QDRO for a Defined Contribution Retirement Plan

Summary:  A defined contribution plan is fairly easy to value because the plan account depends on employee (and employer) contributions, not years of service or age. Such as a 401(k). After division by a QDRO, it is a more flexible account with more options available to the former spouse who receives the QDRO share. Our 2014 QDRO fee for these plans is a fixed $275.

Applying a QDRO to a Defined Contribution Pension Plan

A defined contribution retirement plan provides benefits based only on what the participant has contributed to the plan (plus in many cases matching employer contributions). The plan benefit does not depend on the number of years of service or employee compensation.

The most often-used defined contribution plan is the 401(k) plan.  Similar plans for government employees are 403(b) and 457 plans.

In contrast, a defined benefit plan will provide a monthly retirement payment based on years of service and annual employee compensation. They are usually called a "pension plan."  (In 2014, they are becoming a thing of the past.)

Defined contribution plans include:

• 401(k) plans; 403(b) and 457 state and local government plans;
• money purchase pension plans;
• profit sharing plans;
• stock bonus plans;
• Employee Stock Ownership Plans (ESOP)

In part because the valuation of a defined contribution plan is easy, defined contribution plans are easier to divide with a QDRO than a defined benefit pension plan. There is no need to do an actuarial valuation, based on age, years of service, etc.

In most cases, the former spouse who received the QDRO benefit can take that share and roll it into a separate 401(k) plan or IRA. There are a lot of options available.

The plan to be divided should consist of at least the following:

• All vested (and unvested) benefits in the participant's plan account as of the date of the divorce decree (or other date as agreed upon in a separation agreement); plus
• all employer contributions made to the participant's plan account at any time which are attributable to the participant's service to the employer ending on the date of the decree, whether such contributions are actually allocated to that account before or after the date of the decree; plus
• all interest, dividends, gains, and losses on any of the foregoing amounts from the date of the decree until all benefits have been assigned to the former spouse who received the QDRO account (alternate payee) have been paid by the plan (the gap period).

Federal ERISA law requires the employer to keep track of gains, losses, and account earnings back at least 18 months. This means that you should create and process your QDRO as soon as possible. Even before the date of the decree if a separation or mediated agreement is used. Otherwise, as soon as practical after the decree is entered by the court.

Since the stock market has been declining at various times during the time period 2009 - 2014, their are now some disputes over which spouse should bear the burden of retirement plan losses.  For more information on this topic visit divison and timing information.

Don't wait for years after your divorce before you get around to completing your QDRO.

And I note that some government plans, such as the Colorado PERA plans, will not honor a QDRO or other court order unless it is signed by the court and forwarded to PERA within 90 days after the divorce decree is entered.

I frequently see former spouses who are in trouble because too much time has elapsed since the date of the decree. Where is it too late to do a QDRO. Don't let that happen to you!