Once you decide what retirement benefits are to be divided, you must choose the proper court order to effectuate the division. The following is a brief discussion of several different kinds of orders used to divide the most common types of retirement plans. A more detailed explanation of these orders can be found at qdrogroup.com or by speaking to one of our experts.
Private Employer Plans-Qualified
The most common plans that private employers offer their employees, such as traditional pensions or 401(k) plans, are “qualified” plans within the meaning of the Tax Code and the Employee Retirement Income Security Act of 1974 (ERISA). These qualified plans must be divided using the order that most people are familiar with—the Qualified Domestic Relations Order (QDRO).
Private Employer Plans-Nonqualified
Some private employers offer plans that are not qualified under the Tax Code/ERISA (e.g., top-hat plans). These types of plans are referred to as “nonqualified” plans. Some of these plans are divisible through a Domestic Relation Order (DRO). As the name suggests, these orders are similar to QDROs. However, they are not called “qualified” orders because they do not apply to qualified plans.
Some nonqualified plans are not divisible. Instead, the participant may have to pay the alternate payee directly or the value of the plan should be offset from other marital assets.
Plans offered by state governments for their employees are also not considered qualified under Tax Code/ERISA. Some states require their own division orders to divide said plans (e.g., Ohio requires the use of a Division of Property Order (DOPO); Michigan, in some circumstances, requires the use of an Eligible Domestic Relations Order (EDRO)). Other states, such as Indiana, do not allow for state employee benefits to be divided through an order.
Federal Government Plans
Benefits in the Federal Employee Retirement System (FERS), the traditional pension offered to many federal employees; the Civil Service Retirement System (CSRS), which has been frozen to new participants for decades; or the Thrift Savings Plan (TSP), which is a defined contribution plan offered to federal employees, are divided through a Court Order Acceptable for Processing (COAP).
Benefits in the Foreign Service Pension System, which is for certain State Department employees, are automatically divided via statute—if the length of marriage/service in the plan meet the statutory requirements. However, if the parties want to depart from the statutory division, the benefits may be divided through a spousal agreement that has been verified by a court or through a separate court order.
Military Pension Plans
Provided the marriage has met the 10/10 rule, the parties were married for at least 10 years and the service member has at least 10 years of satisfactory service during the marriage, a military pension plan can be divided through a Military Retired Pay Division Order (MRPDO). If the parties do not meet the 10/10 rule, then payments must be established directly from the parties.
Don’t worry if you feel lost with all of the acronyms, let alone how to draft the orders. We have been in business for over 30 years helping attorneys to understand retirement benefits and to divide them. Please feel free to give us a call and we would be happy to discuss your case with you.