QDRO LAW​

You’ve probably heard of ERISA, but have tried to skirt the issue if at all possible. ERISA is the body of federal law that governs pension plans provided by many private employers. The term “Qualified Domestic Relations Order” (QDRO) stems from the concept that employers must conform their pension plans to ERISA in order for the plans to qualify for various tax provisions. This is where the deft hand of an experienced QDRO attorney comes in. We can guide parties through the process of putting together a document that will properly divide a private pension plan (otherwise known as a defined benefit plan). This can be done before or after the employee spouse retires, and there are various forms of order that can be adjusted based on the agreement and circumstances of the parties. Whether the QDRO is needed for marital property rights (which is most common), or for child support or spousal maintenance arrearages, the QDRO attorney will help you consider everything you have already thought of and some items you may not have, such as death benefits for the former spouse (whether before or after retirement), early retirement subsidies, and processing the order as efficiently as possible.

An IRA is another type of defined contribution plan, but is definitively not an ERISA-qualified plan. Ultimately, this means that if you or your family law attorney consult with a QDRO attorney prior to the entry of a consent decree in your case, the QDRO attorney may be able to help save some cost and draft specific language to place directly into the decree to effectuate the division of the IRA (Traditional, ROTH, SEP, Rollover, or otherwise). However, if the ink has already dried on your decree, a QDRO attorney will likely need to draft a Clarifying Order (similar in some respects to a QDRO) in order to allow an IRA custodian to divide the IRA incident to the divorce. The purpose for this distinction is the same purpose as drafting a QDRO for 401(k)s – avoid the impact of penalties and tax consequences that may otherwise be assessed to a transfer of funds following a divorce.

If you’ve ever wondered whether government employees have a 401(k) plan, the answer is “no, but they do have a Thrift Savings Plan (TSP), which is very similar”. This plan was established in 1986, just before the rollout of the Federal Employees Retirement System (FERS). Whereas members of FERS’ predecessor, CSRS, were intended to be entirely provided for in retirement by their pension alone, the introduction of the TSP and FERS led to a paradigm shift, in which FERS employees were provided for by a trio of the FERS pension, TSP, and social security. This doesn’t mean that CSRS employees haven’t necessarily taken advantage of the TSP, however. In addition, many military members have a TSP. Standard considerations present in dividing most defined contribution plans are to be reviewed when dividing a TSP, including premarital separate interest and loan balances. These orders are also not referred to as QDROs (as the TSP plan isn’t ERISA-qualified), but rather as Retirement Benefit Court Orders (RBCOs).

There are many Arizona State Retirement System (ASRS) participants in our state. ASRS is a defined benefit plan, or pension, that is not ERISA-qualified like private employer pension plans. There are many idiosyncrasies associated with the ASRS plan that your QDRO attorney should be very familiar with, including how the plan handles a reversionary interest in the event of a former spouse predeceasing a member after the member has retired. The QDRO attorney must consider both pre-retirement and post-retirement death benefits, purchased retirement credits, and potential withdrawal from the system by participants. Recent legislative changes also have continuing ripple effects on the content, process, and the form that must be followed in order to sufficiently comply with ASRS’ current interpretation of those legislative terms. Feel free to reach out to our team for any questions about HB2433 to get clarification about these changes.

The City of Phoenix Employees Retirement System (COPERS) plan is also a pension not governed by ERISA. Interestingly, COPERS is an extremely unique plan in that it is a government plan that allows for potential separate interest orders to be drafted (provided the circumstances warrant it – most government plans only allow for shared interest orders). This is another pension plan that is generally going to be accompanied by the participant also having a defined contribution account (often a deferred compensation plan). Both the pension and defined contribution plans will need to be carefully evaluated and explained by your QDRO attorney.

While the vast majority of divorce cases will feature the division of existing pensions, this methodology is actually not preferred, if circumstances permit. Courts in Arizona have expressed a preference for a present-day valuation to be performed and an alternate payee’s interest paid out of offsetting assets (if they exist) so that the pension doesn’t need to be divided. This, of course, may not always be possible. However, if allowed by assets in the parties’ names and/or ordered by the court, a careful look at tiered interest rates as constantly updated by the Pension Benefit Guarantee Corporation (PBGC) under IRC 417(e), cost-of living adjustments, and a current authoritative mortality table can allow for pensions to be valued and carefully offset with other retirement or non-retirement assets. Alternatively, while an offset of this effect may not have been ordered or agreed to yet, your QDRO attorney can perform a present-day valuation to contextualize an appropriate offer of settlement. Please call us to discuss further.