Dividing Pensions in Divorce: QDRO Process Overview
Learn about the QDRO process for dividing pensions in divorce, including when to prepare it, steps involved, common rejection reasons, timeline, and the importance of not delaying. Find out why it's crucial to act promptly to avoid complications such as death, remarriage, relocation, and other factors. Be informed about the average timeline, sending QDRO for review, and the types of retirement plans that may require review.
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Presentation Transcript
QDRO Process Dividing Pensions in Divorce Project 1
Learning Objectives Understand when the QDRO should be prepared Learn the steps in the QDRO Process Learn the QDRO Process Timeline Understand the common reasons for QDRO rejection 2
When should the QDRO be prepared?
Best Practice The QDRO should be drafted during the divorce, or soon after the Judgment is filed. Ideally, the QDRO should be filed concurrently with the Judgment. 4
What can happen if you wait to prepare the QDRO: Death: one of the parties may die Remarriage: one of the parties may remarry (and die) Relocation: one of the parties may move and be hard to locate Discovery Cut Off: what if you need information in order to prepare the QDRO Retirement: one of the parties may retire impacting the other party s rights Account Transfers: participant may transfer their money to another plan, or custodian may transfer money to another custodian Participant may take a loan, withdrawal Judgment contemplates division that is not possible: parties agreed to one division but it is not possible and may now need to renegotiate property terms 5
QDRO Process Average Timeline is 2 6 Months 1. Draft QDRO 2. Send proposed/draft QDRO to Plan Administrator or Third Party Administrator (TPA) for Review and Preapproval 3. Parties Review and Sign the QDRO 4. Submit the QDRO for Filing 5. Obtain Certified Copy of QDRO 6. Serve Plan Administrator or TPA with Certified Copy of the QDRO 6
Send QDRO for Review and Preapproval
Not all retirement plans will review a proposed QDRO IRAs Private Plans Defined Benefits Plans and Defined Contribution Plans where Fidelity Investments serves as their QDRO Administrator Public Plans (federal employees and military) Civil Service Retirement System (CSRS) Federal Service Retirement System (FERS) Military 8
Send proposed QDRO to the Plan for Review and Preapproval 9
Send proposed QDRO to the Plan for Review and Preapproval 10
Plans often require the parties Date of Birth and Social Security Number 12
Where do I sent the QDRO for Review and Preapproval? 13
Follow Up on Status of Review and Preapproval (Suggestion: follow up every 30 days) 14
Common Reasons for QDRO Rejection
Common Reasons for Rejection of DCP QDRO Defined Contribution Plan cannot calculate award due to change in Custodians. This situation arises when the award in the QDRO is a percentage or set dollar amount as of a specific date plus investment earnings and/or losses thereon. The Custodian does not have records as of that specific date and thus cannot calculate the Alternate Payee s award. The rejection letter from the Plan will usually have the earliest valuation date that the Plan will accept in a QDRO and from that date forward the Custodian can calculate investment earnings and/or losses. 16
Common Reasons for Rejection of DCP QDRO Insufficient Funds Defined Contribution Plan will rejected the proposed QDRO if there are insufficient funds to satisfy the Alternate Payee s award. This may occur if the Participant takes out a loan, transfers monies to another retirement account, or takes a distribution or withdrawal from the Plan. 17
Common Reasons for Rejection of DBP QDRO Separate Interest QDRO prepared for an Active Participant but Participant is Retired and In Pay status Shared Interest QDRO prepared for a Retired Participant but Participant is Active and not In Pay Status 18
Common Reasons for Rejection of DBP and DCP QDROs Plan switches Legal Counsel/Custodians/Third Party Administrators (TPAs) There are many different ways that Plans interpret Employee Retirement Income Security Act (ERISA), the federal law which governs private retirement plans. When a Plan switches custodians and/or legal counsel, a QDRO previously acceptable under one interpretation of ERISA may be found unacceptable under a different interpretation of ERISA. A new custodian and/or legal counsel will request slight revisions to the (Q)DRO which do not change the substantive award. A QDRO for one Plan may be deemed qualified by one Plan Administrator but if served on a different Administrator, that same QDRO will be rejected as not qualified. 19
Send revised QDRO to the Plan for Review and Preapproval 20
Help us keep the QDROCounsel platform current. The QDROCounsel platform is constantly being updated. The QDROCounsel platform will provide instructions on where to send the QDRO for review and preapproval. But the preapproval letter may provide a new contact or different address for service of the QDRO. You should use the new information provided, and also notify us of the change so that the platform can be updated with the new information. Also if the Plan is requesting revisions, please contact QDROCounsel for assistance. 21
Send proposed QDRO to the Plan for Review and Preapproval 22
Parties Review and Sign QDRO
Send revised QDRO to the Plan for Review and Preapproval 29
QDROs include Explanation Memo which explains key QDRO terms 30
After QDRO is filed, serve the Plan with a Certified Copy
After sending certified copy of QDRO to the Plan, you may want to file a Proof of Service with the court regarding service of the QDRO on the Plan so you have a record that service was completed. After the QDRO is served on the Plan, the parties should receive a response from the Plan with a determination as to whether the QDRO is qualified. 33
