Understanding Domestic Relations Order (DRO)
A Domestic Relations Order (DRO) is a legally binding court directive that allows a spouse or dependent to receive a portion or entirety of an employee’s qualified retirement plan benefits in the event of divorce. This order, sent to a plan administrator or employer for validation, specifies the division of retirement assets between the concerned parties—typically the employee and their spouse.
Regulations for Public Employees: Ensuring Fair Distribution
The Retirement Equity Act (REA) of 1984, falling under ERISA, designates the retirement plan of a public employee as an asset for both the employee and their alternate payee (spouse, ex-spouse, or dependent). During divorce proceedings, this shared asset must be considered.
An endorsed DRO becomes a Qualified Domestic Relations Order (QDRO). Federal laws dictate that qualified plans like defined benefit plans, ESOPs, 401(k) plans, and profit-sharing plans require a QDRO for benefit distribution to an alternate payee. Upon determining a DRO as qualified, an approval notification is sent to the attorney, who returns it to the court for revision and judgment.
Finally, the court’s official judgment copy is given to the plan administrator to process the retirement plan benefit. A QDRO must be adhered to, and the corresponding company or plan administrator must honor it. If a DRO is mistakenly deemed qualified, it can be contested and rectified in court.
Role of Plan Administrator: Reviewing and Validating DROs
An employer or plan administrator is usually responsible for evaluating a Domestic Relations Order (DRO). Employers might have internal HR personnel proficient in pension laws or external plan administrators to conduct DRO reviews. Upon receiving an order from an attorney, the employer or administrator verifies the plan against a checklist to ensure compliance with legal requirements.
A DRO may be deemed unqualified if the benefit specified doesn’t align with the retirement plan or federal laws. The plan administrator would then inform the attorney about the non-compliance, who can amend and resubmit the DRO for re-evaluation.
Timeline for Processing DROs: What to Expect
The processing time of a benefits plan varies based on the type of retirement plan and court stipulations. Once payments are distributed, the plan splits into two, one account going to the alternate payee.
For qualified defined benefit plans, the alternate payee might not receive any payout until the employee retires or attains the stipulated retirement age. Some plans do allow immediate payment to the alternate payee. Under qualified defined contribution plans, a check might be issued to the alternate payee promptly.
Although ERISA governs the distribution of private qualified retirement plans, it doesn’t extend to government benefits and plans. Government retirement benefits are apportioned using a DRO exclusively. Therefore, state or military retirement benefits aren’t qualified by ERISA’s standards.
Related Terms: Employee Retirement Income Security Act (ERISA), Retirement Equity Act (REA), defined benefit plan, defined contribution plan, plan administrator.
References
- U.S. Congress. “H.R. 4280—Retirement Equity Act of 1984”.
- U.S. Department of Labor. “FAQs About Qualified Domestic Relations Orders”, Page 1.
- U.S. Department of Labor. “FAQs About Qualified Domestic Relations Orders”, Pages 3 and 4.
- U.S. Department of Labor. “Employee Retirement Income Security Act (ERISA)”.
