Although Federal ERISA (Employee Retirement Income Security Act) and REA (Retirement Equity Act) guidelines delineate specific provisions for alternate payee (non-employee spouse) and spousal rights, most "model" QDROs often omit crucial elements for the proper protection of the parties, especially for the alternate payee. Valuable benefits to the alternate payee could be compromised if the "model" is not modified to address these omitted elements. A number of additional issues must be considered such as early retirement incentives and the qualified pre-retirement survivor annuity (QPSA). Since the QPSA is usually a 50% joint and survivor annuity, most "model" QDROs only give the alternate payee 50% of the amount to which he or she is otherwise entitled. Therefore, "model" QPSA language usually needs to be adjusted, in order to preserve the alternate payee's portion.
In dividing 401(k)'s or other defined contribution plans, understanding valuation methodology is critical. Most plan administrators will not calculate the marital portion in the case where there is a pre-marital portion. In addition, a QDRO for a defined contribution plan needs to deal with the investment rights of the alternate payee after her/his account is segregated. For example, if the alternate payee is awarded a flat dollar amount, language needs to be inserted that allows the alternate payee's segregated account to be invested in the plan's money market fund, in order to limit market fluctuations.
Further complications arise because the plan administrator is the person who has the final word on whether or not a QDRO needs to be changed or whether or not it is acceptable by the plan. If the QDRO is accepted by the plan without a detailed review and is subsequently found to be faulty, the plan can be sued by either party in the divorce. If there is a lengthy review time period, either party can sue the plan for delay in process. For these reasons, "model" QDROs from plans may be self-serving to protect the plan's interests rather than those of the participant or alternate payee.
Custom QDRO drafting is a highly specialized area best performed by a qualified expert with a background in actuarial science or plan administration. Having the understanding of how benefits are calculated, along with a proven QDRO experience base of many years, is the key to drafting QDROs correctly. Don't fall into the trap of thinking that you have to use an attorney. Without the proper QDRO drafting expertise substantiated by actuarial or financial credentials, you may be putting yourself and your client at risk. For the most protection in the high liability risk of QDROs in divorce, use a QDRO professional who understands the terminology, the benefits and the distribution options, under the specific domestic relations case law of the state jurisdiction of your matter, and who will properly mesh the court ordered distribution details with plan acceptance to the benefit of the parties.
Whether your divorce case involves the complex pensions of teachers, military personnel, police officers or any other employer - public or private, PAC can assist you with expert pension evaluation and QDRO drafting. Please visit www.pensionanalysis.com to learn more about our pension valuation and QDRO drafting.
Certified Divorce Financial Analyst
Business Valuators / CPAs