Rightfully Yours. Gary A. Shulman
and let them know whether it is approved or rejected. Therefore, it’s important to follow through with the QDRO approval process. If you have not received a QDRO approval letter from the pension administrator, then you should contact the administrator to inquire about its qualified status. Don’t rely on your attorney to follow through for you once he or she closes your file after the divorce. It would definitely be in your best interest to contact the plan administrator yourself if further changes are required to the QDRO.
It’s also important to understand that if the pension administrator rejects the QDRO, it will not fix the QDRO for you. Unfortunately, it doesn’t care if you ever submit a proper QDRO, because most companies don’t like dealing with QDROs either. And some of them are very paternalistic toward their own employees. I heard one plan administrator remark: “Why should she get any of his pension while he spent thirty years up the pole and she was sitting at home eating Bon-bons?” What I am trying to say is, don’t think for a minute that the plan administrator will help you get the QDRO approved. So I urge all of you not to give up on the QDRO if it was rejected. Contact the attorney who drafted it so that he or she can fix any deficiencies. And contact the plan administrator, repeatedly if you have to, to see if your QDRO was finally approved. Remember, unless your QDRO is approved by the plan administrator, you will not receive any of your ex-husband’s pension or savings plan benefits.
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What Types of QDROs Are Available?
There are several kinds of QDROs; the styles are based on the type of retirement plan involved. And there are two basic types of retirement plans: defined benefit pension plans and defined contribution plans. A defined benefit pension plan pays a monthly pension check for life to a participant when he or she retires. A defined contribution plan, such as a 401(k) plan or profit-sharing plan, contains individual accounts for employees, who can receive lump sum distributions of their accounts when they terminate their employment or retire.
1. Two Types of QDROs for Defined Benefit Pension Plans
There are two types of QDROs for defined benefit pension plans. One is called a separate interest QDRO, and the other is called a shared payment QDRO. Under a separate interest QDRO, the nonparticipant spouse (the alternate payee) receives monthly pension payments that are actuarially adjusted to her own life expectancy. Because the monthly pension payments are tied to the alternate payee’s lifetime, she will receive them for the remainder of her life once they commence. Under the shared payment QDRO, however, the alternate payee’s share of the monthly pension payments are not actuarially adjusted to the alternate payee’s lifetime. They remain based on the lifetime of the plan participant — the alternate payee simply “shares” in each monthly pension payment made to the participant once he retires.
Under a defined benefit pension plan, there are generally no individual accounts established for plan participants. Do not confuse defined benefit plans with 401(k) plans, which do maintain account balances for participants. Since there are no account balances, there are no interest or investment earnings. The pension plan merely pays a monthly pension check to the participant when he retires. These pension checks are payable for the entire lifetime of the plan participant. Before investigating more of the differences between a separate interest QDRO and a shared payment QDRO, it is important to understand a critical feature of all employer-sponsored pension plans: survivorship benefits, which determine what happens to participants’ benefits when they die.
2. Survivorship Benefits under Defined Benefit Pension Plans
All defined benefit pension plans contain provisions for two types of potential survivor benefits in the event of the plan participant’s death. One, a preretirement survivor annuity, pays a surviving spouse a monthly pension for life if the participant dies before retirement. In this case, if the participant dies while still actively employed (but after having met the plan’s vesting requirements), the eligible surviving spouse will receive a preretirement survivor pension.
The second type of survivor annuity is called a postretirement joint and survivor annuity. This type of annuity, if elected by the participant when he retires, will pay a monthly survivor pension to an eligible surviving spouse if the participant dies after retirement. The good news is that former spouses of plan participants can receive survivor pensions under the federal QDRO laws to the extent that the QDRO includes this survivor protection for the alternate payee.
3. Former Spouses Can Get Survivor Protection
When Congress created QDROs in 1984, it made sure that former spouses of plan participants could get survivorship protection to secure their share of the pension benefits when participants died. As a result, the QDRO provisions of the law state that a former spouse (alternate payee) shall be treated as a current surviving spouse of the participant if the QDRO includes this survivor protection. Including adequate survivorship protection for the alternate payee is critical to any properly drafted QDRO. Knowing this, we can now discuss the two basic types of QDROs for defined benefit pension plans.
4. The Separate Interest QDRO
The term separate interest means that the former spouse will receive a separate lifetime interest in a portion of the participant’s pension benefits. That is, once the alternate payee starts to receive her share of the participant’s pension benefits, she will continue to receive them for the remainder of her lifetime. Of course, her share of the pension will be actuarially adjusted to her own life expectancy, which means that if she is younger than the participant, her share of the pension will be reduced to reflect her longer life expectancy. In this manner, the total value of the pension payable during her longer lifetime will be the same as it would be during the participant’s shorter life expectancy.
Under a separate interest QDRO, because the alternate payee will receive her share of the benefits over her entire lifetime, there is no need to include postretirement survivorship protection for the alternate payee in the QDRO. However, preretirement survivorship protection is still necessary to protect the alternate payee’s share of the benefits if the participant dies before retirement and before the alternate payee starts to receive her separate lifetime interest in the pension benefits. So when you think of a separate interest QDRO, think about preretirement survivor benefits only. (Sample 8 includes preretirement survivorship protection for the alternate payee. Section 8 includes the separate interest language providing the alternate payee with an “actuarially adjusted” lifetime pension.)
It is also important to recognize that under a separate interest QDRO, the alternate payee may elect to start her share of the benefits on or after the date on which the participant reaches the plan’s earliest retirement age. This is true even if the participant decides to continue working. In other words, once the participant reaches the plan’s earliest retirement age (say age 55), you may elect to start receiving your share of the pension benefits. But remember, if an alternate payee starts to receive benefits early (before the participant actually retires), the benefits may be significantly reduced to reflect the fact that payments are starting before the participant’s normal retirement age (usually age 65). See Chapter 8 for a detailed discussion of the commencement date alternatives for an alternate payee under a QDRO.
5. The Shared Payment QDRO
Under the shared payment QDRO approach, the alternate payee’s share of the pension is not actuarially adjusted to her own life expectancy. The pension stays based on the participant’s life expectancy, and the alternate payee merely shares in the pension as long as the participant is alive and receiving a pension benefit. Under the shared payment approach, the alternate payee must wait for the participant to retire before she can commence her share of the benefits. Again, she simply shares in the participant’s pension payments when he retires. Because the alternate payee does not receive an actuarially adjusted lifetime pension under