QDROs

QDROs

Qualified Domestic Relations Orders (QDROs)

When you receive a domestic relations order, you must determine if it is qualified. A Qualified Domestic Relations Order (QDRO) is a legal document that acknowledges the right of an alternate payee (e.g., spouse, former spouse, child) to receive all or a portion of the benefits payable to a plan participant. As Plan Administrator, you are responsible for developing written procedures for processing QDROs.

When a QDRO is processed, whether it is a dollar amount or percentage of the participant’s account, the Alternate payee will receive the participant’s designated investments. For example, if the QDRO Review form indicates that 50% or $15K of the participant’s Stable Value fund be awarded to the Alternate payee, the alternate payee will receive Stable Value shares. If NO election is made on the form (common), it is a pro-rata split, and the alternate payee will be awarded the appropriate shares of the participant’s investments (like to like). Only after the QDRO is processed, and the alt payee account established, may the alternate payee make individual investment elections and transfers.

Steps for processing a QDRO

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1. Provide documentation of domestic relations order to Plan Administrator

2. Notify participant and alternate payee that order was received and of plan’s procedure for making QDRO determination

3. Instruct the Program to secure amounts payable to alternate payee

4. The Program places hold on participant’s account

5. Determine if order is a QDRO

6. Notify participant and alternate payee of determination of order; for the alternate payee attach a copy of the summary plan description; notify Program if the QDRO not qualified to allow for release of the hold on the account

7. If qualified, complete Qualified Domestic Relations Order Review Sheet (and SDBA Application if applicable) (and Distribution Request Form if alternate payee wants an immediate distribution

8. Mail QDRO Review Sheet Form to the Program

9. Process QDRO Review Sheet Form

10. Send confirmation notice to participant and to alternate payee

Notification of receipt

As Plan Administrator, you must have procedures in place to process a domestic relations order when it is received and determine if it is a QDRO. You make the final determination as to whether the order is a QDRO. You should consult your plan attorney when making this determination.

Although it’s not required, the participant should let you know of changes in family status such as marriage or divorce as well as keep you informed of any change in address. It will make your job easier when there are QDROs and/or distributions to process.

Once you receive a domestic relations order, you need to notify, in writing, the participant and the alternate payee named in the order. The notification should inform the participant that he or she cannot receive any installment payments, withdrawals or loans from his or her account until the status of the order is determined. See the sample transmittal letter for an example of how to make this notification. This letter is for illustration purposes only. You may want to review it with your firm’s ERISA attorney.

Secure accounts payable to alternate payee

The secured amounts cannot be preserved for longer than an 18- month period, which begins on the first date the payments would be required to be made under the domestic relations order.

While you are deciding the status of the order, you are responsible for ensuring that amounts that would be payable to the alternate payee, if the order is a QDRO, are not paid to the participant or any other person.

You should direct the ABA Retirement Funds Program (the Program) via letter or email to stop (or “freeze”) any installment payments, withdrawals or loans from the participant’s account that may be affected by the order. The participant may continue to reallocate investments and change future contribution amounts and investment direction. The freeze should continue until you have received the signed court order and the order is determined either to be a QDRO or not to be a QDRO.

If the parties have not submitted an order that is a QDRO within 18 months, the freeze is lifted and payment may be made to the participant, unless a court order is issued that prohibits you from making the payment.

While determining the status of a domestic relations order, if the terminated or retired participant is entitled to a payment, only the portion of his or her account balance that is not subject to the order may be paid. If the order is determined to be a QDRO, the amount held back, together with any earnings (if applicable), is paid to the alternate payee. The QDRO may also allow for the amount to be divided and paid at a later date (with or without earnings).

After you notify the Program that you have received an order affecting a participant’s account, the Program will place a hold on the participant’s account, which will prevent loan issuances, in- service withdrawals or distribution of benefits. The secured amounts cannot be preserved for longer than an 18- month period, which begins on the first date the payments would be required to be made under the domestic relations order.

Determining if the order is a QDRO

A domestic relations order is a judgment, decree, order or approval of a property settlement that:

• Relates to child support, alimony payments or marital property rights to a spouse (present or former), child or other dependent of a plan participant,
• Is made under a State domestic relations law, including a community property law, and
• Meets all the requirements set forth in the procedures.

