Rightfully Yours. Gary A. Shulman
Security Act of 1974, is the federal pension law that was designed to protect a plan participant’s pension benefits.) Participants could not assign a portion of their benefits to another party even if they wanted to.
In 1984, QDROs became the only exception to the anti-assignment provisions of ERISA. Now, for the first time, plan administrators were allowed to carry out the intentions of the divorce court. They were now permitted to divide the participant’s pension benefits into two components and then send a portion of the pension directly to the former spouse without having to worry about their plans being disqualified by the Internal Revenue Service.
Because no QDRO was ever prepared in Evelyn Schmidt’s case (see Section 1. above), she can never receive any of David Schmidt’s pension or 401(k) benefits, even though a portion of the benefits was deemed by the domestic relations court to be her own separate property right. This is because her ex-husband died before a QDRO was prepared. If he were still alive, it may not be too late to draft a QDRO now. See Chapter 15 for a discussion of options to consider if a QDRO was never drafted at the time of your divorce. Again, Evelyn’s only recourse at this time might be a malpractice suit against her attorney. Had her attorney taken one extra step during the divorce by having a QDRO prepared for the sole purpose of securing a portion of David’s pension benefits in accordance with the terms of her divorce decree, Evelyn’s future economic outlook would be much brighter today.
These horror stories should illustrate the importance of QDROs. Unfortunately, however, hundreds of thousands of women across the country could find themselves in Evelyn’s shoes one day. Are you one of them? Now that I have your attention, let’s learn a little bit more about this very important legal document called a QDRO.
5. The Requirements of a QDRO
When the federal pension law known as ERISA was amended in 1984 to create QDROs, us Congressman Dan Rostenkowski of the Committee on Ways and Means said that:
the bill to amend ERISA would improve the delivery of retirement benefits and provide for greater equity under the private pension plans for workers and their spouses and dependents by taking into account changes in work patterns, the status of marriage as an economic partnership and the substantial contribution to that partnership of spouses who work both in and outside the home.
For the first time, companies across America were required to honor a court order that qualified as a QDRO for the purpose of providing former spouses with a portion of their employee pension benefits.
The term Qualified Domestic Relations Order (QDRO) refers to a judgment, decree, or other court order that creates or recognizes the existence of an “alternate payee’s” right to receive all or a portion of a plan participant’s pension benefits. In other words, a QDRO is a special kind of court order that is signed by the judge and sent to the plan administrator for review and processing. The court, however, will not forward the QDRO to the plan administrator. This must be done by you or your attorney. Remember, the purpose of a QDRO is to make sure that when the time comes, the plan administrator sends you a check for your share of the pension or 401(k) benefits earned during the marriage.
Under a QDRO, you, the nonparticipant spouse, are referred to as an “alternate payee.” Your ex-husband is considered the “plan participant.” Although the best time to draft the QDRO is when you divorce, it is possible to draft a QDRO later, as long as your ex-husband is still alive. But to guarantee that you will get your share of a defined benefit pension for your entire lifetime, the QDRO must certainly be prepared and approved by the plan administrator before your ex-husband retires.
All of the information that must be included in a QDRO can be found in Section 414(p) of the Internal Revenue Code and in Section 206(d) of ERISA. Although the entire QDRO provisions of the law take up only several pages, they may as well be War and Peace as far as divorce attorneys are concerned. These several pages are very difficult for divorce attorneys to understand. Divorce attorneys are intimidated, and for good reason, by ERISA and the Internal Revenue Code. These documents read like Greek to most attorneys, because attorneys are like doctors: they often specialize in one area of the law, just as doctors specialize in one area of medicine. While it’s true that good divorce attorneys will understand the critical need for a QDRO, they may not know how to properly draft one. This is because they are not pension or tax attorneys. But diligent divorce attorneys will hire an outside expert to draft the QDRO if they are not proficient at it, because they are well aware of the downside to not drafting the QDRO at the time of divorce. Divorce attorneys could leave themselves open to a potential malpractice suit years later if their clients never receive the rightful share of pension benefits awarded to them at the time of divorce. Hundreds of thousands of these time bombs are scattered across the country today, residing in attorneys’ files. These are cases in which attorneys did not prepare the QDRO even though their clients were awarded a share of the participants’ pension or savings plan benefits at divorce.
In order for a QDRO to qualify and be approved by the pension plan administrator, it must include certain legally required information:
• The name and last-known mailing address of the plan participant (your ex-husband)
• The name and last-known mailing address of the alternate payee (you, or your child in the case of a QDRO for child support purposes)
• The amount or percentage of the participant’s benefits to be paid by the plan to the alternate payee
• The number of payments or the time period over which such payments are to be made to the alternate payee
• The specific name of the employer’s pension plan
In addition, the QDRO must be:
• For child support, alimony, or property rights to a spouse, former spouse, child, or other dependent of a plan participant
• A court order, judgment, or decree signed by a judge in a domestic relations proceeding, such as a divorce, dissolution, or legal separation
6. Pension Plan Administrators Can Throw Out Your QDRO If They Don’t Like It
A QDRO must include all of the required information in a manner that can be easily interpreted by the plan administrator of the pension plan. However, when Congress enacted the federal QDRO provisions of the law in 1984, they granted the power of reviewing and approving QDROs to the pension plan administrators themselves, rather than to the courts. As a result, most QDROs are rejected by plan administrators even though they have been signed by the judge. Imagine that. There are not many areas of the law where someone could look at a certified court order signed by a judge and respond, “Sorry, Judge, we don’t like it. Try again.” Because of these QDRO technicalities and the ability of the pension plan administrator to make the life of a divorce attorney miserable, many attorneys (perhaps even yours) are intimidated by QDROs and federal pension laws. And whether it’s intentional or not, this is why many attorneys forget to draft QDROs in the first place.
Unless your divorce attorney is diligent in following through with the QDRO process (and most of them aren’t), you will never see any portion of your ex-husband’s pension benefits. For many attorneys, it’s just a race to retirement: they hope they retire before the case they handled for you blows up (when your ex-husband retires and you find out that a QDRO was never prepared or approved by your ex-husband’s employer). As adversarial as divorce attorneys are by nature, virtually every one in the country will agree to one thing: QDROs are, by far, their single, largest malpractice trap today. QDROs are their worst nightmare (which, unfortunately, could make them your worst nightmare as well).
If your attorney did draft a QDRO for you when you divorced, you must be sure that the QDRO was signed by the judge. But more importantly, you must be sure that the QDRO was reviewed and “approved” by the pension plan administrator, which is usually the company itself. Someone in the pension or personnel department may be responsible for reviewing your QDRO. Pension administrators are required by law to review a QDRO and alert the parties, in writing, of its qualified status. In other words, once your attorney submits the QDRO to the pension