can’t require a plan to pay benefits to an alternate payee in the form of a qualified joint and survivor annuity for the lives of the alternate payee and a current spouse.
You’re required to provide notice to employees and their ex-spouses that you’ve received a domestic relations order and you must provide a copy of the plan’s procedures for determining the qualified status of the order.
STILL NOT SURE? You have a fiduciary responsibility to ensure that a domestic relations order is a QDRO and that the QDRO is administered properly. The plan document should have established a reasonable procedure for you to determine whether a QDRO passes muster. The Department of Labor publishes a booklet on QDROs; point your browser to tinyurl.com/dolqdro.