QDROs for Traditional Pension Plans / Defined Benefit Plans
Defined Benefit Plans are retirement plans which provide participants with a fixed payment on a regular basis (usually monthly) after retirement. Defined Benefit plans are often thought of as traditional pension plans; these plans have become less common and are now being rapidly replaced with Defined Contribution plans by many employers. Defined Benefit plans are based on a fixed formula (usually involving the participant’s age at retirement, years of service, and final pay), whereas Defined Contribution plans are based on investment performance and the value of an individual account.
FORMS OF BENEFIT FOR ALTERNATE PAYEE
The vast majority of defined benefit plans will not allow the non-employee spouse (“Alternate Payee”) to receive a lump sum cash payment. Usually both the employee (“Participant”) and Alternate Payee will receive monthly payments after retirement. You should be wary and check with the retirement plan if your lawyer has awarded one party a specific dollar amount from a defined benefit plan.
DEFINED BENEFIT PLAN TIMING
Benefits for defined benefit plans can usually only be paid to an Alternate Payee once the Participant reaches his/her “earliest retirement age” as allowed by the Plan.
METHODS OF DIVISION & SURVIVOR BENEFITS
Survivor benefits would depend on whether the plan allows for both shared and separate interest approaches for dividing benefits, and if they allow both, then which option the parties choose. Usually, if a “separate interest” approach is used, the Alternate Payee’s share is actuarially adjusted to his/her lifetime, will be payable for the lifetime of the Alternate Payee, and often the Alternate Payee can name his/her own beneficiaries. Usually under a “separate interest” method of division, the Alternate Payee will not receive any additional benefits upon the Participant’s death and the Alternate Payee’s share will not be affected in any way by the Participant’s benefits.
If the parties use a “shared interest” method of division, then it is typical for the Alternate Payee to receive survivor benefits. QDROs can specify that the Participant must choose a form of payment that provides for survivor benefits at retirement. Further, the survivor benefits under many plans can be based on the marital formula, which could potentially allow survivor benefits to be split between a former spouse and a current spouse. However, not all plans allow survivor benefits to be paid to more than one individual. Each plan’s particular options should be considered when negotiating the division of pension benefits due to divorce.
QUALIFIED PRE-RETIREMENT SURVIVOR ANNUITY (QPSA)
A Qualified Pre-retirement Survivor Annuity (QPSA) is a benefit paid to a Participant’s spouse if the Participant dies prior to retiring. Under most defined benefit plans which offer QPSA benefits, it is possible to award either all or a portion of the QPSA to a former spouse via a QDRO. If only a portion is awarded, it is typically a pro-rata share based on the portion of the retirement plan awarded under the QDRO.
NEED HELP WITH YOUR DEFINED BENEFIT PLAN QDRO?
If you need assistance with your QDRO, please call (619) 786-QDRO to speak with one of our helpful California QDRO attorneys today. You can also visit QDRO Helper’s FAQ and Blog articles for more information.
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