3793. What is a qualified domestic relations order?Nuco Employeercline212014-08-17T14:56:00Z2014-08-17T14:56:00Z613527713Summit Business Media6418904714QDRO divorce alimony child support2005-01-19T00:00:00ZTaxFactsDefaultArticleSite Map/Retirement Plans/Pension And Profit Sharing/Qualification/Alienation of Benefits116120350-00-tf1.xml352.00;#2246;#0x010100C568DB52D9D0A14D9B2FDCC96666E9F2007948130EC3DB064584E219954237AF3900242457EFB8B24247815D688C526CD44D009C4E67E972694125ABDA91AC61F5E51FTax Facts 1What is a “qualified domestic relations order”?98100.0000000000TaxFactsDefaultArticleSBMEDIA\moss-admin2010-01-15T00:16:25Z3793. What is a qualified domestic relations order?A qualified domestic relations order (“QDRO”) is a judgment, decree, or order (including an approval of a property settlement agreement) that awards all or a portion of a participant’s benefits to an alternate payee and that meets all the requirements under the IRS for being qualified. A plan may distribute, segregate, or otherwise recognize the attachment of any portion of a participant’s benefits in favor of the participant’s spouse, former spouse, or dependents without violating the restrictions on alienation of benefits (Q 3792) only if such action is mandated by a QDRO.IRC Secs. 401(a)(13)(B), 414(p). Only a spouse, former spouse, child, or other dependent of a participant may be classified as an alternate payee under a QDRO.The following requirements must be met for a domestic relations order (“DRO”) to be qualified: (1)it must relate to the provision of child support, alimony, or property rights to a spouse, former spouse, child, or other dependent; (2)it must be made under a state’s community property or other domestic relations law; (3)it must create, recognize, or assign to the spouse, former spouse, child, or other dependent of the participant the right to receive all or a portion of a participant’s plan benefits; (4)it must clearly specify the names and, unless the plan administrator has reason to know them, the addresses of the participant and each alternate payee, the amount or percentage of the participant’s benefit to be paid to each alternate payee (or a method for determining the amount), the number of payments or the period to which the order applies, and each plan to which the order applies; and (5)it may not require the plan to provide any type or form of benefit or benefit option not otherwise provided under the plan, to pay increased benefits, or to provide increased benefits to an alternate payee that are required to be paid to another alternate payee under another previously ordered qualified DRO.IRC Sec. 414(p)(1).A distribution from a governmental plan, a church plan, or an eligible Section 457 governmental plan (Q 3561) will be treated as made pursuant to a QDRO as long as the domestic relations order meets requirements (1) through (3).IRC Sec. 414(p)(11). Model language for a QDRO is set forth in Bulletin 97-11.1997-1 CB 379.A marital settlement agreement that was incorporated into a divorcing couple’s dissolution agreement constituted a QDRO, not merely a property settlement.Hawkins v. Comm. 86 F.3d 982 (10th Cir. 1996), rev’g 102 TC 61. An amendment to a divorce decree did not constitute a QDRO, and thus could not confer on the ex-wife a 50 percent interest in the participant’s preretirement survivor annuity because prior to the amendment the participant had died and the benefits had lapsed. As a result, the amendment impermissibly provided for increased benefits.Samaroo v. Samaroo, 193 F.3d 185 (3d Cir. 1999). In a private ruling, the IRS approved the use of a second QDRO to secure other marital obligations. The second QDRO ordered the segregation of a portion of the husband’s retirement plan benefit for the wife’s benefit.See Let. Rul. 200252097.Most federal circuit courts hold that a QDRO is enforceable after a participant’s death.See Hogan v. Raytheon, 302 F3d 854 (8th Cir. 2002); Trustees of the Directors Guild of America-Producer Pension Benefits Plans v. Tise, 234 F.3d 415 (9th Cir. 2000); see also IRC Sec. 414(p)(7), ERISA Sec. 206(d)(3)(H). The Department of Labor has issued regulations under which a QDRO will not fail to be treated as valid merely because it revises, or is issued after, another QDRO. The regulations also provide that a QDRO will not be treated as invalid solely because of the time it was issued.29 CF.R. §2530.206(b) and (c).The applicability of the QDRO provisions to benefits other than those provided by qualified plans is not fully clear. After having ruled in 1992 that they were inapplicable to nonqualified deferred compensation plans and welfare benefit plans, a Michigan district court reversed itself in 1996, holding that a QDRO provision should be followed with respect to the disposition of a welfare plan, such as life insurance.See Metropolitan Life Ins. Co. v. Fowler, 922 F. Supp. 8 (E.D. Mich. 1996), rev’g Metropolitan Life Ins. Co. v. Person, 805 F. Supp. 1411 (E.D. Mich. 1992). The Court of Appeals for the Seventh Circuit has ruled that the QDRO provisions of ERISA were applicable to group term life insurance and other welfare plans.See Metropolitan Life Ins. Co. v. Wheaton, 