Drafting a QDRO

What should you consider before drafting your QDRO?

Identify the participant: This is the employee who worked for the employer that sponsored the plan and earned the benefits that are to be divided.

Identify the alternate payee: This is the person receiving a portion (some or all) of the benefit, typically a participant's former spouse, child, or other dependent.

Determine the QDRO's purpose: Most QDROs serve one of two different purposes:

• Divide retirement benefits to provide alimony or child support payments.
• Divide marital property when dissolving a marriage.

Questions to ask: Answers to these questions will help clarify the QDRO's purpose.

• Is the alternate payee the participant's spouse, former spouse, child or another dependent?
• Is the goal to divide the future benefit payments and provide for death benefits or survivor benefits after the participant’s death? See Shared payment approach.
• Does the alternate payee want a separate right to receive a portion (some or all) of the benefit, payable over the alternate payee’s lifetime? See Separate interest approach.

Bottom line: Your answers will guide how you draft the QDRO and what details to include in the next steps.

How will PBGC pay benefits?

Understanding how PBGC pays benefits is important, as the QDRO must specify what benefits are being divided.

• Plans that terminate and become trusteed by PBGC are defined benefit plans. These types of plans are traditional pensions that promise a specific benefit – a monthly payment called an annuity – for life after retirement.
• Important features of benefits payable under a defined benefit plan are:
  • Payments can begin when a participant reaches the plan's earliest PBGC retirement date (provided in the participant’s Benefit Determination).
  • Payments continue over the participant's lifetime, or for the joint lifetimes of the participant and the designated beneficiary (usually the participant’s spouse).
• PBGC also offers several optional forms of payment. Visit Benefit options for more information.
• Some plans offer subsidized early retirement benefits that have a greater actuarial value than the plan’s normal retirement benefit.
• As discussed below in this guide, once a participant retires or begins receiving payments (meaning the participant has reached their annuity starting date), there are limits to how a QDRO can require payments to the alternate payee.
• Because benefits paid by PBGC are subject to legal limits, the benefit to be divided may be less than the benefit otherwise promised by the plan.

How do you divide retirement benefits?

There are two common ways to divide retirement benefits through a QDRO: a shared payment approach and a separate interest approach. The method you should use depends on the type of plan, the timing of payments, and the goals of the parties.

Shared payment approach

This approach divides each of the participant's monthly payments between the participant and the alternate payee as the payments are made. In drafting a QDRO under this approach, consider the following:

• The alternate payee receives a share (some or all) of each payment the participant would receive.
• If a participant is already receiving benefits a shared payment approach is the only type of QDRO that PBGC can qualify.

Caution: The alternate payee won't receive any payments under the QDRO if the participant never starts receiving benefits from PBGC.

Separate interest approach

This approach gives the alternate payee a separate, independent right to a portion (some or all) of the participant's retirement benefit. One advantage is that the alternate payee can receive payments at a different time and in a different form than the participant. In drafting a QDRO under this approach, consider the following:

• Specify the amount, percentage, or method for calculating the alternate payee's share of the participant's retirement benefit.
• Clarify the number of payments, or the time period the QDRO applies to. You can often meet this requirement by giving the alternate payee the same rights the participant would have under the plan to elect the form of benefit payment and when the separate interest will be paid.

Important: This approach is not available after the participant starts receiving benefits from PBGC.

Bottom line: Federal law does not require a specific approach. You must determine which approach best meets your goals for dividing retirement benefits.

Have you contacted PBGC and reviewed plan documents before drafting the QDRO?

We suggest contacting PBGC to get information about the before you start drafting. This information will help you understand the value of the benefit being divided.

• Participants can contact PBGC’s Customer Contact Center at 800-400-7242.
• Alternate Payees must follow the instructions outlined in Qualified Domestic Relations Orders (QDRO) and PBGC Appendix G to submit a written request for information to PBGC’s Disclosure Division about the participant’s benefit entitlement from PBGC.
• Review PBGC’s written QDRO procedures at Qualified Domestic Relations Orders (QDRO) and PBGC.

