What is a Domestic Relations Order (DRO)? It is a judgment or decree that is made under state domestic relations law that relates to the provision of child support or marital property rights in the case of a divorce. It is not unusual for a Plan Administrator to call us to say that he has been sent a DRO, normally for a divorce settlement. What is the proper way to respond if you receive such an order?
It is important to understand that a retirement plan cannot comply with a DRO unless it is determined to be a Qualified Domestic Relations Order (QDRO). In order to be “qualified”, the order must:
- be issued by a state agency that has the authority to issue such orders or decrees;
- give the name and address for the participant and the alternate payee (usually ex-spouse or child);
- specifically name the plan to which it applies;
- provide details about how to determine the dollar amount or percentage that is due to be paid to the alternate payee;
- not provide for an increased benefit or a type of benefit payment not otherwise allowed under the plan;
- not require payment to an alternate payee that is required to be paid to another alternate payee under another DRO.
When the Administrator receives an order, he must promptly inform the participant and the alternate payee that he has received the order. He must then determine if the order is qualified. Many plan document providers, including the plan document provider used by RMS, have a QDRO checklist that can be completed to assist in determining if the order contains all of the information necessary to determine if it is qualified. Every retirement plan is required to establish written procedures for determining whether domestic relations orders are QDROs and for administering distributions under QDROs.
If the Administrator determines that the order is not qualified, he must inform the parties of the deficiency and give them time to have the order corrected. Once the order is determined to be qualified, the Administrator should process the QDRO according to its terms.
The plan document or QDRO procedures will provide details about any participant and alternate payee notifications that are necessary and also describe any conditions that may require the plan to place a hold on the participant’s account while the order is being reviewed and processed. Placing a hold on the account would prohibit the participant from taking a loan or distribution form the account while the order is being reviewed.
The Department of Labor has information on its website that contains an overview of QDROs, information on how to determine if an order is qualified and IRS sample language for a QDRO. The address is http://www.dol.gov/EBSA/publications/QDROs.html.