Defined Benefit Plans and QDROs: A Few Common Questions

Defined Benefit Plans and QDROs: A Few Common Questions

Defined benefit plans involved in a QDRO can generate a lot of questions both for the plan participant and the other spouse. If not reviewed carefully, minor mistakes can cause confusion for both parties, possibly dragging them back into court to hash out details. This is one reason why QDRO experts, who have years of experience in reviewing these documents as well as fine-tuning them to comply with defined benefit plan requirements, are often brought to the table to assist with this stage. Since retirement plans are often one of the biggest assets to be divided in a divorce, it’s worth the extra time and effort to ensure that it’s done properly.

In many cases, the other spouse will want to know if he or she can receive the money from the defined benefit plan upfront after the QDRO is finalized. The earliest that an alternate payee can usually receive money from a defined benefit plan is at or after the plan participant’s earliest age of retirement. This is usually outlined in the plan itself.

Some orders, however, will restrict the alternate payee from getting the benefit until the plan participant is actually receiving it. If the participant already has access to monthly checks from the pension when the QDRO is approved, the alternate payee should begin receiving checks right away. Bear in mind that the specifics of the plan will influence when the actual benefits are paid out. Usually, defined benefit plans issue payments on the first of the month and they are only paid once during a month period. As a result of this, it could take some time before an alternate payee actually starts receiving payments from a defined benefit plan. Usually a follow-up question to the concern over getting paid right away is whether these benefits can be paid in a lump sum. Usually, the answer is no. Some plan types might allow for a lump sum payment, but usually a defined benefit plan will only pay out on a monthly basis.

Another comment question has to do with what happened to the alternate payee’s benefit when the plan participant passes away. This depends specifically on the verbiage inside the QDRO, once again highlighting the importance of an expert’s review. It also depends on the time in which the order was received in comparison with when the participant started getting benefits. There are cases where the participant’s death could trigger a stop in payments, though, so you need to ask about this in the drafting of the QDRO.

 

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