42 F.3d 1080 (7th Cir. 1994). Final regulations governing Section 403(b) plans extend the application of the QDRO rules to tax-sheltered annuity contracts, at least with respect to taxable years beginning after 2005.See Treas. Regs. §§1.403(b)-10(c); 1.403(b)-11(a).A QDRO generally may not require that the plan provide any form of benefit not otherwise provided under the plan and may not require that the plan provide increased benefits. Within certain limits, it is permissible for a QDRO to require that payments to an alternate payee begin on or after the participant’s earliest retirement age, even though the participant has not separated from service at that time. For these purposes, a participant’s earliest retirement age is the earlier of (1) the date that the participant is entitled to a distribution under the plan or (2) the later of (i) the date the participant reaches age fifty or (ii) the earliest date on which the participant could begin receiving benefits under the plan if the participant separated from service.IRC Sec. 414(p)(4)(B). A plan may provide for payment to an alternate payee prior to the earliest retirement age as defined in the IRC.Treas. Reg. §1.401(a)-13(g)(3).Planning Point: Employers should consider drafting their retirement plans to offer in-service distributions to alternate payees so as not to be burdened with administering the benefits of employees’ ex-spouses, a group that by its nature may be hostile to the employer. Martin Silfen, J.D., Brown Brothers Harriman Trust Co., LLC.A domestic relations order requiring payment of benefits to an alternate payee is not qualified if the benefits are required to be paid to another alternate payee under a previous QDRO. The IRS has determined that the assignment of or placement of a lien on a participant’s retirement account to secure payment of obligations under the terms of a QDRO was not a prohibited alienation.Let. Ruls. 9234014, 200252093.The IRC provides that, to the extent specified in a QDRO, the former spouse of a participant (and not the current spouse) may be treated as a surviving spouse for purposes of the survivor benefit requirements and, for that purpose, a former spouse will be treated as married to the participant for the requisite one year period if the former spouse and the participant had been married for at least one year (Q 3769).IRC Sec. 414(p)(5); Treas. Reg. §1.401(a)-13(g)(4). In the absence of this provision, a former spouse was not entitled to receive any benefits where the husband died before becoming entitled to receive retirement benefits and the preretirement survivor annuity was payable to the current spouse.Dugan v. Clinton, 1987 U.S. Dist. LEXIS 4276 (N.D. Ill. 1987).The plan administrator is required to make the determination as to whether an order is a QDRO. All plans must establish reasonable procedures for making such determinations.IRC Secs. 414(p)(6), 414(p)(7). In addition, a plan administrator who has reason to believe an order is a sham or is questionable in nature must take reasonable steps to determine its credibility.DOL Adv. Op. 99-13A. A plan administrator is not required under the IRC or ERISA to review the correctness of the determination that an individual is a surviving spouse under state domestic relations law.DOL Adv. Op. 92-17A. A plan administrator is not required to, and should not, “look beneath the face” of a state court order to determine whether amounts to which it relates were properly awarded.Joint Trs. of the Int’l Longshore & Warehouse Union-Pacific Mar. Ass’n Pension Plan v. Pritchow, 2012 U.S. Dist. LEXIS 179633 (W.D. Wash. Dec. 19, 2012); Brown v. Cont'l Airlines, Inc., 647 F.3d 221 (5th Cir. 2011); Blue v. UAL Corp., 160 F.3d 383 (7th Cir. 1998). Final DOL regulations effective August 9, 2010 make it clear that a plan administrator cannot disqualify a QDRO solely because it is issued after or revises another domestic relations order or QDRO, or because it is issued after the participant’s death, divorce, or annuity starting date.29 CFR 2530.206.The DOL has stated that nothing in ERISA Section 206(d)(3) precludes a state court from altering or modifying an earlier QDRO of a couple petitioning the court for such a change, provided the new order satisfies the requirements of a QDRO. In such a case, the DOL noted that the new order would operate on a prospective basis only.DOL Adv. Op. 2004-02A.A plan may provide for a “hold” to be placed on a participant’s account while the determination is being made as to whether an order is a QDRO; however, where a plan with such a provision went beyond its written procedures and placed a hold on an account before the order was received but after the divorce was final, the hold violated ERISA.Schoonmaker v. The Employee Sav. Plan of Amoco Corp., 987 F.2d 410 (7th Cir. 1993). The Department of Labor also has stated that plans are not permitted to impose separate fees for the costs of these procedures to individual participants or alternate payees.DOL Adv. Op. 94-32A.For the taxation of payments made pursuant to a QDRO, see Q 3818 and Q 3837. For an explanation of the effect of a QDRO on the minimum distribution requirements, see Q 3789.