A practical guide to dividing PBGC benefits in divorce
Pension benefits paid by the Pension Benefit Guaranty Corporation (PBGC) are covered by federal law. Benefits paid by PBGC can be significant financial assets, which may be divided when a marriage ends. When there is a divorce, it is important that the divorce decree clearly addresses whether and how these retirement plan benefits will be divided.
About this guide
This guide is for people who are trying to divide a benefit in a PBGC-trusteed defined benefit pension plan as part of a divorce. This guide can help you navigate the QDRO process, ensuring the participant and alternate payee will receive the benefits as determined in the divorce proceeding. PBGC’s QDRO guidance: Qualified Domestic Relations Orders (QDRO) and PBGC, provides significantly more detail than this practical guide, and will control if there is a conflict between the two.
PBGC frequently hears from divorced individuals who expect to collect the retirement benefits awarded in their divorce decree – and they usually do. But sometimes they fail to get a valid Qualified Domestic Relations Order (QDRO). A QDRO is a court order that clearly explains how PBGC should divide a pension benefit after a divorce happens. It is usually a separate order from the divorce decree and settlement agreement.
A QDRO approved by PBGC must be in place for PBGC to divide a pension after a divorce. Failing to get a QDRO and have it approved by PBGC may result in the loss of expected benefits.
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Overview
What is a QDRO: A QDRO is a domestic relations order (DRO) from a state court or other designated state authority. A retirement plan's administrator must “qualify” (approve) the DRO before it can take effect. The QDRO authorizes a portion of the participant's benefits to be paid to an alternate payee, such as a former spouse, child, or other dependent.
Why you need a QDRO: Without a valid QDRO, PBGC can only pay benefits to the participant or a beneficiary after the participant’s death – no matter what the divorce decree may say about how and to whom payments should be made. Without a valid QDRO, a former spouse usually cannot be paid any portion of the participant’s benefit.
What you can do: Use this guide to navigate the QDRO process. You can also review PBGC’s written QDRO guidance: Qualified Domestic Relations Orders (QDRO) and PBGC.
Best practice
Gather information about the retirement benefit early in the divorce process. Don't wait until your divorce is final to address the QDRO. It is a good idea to consult with an attorney, ideally one with knowledge of the rules about dividing a pension benefit in a divorce.
Use caution
Once a divorce is final, it is difficult to go back and fix mistakes. If retirement benefits aren't handled properly in the DRO or divorce decree, you may not be able to get a QDRO later.