QRDO Policy Issues - General Overview

Some 84 million Americans work for companies that maintain ERISA-covered retirement plans that are divisible by QDROs, yet in the event of divorce, spouses opt for buyouts far more frequently than QDROs.

So often, however, a buyout shortchanges women, particularly those whose marital contributions have been child rearing and homemaking, and it means that these woman head into their so-called "golden years" without any retirement income other than Spousal Social Security.

Divorcing couples, particularly those who divorce without a lawyer, may agree to the buyout of a pension interest without an actuary placing a value on the plan. Consequently, the buyout price falls way short of the present value of the plan. A buyout gives the recipient cash in hand now and up front, but it means that the participant (often the husband) gets all the benefit of the pension in his old age and the nonparticipant (often the wife) gets nothing.

The two most valuable assets a divorcing couple divide are the marital home and pension assets, and it is not uncommon for a thrifty couple who lived in a modest home for a long time to discover that the husband’s pension may be worth more than the martial home. Moreover, despite the advances woman have made in the work place, the husband’s career (and consequently his pension) come first in the economics of a marriage.

This being said, there are a number of reasons why so many couples agree to a buyout rather than a QDRO, even when the routine is unfair to the woman.

Pension buyout laws, retirement plans and pension rules are very complex, and many family practice lawyers simply do not have the expertise to deal with them. Determining the amount to be paid to each spouse is a challenging task that often goes beyond the simple completion of forms provided by a plan administrator. The preparation and approval of a QDRO can take months, and involves preapproval by a plan administrator, revisions, approvals by both parties, court approval of a Domestic Relations Order and final approval as a QDRO. At no point in this odyssey does any third-party intervene to make certain that the parties are in fact receiving the right amount. Finally, legal fees may be off putting, particularly when the value of the pension seems low.

Authored By: Theodore K. Long, Jr., President, Pension Appraisers Online, Inc.

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