A “qualified” order is a domestic relations order that:

• Provides payments to an alternate payee, and
• Meets certain other requirements

Please note that a court order will not fail to be a QDRO solely because the order is issued after or revises another domestic relations order or QDRO. For example, after a court order allocates a specific portion of a participant’s benefits to an alternate payee, a second order between the parties might change the amount to the alternate payee. Moreover, a court order will not fail to be a QDRO solely because of the time at which it is issued. Therefore, as Plan Administrator, you should not reject an order because it is issued after the participant’s death, after the parties’ divorce or after the participant has commenced receipt of his benefit, as in the case of an annuity.

Our interactive QDRO checklist will assist you in deciding whether an order is a QDRO. (You may want to make a copy of the completed checklist and file it with the participant’s domestic relations order.) However, your plan’s QDRO procedures should govern. You may also want your firm’s ERISA attorney to review the order to decide if it is a QDRO.

Notification of determination

Within a reasonable amount of time, you will need to notify the participant and alternate payee of your decision as to whether the order is a QDRO. Once you have made this decision, you must notify the participant and the alternate payee in writing. The letter should be sent to the addresses listed in the QDRO. A sample transmittal letter (Letter 2) is provided to be used if the order is a QDRO. Be sure to include copies of the plan’s claim and appeal procedures, which are explained in the summary plan description (SPD).

If the order is not a QDRO because it does not satisfy the criteria described previously, you must notify the participant and the alternate payee in writing. You must also include the reason it was not qualified. A sample transmittal letter is included under “Letter 3 – Letter Explaining Order Is Not a QDRO.” Remember to include copies of the plan’s claim and appeal procedures, which are explained in the SPD. The letters we have provided are for illustrative purposes only.

Complete Qualified Domestic Relations Order Review Sheet

Use the Qualified Domestic Relations Order Review Sheet to certify that a domestic relations order for a plan participant is qualified. This form instructs the Program to transfer the specified part of the participant’s account balance to an account for an alternate payee.

Qualified domestic relations order (QDRO) review sheet.

Instructions for Completing QDRO Review Sheet

1. The Plan Administrator completes the employer information that relates to the plan.
2. The Plan Administrator completes the participant information.
3. The Plan Administrator completes the alternate payee information.
4. The Plan Administrator completes the dollar amount or percentage specified in the order.
   1. If specified in the order, indicate the investment options (and amounts) from which the funds will be withdrawn.
   2. If no funds are specified in the order, then the withdrawal will be made on a pro- rata basis.
   3. Note that unless otherwise specified, the QDRO award will be satisfied solely from the Program’s core investment options and not from a Self-Directed Brokerage Account.
5. The Plan Administrator completes the “Date of Determination” based on the date specified in the order.
   1. Usually this date can be determined by the words “valuation” or “as of” and is a prior date.
   2. If no such date is specified, and the intent is to give the alternate payee a specific dollar amount with no earnings or losses from a prior date, leave it blank.
6. The Plan Administrator signs and dates the form.

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Send Information to the Program

Submit the completed QDRO Review Sheet to the Program by mail or email. The Program will process the QDRO upon receipt and send a confirmation notice to the participant and to the alternate payee.

Alternate Payee Distributions

Generally, an alternate payee is entitled to a distribution from the plan at the same time the participant is eligible for a distribution. However, the QDRO may allow for an immediate payment from the plan. Distribution Request Form is used by an alternate payee to request a payment from the plan. See the Distributions section for more information on instructions for completing the forms, and special tax notice and withholding.

QDROs and SDBAs

The Program will process the QDRO award from the Program’s core investment options. However, if the participant maintains a Self-Directed Brokerage Account (SDBA), and the SDBA assets are specifically included in the QDRO award, certain additional steps must be taken as follows:

• The alternate payee must be provided with an SDBA application so that he/she can open an SDBA in his or her name. In order to complete the asset transfer from the participant’s account, the SDBA assets will transfer to the alternate payee’s SDBA .
• The participant should provide you with a spreadsheet or a letter of direction concerning the SDBA assets. If the SDBA contains equity holdings or shares of mutual funds, the asset transfer can only take place with whole shares, not partial shares. Therefore, the participant will need to decide how to incorporate the terms of the QDRO by providing direction on the portion of the award that pertains to the SDBA.

The alternate payee’s SDBA Application and the participant’s letter of direction should be included with the QDRO Review Sheet when submitting the materials to the Program.