South Carolina Lawyer
Vol. 12, No. 6, Pg. 24.
Fundamentals of Qualified Domestic Relations Orders
24Fundamentals of Qualified Domestic Relations OrdersBy Timothy C. Voit and James L. ParrisThe division of pension benefits by way of Qualified Domestic Relations Order (QDRO) is frequently utilized when parties are divorcing and retirement accounts or pensions are involved. QDROs are implemented when the lump-sum present value of the pension is too large to adequately offset the value of the pension against other assets of the marriage or when the parties to the divorce cannot agree on the present value of the pension in question.
A QDRO is a court order ordering a pension plan to award a portion of a participant's accrued pension benefits, or account balances, to a former spouse or dependent pursuant to a divorce.
25Someone you know or represent will experience a divorce with substantial retirement assets involved requiring a division by way of a QDRO or similar order. Most often the value of the retirement plans represent the largest marital asset, typically worth more than the marital home.
There are a myriad of pension plan administrators with a myriad of interpretations of the law, all having their preference as to how they, as plan administrators, would like the QDRO to be drafted.
More and more pension plans offer model language or model orders specific to their plan where a lawyer simply fills in the blanks. The lawyer should not simply "fill in the blanks" but rather gain an
26understanding of the options and benefits available so as to include, or address, the issues discussed here. Most of the model orders provided by the pension plans have a bias toward the employee /participant.
Often the plans, through these model orders, will offer minimal protection or awarded benefits to the alternate payee. The plan administrator simply divides the benefit and does not afford other benefits or options to the alternate payee spouse, as the plan would have for the participant. There are other benefit entitlements which, if not addressed in the QDRO, will not be awarded to the nonparticipant former spouse, or alternate payee. While the participant spouse in a pension plan already has the benefits of the pension, it is the nonparticipant spouse, or their attorney's responsibility, to make certain they request any and all benefits to which the alternate payee is rightfully entitled, since the court often orders an equitable distribution.
Model orders may be somewhat detrimental to their own participants. For instance, a lawyer may assume that a benefit will revert to the participant upon the alternate payee's death, when in fact, the benefits can or will be, forfeited to the plan. You should not feel that you are permitted to use only the model language offered by the plan. Many of the models will include a paragraph or a section stating that neither the plan, nor the fiduciaries, will be held liable for any misinterpretations.
QDROs only apply to non-governmental, ERISA qualified plans. Applicable sections of the Employee Income Security Act (ERISA) of 1974 are noted in the latter part of this article. QDROs and QDRO model language do not apply to any city, county, state, federal, military or railroad retirement plans. These plans are exempt from the ERISA and the Retirement Equity of 1984 (REA) under §§ 1003(b)(1) and 1051 of title 29 of the United States Code since these plans are defined as "governmental plans" in section 1001(23) of title 29. This can present several problems when attempting to negotiate an equitable settlement. The government, military and railroad plans do not afford the same rights or benefits to an alternate payee as in a QDRO and will not accept any court order titled "qualified domestic relations order." There is an exception where some state plans will accept the title QDRO but not the options or provisions of a traditional QDRO, nor are they required to conform those same sections of ERISA and REA. That is the case with the North and South Carolina Retirement systems.
There are some governmental plans that will only give the employee account balance during the discovery process, such as the Civil Service Retirement System (CSRS) or Federal Employees Retirement System (FERS). The employee account balance is not normally...