It is not uncommon for retirement plan sponsors, both for 401K plans and pension plans, to receive Domestic Relations Orders involving plan participants who are involved in a divorce proceeding.

What is a Domestic Relations Order (“DRO”)?

In a DRO, a court typically divides up an employee/plan participant’s retirement account in a certain manner, as ordered by the court in a separation proceeding.

Requirements of a plan sponsor upon receipt of a DRO

When plan sponsors receive a DRO, the sponsor needs to determine if the order meets the requirements set forth in the Employee Retirement Income Security Act (“ERISA”) and the Internal Revenue Code (“IRC”).  If the DRO does not meet these requirements, the DRO is not “qualified,” and the plan sponsor is not authorized to partition the benefits in the employee’s/plan participant’s account.

Both ERISA and IRC have certain criteria that a DRO must meet to be considered a Qualified Domestic Relations Order (“QDRO”). Under ERISA and IRC, a DRO is a QDRO if it includes:

1. The name and last known mailing address of the participant and the name and mailing address of each alternate payee covered by the order;
2. The amount or percentage of the participant’s benefits to be paid by the plan to each such alternate payee, or the manner in which such amount or percentage is to be determined;
3. The number of payments or period to which such order applies; and
4. Each plan to which the order applies.

29 U.S.C. §§ 1056(d)(3)(C)(i)–(iv); 26 U.S.C. §§ 414(p)(2)(A)–(D).

Both statutes also prohibit DRO from deviating from plan terms when ordering division of the retirement account.  Specifically, they prohibit three such types of deviations , by prohibiting courts from issuing orders that (i)  distribute any type of benefit  not already provided under the plan; (ii) require the plan to provide increased benefits; and (iii) direct payment of benefits to an alternative payee (such as another family member) when another QDRO has already directed those benefits to another alternative payee. 29 U.S.C. §§ 1056(d)(3)(D)(i)–(iii); 26 U.S.C. §§ 414(p)(3)(A)–(C).

An Official Plan Document might specify additional procedures that must be followed when determining whether a DRO can be considered a QDRO. So, a retirement plan sponsor should consult the plan’s terms to ensure that process is met.

If after performing this analysis a plan sponsor confirms that a DRO is a QDRO, the plan sponsor is then responsible for partnering with the retirement plan’s third-party administrator to accomplish that division of plan assets in the employee’s/plan participant’s account in accordance with the DRO.