Review PBGC’s model QDROs: PBGC has created several optional model QDROs, which can simplify drafting and help avoid common errors. Note that use of one of PBGC’s models doesn’t guarantee approval. 

Caution: A proposed QDRO that violates plan terms or PBGC requirements will not be qualified as a QDRO.

Have you included all the required provisions? Have you left out prohibited provisions?

PBGC created a checklist to help ensure your QDRO complies with qualification requirements.

How do you address the survivor benefits?

Retirement plans generally offer survivor benefits – payments – made to someone else after the participant dies.

Why survivor benefits matter: Federal law requires all retirement plans to provide benefits in a way that includes a survivor benefit for the participant's spouse. For example, if a participant is married when benefit payments begin, and the participant dies before their spouse, defined benefit plans generally must provide the spouse monthly benefit payments for life unless the spouse has waived this right. A QDRO can protect a former spouse's access to survivor benefits by assigning all or a portion of the survivor benefits to the former spouse as an alternate payee.

Determine the survivor benefits available: Before you draft the QDRO, determine who is currently entitled to the plan's survivor benefits and understand the rules that apply.

• Typically, the survivor benefits available are the plan’s qualified pre-retirement survivor annuity (QPSA) – payable if the participant dies before starting to receive benefits – and qualified joint-and-survivor annuity (QJSA), which is the form of benefit paid to a married participant, unless the participant’s spouse consents to the election of a different benefit form. This survivor benefit pays a benefit to the surviving spouse (the spouse married to the participant at the time the participant started receiving benefits) if the participant dies after starting benefits.
• Prior benefit elections, waivers, or spousal consents can alter who is entitled to survivor benefits. Once a participant has elected a form of benefit and has begun receiving benefit payments, the named beneficiary (and survivor benefits) cannot be changed.
• Be aware that if another former spouse is already entitled to the survivor benefits under a different QDRO, a new QDRO cannot change the beneficiary.

Bottom line: Determine the availability of survivor benefits during the divorce and explicitly include them in the QDRO. If the parties agree or if the court decides to assign survivor benefits to the alternate payee, make sure both the divorce decree and the QDRO clearly state that the survivor benefits must go to the alternate payee – not to a new spouse.

When can the alternate payee start receiving benefits?

The answer depends on the QDRO’s approach and the retirement plan’s terms. Whichever approach is used, the QDRO must specify the start and end of the alternate payee's benefits. The start and end dates may be determined by the form of benefit chosen by the alternate payee under a separate interest approach.

Shared payment approach

The alternate payee can begin receiving benefits when the participant starts receiving benefits. If the participant is already receiving benefits, the alternate payee may begin receiving benefits as of the first of the month following the date the QDRO was submitted to PBGC for review. 

The QDRO must include a specific date or tie the beginning of payments to a triggering event, such as when the participant's annuity starts. The QDRO may also specify the end date of the benefit – for example, if the alternate payee is the child of the participant, the QDRO may state that the payments will end when the child reaches a specific age. 

• Note: due to the time it takes for PBGC to process a QDRO and prepare payments, the first payment date may be delayed past the specified beginning date of the QDRO. When this happens, PBGC will issue a one-time back payment, with interest, retroactive to the specified beginning date. 

Separate interest approach

When using the separate interest approach, the QDRO may allow the alternate payee to start receiving benefits as of any future date, as long as it is after the participant’s earliest PBGC retirement date. 

The separate interest approach also permits the alternate payee to choose a form of benefit. This form of benefit will determine the end date of the benefit. The form of benefit will also determine whether any payments are owed to the alternate payee’s designated beneficiary after the alternate payee’s death.

Best practice: Review the benefit information that was provided by PBGC’s Disclosure Division to determine the earliest PBGC retirement date. 

How will the benefits be paid?

In addition to saying how benefits will be divided and when the alternate payee can begin receiving benefits, the QDRO must say how the benefits will be paid.

In a shared payment approach, the alternate payee cannot choose the form of benefit — the alternate payee simply receives a portion (some or all) of the payment that would otherwise be made to the participant.

In a separate interest approach, the alternate payee may choose any of PBGC’s single-life annuity forms. The alternate payee will make this choice when the benefit starts.