On June 10, 2010, the DOL issued final regulations on the timing and ordering
of domestic relations orders (DROs). The rules provide helpful guidance,
primarily through examples, in clarifying several issues that have confused plan
administrators, participants, and alternate payees for years. The final
regulations will become effective August 9, 2010.
Under the Internal Revenue Code and ERISA, a participant’s benefit in a
qualified retirement plan may not be assigned or alienated, except in very
limited circumstances. One exception is that a retirement benefit may be
assigned to the participant’s spouse, former spouse, child, or other dependent
(alternate payee) pursuant to a legal order as a result of the participant’s
divorce or separation. These orders are known as qualified domestic relations
A QDRO is generated for consideration by a state domestic relations court and
reviewed by the plan administrator for compliance with the federal law and the terms of
the plan. The QDRO may be a separate document or part of the divorce decree. It
is considered valid as long as it includes the following:
- Full names, and last known mailing address of the participant and
- Name of the retirement plan.
- Amount or percentage payable to the alternate payee, or method to be
used to calculate such amount.
- Number of payments or time period to which the order applies.
A QDRO may not require the plan to:
- Pay a benefit to an alternate payee in a form that is not available
under the plan.
- Assign benefits previously assigned to an alternate payee under another
- Provide increased benefits, such as by recalculating benefit payments
after they have already begun (unless the plan specifically permits this).
Over the years, there has been confusion among plan administrators and
benefits professionals over how to administer or even recognize QDROs under
certain circumstances, including:
- QDROs issued after a participant’s death.
- QDROs issued after benefits have begun to be distributed.
- QDROs that modify a previous QDRO.
New Final Regulations
Under the Pension Protection Act of 2006, Congress instructed the DOL to
issue regulations to clarify how the rules apply in situations where (i) a QDRO
is issued after a previous QDRO has already been received by the plan with
respect to a participant and (ii) the time at which a QDRO is issued occurs
after another event, such as the death of the participant, the participant’s
benefits have commenced, etc.
Subsequent Domestic Relation Orders
Under the final rules, a DRO will not fail to be a QDRO solely because it is
issued after, or revises another, QDRO. For example, a second QDRO is valid
under the final rules if it is issued for the same participant and alternate
payee as the first QDRO, and the second QDRO either reduces or increases the
benefit payable to the alternate payee. Also, a second QDRO is valid if it
involves the same participant and a new alternate payee (e.g., second spouse),
and the second QDRO assigns to the new alternate payee benefits not already
assigned to the first alternate payee.
Timing of Domestic Relations Orders
A DRO will not fail to be a QDRO solely because of the timing of when it is
issued, as long as it otherwise complies with the QDRO rules.
This includes situations where the plan administrator was not notified of the
order before the participant’s death. Therefore, a DRO presented to the plan
administrator for the first time after the participant’s death may be treated as
a QDRO as long as it complies with all other QDRO requirements. Similarly, a
former spouse may submit an order as a QDRO requesting payment of surviving
spouse benefits, even though he or she is no longer the deceased participant’s
In addition, a DRO issued after benefit payments have begun to the
participant may still qualify as a QDRO. For example, assume a participant
retires and begins to receive benefits in the form of a single life annuity
equal to $1,000 per month. If, subsequent to the commencement of benefits, the
participant and spouse divorce and present the plan with a DRO requiring 50%
($500) of the participant’s future monthly annuity to be paid to the spouse, the
validity of the QDRO will not be compromised.
However, if the DRO required payments to the spouse for the
lifetime of the spouse, this would invalidate the previous QDRO because it would
cause the plan to re-annuitize the retirement benefit, rather merely allocating
to the spouse a portion of the annuity payments otherwise payable to the
Plan administrators should review their written QDRO procedures to ensure
compliance with the final regulations. Please contact one of the authors or any
other member of our
Employee Benefits team if you have any questions concerning
the matters discussed in this article or need assistance in connection with your
This legal update was included in the Profit Sharing/401k Council of America Executive Report on June 21, 2010.