What is a QDRO?
A Qualified Domestic Relations Order (QDRO) is a unique legal document that the IRS and DOL recognizes as a method of allowing the tax-free transfer of retirement plan assets to a non-participant spouse, known as the “Alternate Payee”, and/or dependent(s) pursuant to a divorce or legal separation. The QDRO was created by the Retirement Equity Act of 1984 as an amendment to the anti-alienation provisions of the Employee Retirement Income Security Act of 1974 (ERISA), which protected retirement plan assets from creditors and other assignors. An employer-sponsored retirement plan will not divide benefits or provide for payments to an Alternate Payee without a QDRO and it is the retirement plan which determines what an acceptable QDRO is for their Plan, not the Courts.
During property settlement negotiations, if a retirement plan is to be divided between spouses, a QDRO must be drafted and submitted to the Retirement Plan Administrator to affect a division of the retirement plan assets, per the agreed settlement. The whole host of different types of retirement plans, coupled with each plan’s unique interpretation of the QDRO regulations, presents challenges in effectively and efficiently drafting the QDRO to be acceptable to the specific retirement plan. Rejection of the QDRO by the Plan Administrator leads to extra time spent and costs for the parties; having a true QDRO expert handle the QDRO process for the parties provides efficiency and peace of mind, knowing that the retirement plan will be accurately divided.
A poorly drafted QDRO can nullify or reduce benefits, fail to allow for proper distribution options or investment flexibility and fail to account for future contingencies that may occur such as; early retirement, Cost of Living Adjustments (COLAs), subsidized benefits, remarriage and premature death or disability.
As a former Retirement Plan Administrator for over 15,000 plans held at a major U.S. custodian, Thomas Toxby handled the review and approval process for the QDROs served on those retirement plans, and has offered QDRO drafting services to Colorado since 2004. Mr. Toxby knows how to properly structure the language and articulate the division of retirement plan benefits in the QDRO to obtain approval from all the various types of retirement plans for Colorado employees.
Toxby & Associates, Inc. charge a flat fee of $550 for the QDRO and our drafting services includes:
- Researching the retirement plan, drafting the QDRO and providing copies of the proposed QDRO to both parties and their respective attorneys.
- Submission of the proposed QDRO to the Plan Administrator for a pre-approval review of the QDRO (when offered by the plan) and making any revisions that may be required by the Retirement Plan Administrator to achieve acceptance with the plan.
- Availability to discuss the QDRO process and answer questions at any point with the divorcing parties and/or their attorneys.
- Along with the final, pre-approved QDRO to be signed and filed with the court and then served on the retirement plan, we will include a letter with instructions for submission of the certified court copy to the Retirement Plan Administrator for action/implementation.
Federal Retirement Plans
While QDROs target private sector ERISA plans, a Court Order Acceptable for Processing (COAP) is the Federal equivalent of a QDRO and divides the Federal Retirement Plans: the Federal Employees Retirement System (FERS), the Civil Service Retirement System (CSRS) and a variation of the COAP divides the Thrift Savings Plan (TSP). These plans have their own unique requirements and do not have a pre-approval process, nor will the Office of Personnel Management (OPM) recognize a QDRO, or QDRO language that attempts to divide the CSRS or FERS benefits. Effectively drafting a COAP that is in compliance with the OPM, and the TSP Office, which accounts for the various benefits offered by CSRS/FERS/TSP is critical. Mr. Toxby is also an expert with the Federal Retirement Plans, having drafted numerous COAPs for these Plans as well as providing Continuing Legal Education (CLE) presentations on the Federal Retirement Plans to the Family Law community of Colorado.
Military Retired Pay
The Defense Finance and Accounting Service (DFAS) administers the military retirement and will provide for the division of military retirement benefits, known as “Retired Pay”, pursuant to the Uniformed Services Spouse’s Protection Act (USFSPA). DFAS has statutory thresholds which need to be reached before disposable Retired Pay may be divided for a former spouse, such as requiring that the parties have been married for at least 10 years which overlaps with at least 10 years of military service, in order for DFAS to pay a former spouse directly as a property payment. Mr. Toxby is also an expert with dividing the Military’s Disposable Retired Pay, having drafted numerous Military Orders as well as providing Continuing Legal Education (CLE) presentations on the Military’s Retired Pay to the Family Law community of Colorado.
Toxby & Associates will also draft Orders for other non-ERISA plans such as state retirement systems, Tier II Railroad Retirement Board benefits, Individual Retirement Accounts (IRAs) and 457 Deferred Compensation plans. Please contact us for more information on Orders for these types of plans.