WHAT IS A WAIVER? WHAT IS A QDRO?
Sometimes during divorce, the parties will agree that one spouse will forever waive his/her interest in the other spouse’s retirement plan. Often this is done as part of an equalization of property, other times the parties simply agree that they will each keep their own retirement plan. This “waiver” of one party’s community property interest in the other party’s retirement benefits is usually written out in the parties’ marital settlement agreement. A “waiver QDRO” can also be prepared to waive one party’s interest in retirement benefits.
The division of retirement benefits due to divorce is normally accomplished via a Qualified Domestic Relations Order or “QDRO.” A QDRO is a particular type of court order that divides retirement plan benefits between parties due to marital dissolution or legal separation. A QDRO creates and/or recognizes an employee’s former spouse’s right to receive all, none, or a portion of the benefits payable with respect to an employee under a retirement plan. QDROs are made pursuant to state domestic relations laws (such as California community property laws) and under federal law, such as the Internal Revenue Code and The Employee Retirement Income Security Act (ERISA).
DO I NEED A WAIVER QDRO?
Some retirement plans will require a QDRO even when the parties’ judgment or settlement agreement clearly states that the non-employee spouse has waived his/her right to any benefits. If the terms of the retirement plan require a QDRO, then the employee will not be able to retire and begin receiving payments until a QDRO is received by the plan. In that situation, a waiver QDRO should be prepared as soon as possible.
Many retirement plans do not require a QDRO in the case of a waiver of benefits; however, it is still the best practice to ensure that a waiver QDRO is filed with the court and submitted to the plan administrator. Filing a QDRO as close as possible to the date of dissolution will ensure that a waiver of benefits will be valid and will not become problematic at a later date.
One example of how a waiver in a divorce settlement agreement is not always effective is from the Supreme Court case of Kennedy v. Dupont, 129 S.Ct. 865 (1/26/2009). In that case, the parties had a valid divorce decree which stated that the Wife would not receive any interest in the Husband’s retirement benefits. However, many years prior to the divorce, Husband had completed a beneficiary designation with the plan administrator naming Wife as his beneficiary in the event of death. After the divorce, Husband never changed his beneficiary form to remove Wife. When Husband died, the plan paid his benefits to his former spouse, instead of his daughter. The retirement plan administrator followed the plan procedures and paid benefits to the named beneficiary, regardless of the divorce decree which included a waiver of the benefits. The Supreme Court held that the retirement plan administrator acted correctly, and that the parties’ divorce decree was not sufficient to serve as a QDRO; therefore, the plan document was controlling on what would happen to the deceased employee’s benefits. If the parties had prepared a QDRO which waived Wife’s right to any and all retirement benefits, then the plan would have paid the benefits to the employee’s daughter, instead of his former spouse.
Most divorce decrees or settlement agreements incorporated into judgments do not have the language required to qualify as a QDRO. To be recognized as a QDRO, an order must be: A judgment, decree, or order (including the approval of a property settlement) that is made pursuant to state domestic relations law (including community property law) and that relates to the provision of child support, alimony payments, or marital property rights for the benefit of a spouse, former spouse, child, or other dependent of a participant. Further, in order to be a QDRO, the court order must contain QDROs must contain the name and last known mailing address of the participant and each alternate payee; the name of each plan to which the order applies; the dollar amount or percentage (or the method of determining the amount or percentage) of the benefit to be paid to the alternate payee, and the number of payments or time period to which the order applies. There are additional provisions that a court order must not contain in order to qualify as a QDRO, such as:
- The order must not require a plan to provide an alternate payee or participant with any type or form of benefit, or any option, not otherwise provided under the plan;
- The order must not require a plan to provide for increased benefits (determined on the basis of actuarial value);
- The order must not require a plan to pay benefits to an alternate payee that are required to be paid to another alternate payee under another order previously determined to be a QDRO, and;
- The order must not require a plan to pay benefits to an alternate payee in the form of a qualified joint and survivor annuity for the lives of the alternate payee and his or her subsequent spouse.
If your divorce decree does not have all of the necessary provisions required to qualify as a QDRO, it is best to have a waiver QDRO prepared to ensure that the spouse’s waiver is truly valid pursuant to the retirement plan’s procedures.
It is critical that, after a divorce, the plan participant fills out a new beneficiary designation with each retirement plan in which he/she participates. Even if a Marital Settlement Agreement contains a waiver of all retirement benefits, the plan may still pay benefits to the participant’s former spouse if the former spouse was still listed as the beneficiary in the plan’s records. The recent case of Andochick v. Byrd in the Fourth Circuit Court of Appeals is one example of the problems that are created with inconsistent beneficiary designations and divorce judgment and settlement agreement language.
QUESTIONS ABOUT A WAIVER QDRO?
If you have questions about waiver QDROs, dividing retirement benefits due to divorce, or if you would like to get started on your QDRO today, please call QDRO Helper at 619-786-QDRO (619-786-7376). Alternatively, you can email firstname.lastname@example.org and request a new client package.
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