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Whether the court or state agency has jurisdiction to issue the domestic relations order, or whether state law is correctly applied, whether the parties made proper service, or whether the individual identified as the alternate payee is in fact a spouse, a former spouse or other dependent is not the concern of the plan administrator in qualifying a domestic relations order a QDRO.
ERISA and the Internal Revenue Code require qualified plans to honor the "terms" of a QDRO. The plan administrator makes the determination as to whether a particular domestic relations order is “qualified.” He or she completes the following checklist for assessing the validity of a QDRO typically within 180 days of receiving a domestic relations order. If all appropriate terms and conditions are present, the parties are notified that the order is a sufficient QDRO; however, if one or more items is not present, the parties are notified that the order is not a valid QDRO. Using this checklist, the plan administrator can determine from the beginning whether a particular order provides enough guidance as to how to pay benefits in all possible scenarios.
Sometimes plan administrators reject or delay the approval of QDROs for trivial reasons, but the DOL has suggested that they “….restrict their review only to technical and substantive QDRO provisions of the law.”
On the other hand, the correct answers to the following seven key questions mean the terms and conditions set forth in a domestic relations order are satisfactory, and the order typically passes as a valid QDRO.
1. Is the document a domestic relations order?
The order must be a judgment, order, decree or other judicial approval of an agreement related to child support, alimony, or the division of marital property, issued pursuant to state law. Property divisions agreed to by the spouses but not formally approved by a court are not acceptable.
If an order is rejected and the deficiencies ater corrected, it may be resubmitted to the plan, but the corrected order must be approved again by the court in order for it to be valid as a QDRO.
2. Does the order include names, addresses, social security numbers and dates of birth?
The order must include the names, addresses, social security numbers and dates of birth of both the participant and the alternate payee. In some cases, there are several alternate payees. An order may designate a guardian or other representative of an alternate payee, such as an adult who cares for a minor child; however, a trust may not be named as an alternate payee.
Although the law requires the order to state the parties’ addresses, the plan administrator may have this information through other records. In practice, if the absence of a party’s address is the sole deficiency, he or she should not disqualify the order.
3. Does the order identify the plan(s) to which it applies?
The order must clearly identify all plans to which it applies. As long as there is no uncertainty about the identity of the plan in question, it is acceptable for an order to refer to an outdated or informal plan name. The order should also identify the plan administrator.
Note: The letter to the parties regarding whether the order is a QDRO should point out the proper name of the plan(s) covered by the order.
4. Does the order create a right to determinable benefits?
The order must create an alternate payee’s right to benefits that are definitely determinable. This condition must be carefully reviewed in conjunction with the plan to determine how much the alternate payee should receive, when he or she should receive it, and for how long.
5. Does the order limit the alternate payee’s benefits to an amount not in excess of the participant’s accrued benefit?
The order may not provide for benefits payable to an alternate payee which exceed the benefits payable under the plan(s). For example, if the order states that the alternate payee is to receive $200 per month of the participant’s benefit, and participant has only accrued a $150 per month benefit to date, the order is not a valid QDRO. It is possible, however, for the order to specify that the alternate payee will receive all or some portion of the benefits earned by the participant after the dissolution of the marriage.
The fact that a participant is not yet vested in the plan does not disqualify the order, however the letter to the parties should note that benefits will only be payable under the order to the extent the participant is vested when the benefits become payable.
6. Does the order provide for a permissible payment method?
The order must provide that benefits payable to the alternate payee are to be paid under a method allowed by the plan. For example, if the order requires a lump sum payment and the plan has no lump sum option available, the order is not a valid QDRO.
Generally if benefits are already in pay status, the order may not change the form of benefit payment. However, if the order awards 100% of the participant’s benefit to either the participant or to the alternate payee (with the other party receiving 0%), the order may allow a change in the form of benefit payment, subject to the plan’s consent and election procedures.
An order may not require payment to an alternate payee in the form of a joint and survivor annuity with the alternate payee’s new spouse as a beneficiary, even if this option is available to the participant. Any other form of benefit or other election available to a participant, however, must be made available to an alternate payee.
Note: It is acceptable for the order to require that the alternate payee begin receiving payments at the time when the participant reaches the earliest retirement age under Code Section 414(p). Payments to the alternate payee may begin on such date, even if the participant has not separated from service (and would not otherwise be entitled to a distribution). For plans with automatic cash-out procedures, the order may allow a distribution prior to date on which the participant reaches the earliest retirement age under the plan.
7. Is this order consistent with previous QDROs?
If other QDROs (related to other alternate payees) have been received with respect to the benefits of this particular participant, the order should be consistent with the provisions of those orders. An order cannot supersede the payment of benefits to an alternate payee under another QDRO. Regardless of the dates of the marriages involved, the first order received by the plan is followed first, with any remaining benefits subject to any order received later.
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