On June 10, 2010, the Department of Labor published in the Federal Register the final version of an interim final rule that was published on March 7, 2007, and which was adopted in response to the specific statutory directive contained in section 1001 of the Pension Protection Act of 2006. This directive was to the Secretary of Labor to clarify certain issues relating to the timing and order of domestic relations orders under section 206(d)(3) of ERISA. This final rule will become effective August 9, 2010.
What is a Domestic Relations Order?
“A Domestic Relations Order (DRO) is:
- 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)
- 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.
A state authority, generally a court, must actually issue a judgment, order or decree or otherwise formally approve a property settlement agreement before it can be a “domestic relations order” under ERISA. A property settlement agreed to and signed by the parties will not, in and of itself, cause the agreement to be a domestic relations order.
There is no requirement that both parties to a marital proceeding sign or otherwise endorse or approve an order.”1
How does this relate to retirement plan administration?
ERISA requires that upon receipt of a Domestic Relations Order and within a reasonable amount of time thereafter, the Plan Administrator named in the plan documents must determine whether the Domestic Relations Order is a “Qualified Domestic Relations Order (QDRO).” If it is determined that the DRO is a QDRO, then within a specified period of time and in accordance with the directions of the QDRO and the plan documents, the Plan Administrator must distribute to the “Alternate Payee(s)” listed in the QDRO the portion of the participants account balance due them. How a Plan Administrator determines if a DRO is a QDRO is beyond the scope of this discussion but is the subject of ERISA section 206(d)(3) and IRC section 414(p)(3).
What is the effect of the final regulations?
The regulations clarify that a DRO that otherwise meets the qualification requirements should still be treated as a QDRO even if the DRO is issued after, or revises, an earlier DRO or QDRO. The regulations provide examples to illustrate this rule. For example, a subsequent DRO revising an earlier QDRO and involving the same parties, as well as a subsequent DRO involving the same participant and a different alternate payee.
The regulations also address the timing of the issuance of the DRO that otherwise meets the qualification requirements. They indicate that such DRO will not fail to be a QDRO solely because of the time at which it was issued. Again examples are provided that demonstrate that a DRO will not fail to be qualified solely because it is issued:
- After the death of the participant (even if no notice was provided to the plan before the participants death),
- After the parties divorce, or
- After the participants annuity starting date (for example, if a participant were receiving $1,000 per month over a participants lifetime, it might assign a portion of that, say $500 per month to the alternate payee for the life time of the participant. In general, however, it could not require the benefit to be re-annuitized, say over the lifetime of the alternate payee.
In all cases the DRO has to meet the general QDRO requirements.
Will the DOL update its handbook on QDROs?
The DOL has indicated that it will be updating its handbook on QDROs in the near future. When that is available it can be accessed from the DOL website: www.dol.gov/EBSA/publications.
1 “The Division of Retirement Benefits Through Qualified Domestic Relations Orders,” www.dol.gov/ebsa/publications/qdros.html.
