A model QDRO is a document created by plan administrators to provide sample, non-exhaustive, plan specific language that can be used to prepare a QDRO. If a model QDRO is available, use of the template should not substitute for your knowledge of the plan’s features because several issues may arise when practitioners rely too heavily on the model order.
The minimum requirements to create a QDRO include:
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the name and the last known mailing address for the participant and each alternate payee covered by the order,
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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,
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the number of payments or period to which such order applies, and
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each plan to which such order applies.
29 U.S.C. § 1056(d)(3)(C).
Further, a QDRO cannot require a plan to provide:
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any type or form of benefit, or any option, not otherwise provided under the plan,
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increased benefits (determined on the basis of actuarial value), and
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the payment of benefits to an alternate payee which are required to be paid to another alternate payee under another order previously determined to be a qualified domestic relations order.
29 U.S.C. § 1056(d)(3)(D).
As a practical matter, this means an order can be deemed a QDRO in as little as a few brief paragraphs. This can become problematic because an order may be silent on several pertinent issues and still become qualified. Also, it is not uncommon to encounter model QDROs that merely meet the minimum standards stated above. This post will address some pitfalls to be aware of when utilizing a model QDRO.
Model QDROs favor the plan administrator and plan participant. Plan administrators are in a high-volume business that relies heavily on using forms for matters like making beneficiary designations, contribution elections, and executing rollovers. Therefore, it is beneficial to the plan administrator when a divorce practitioner merely uses the model QDRO because it provides a uniform layout and consistent language, which aids in the ease of administering the order. Although there is not anything wrong with this from an administrative perspective, it may create problems for your client because the model may not outline all the alternate provisions available under the plan.
It is common for a model QDRO to favor the plan participant in areas such as allocation of investment gains and losses, types and forms of payments, or other supplemental benefits. If you represent the plan participant, this may be acceptable to you, provided the final QDRO conforms with the divorce decree. However, if you represent the alternate payee, this may inhibit your client’s ability to receive all the benefits they were awarded.
Conformity with the divorce decree. QDROs should accurately implement the terms of the divorce decree. However, it is impossible for a model QDRO to account for every variable for every potential case that may arise. The divorce practitioner will be responsible for ensuring that the decree and QDRO work in concert, so due care is strongly recommended before using a model QDRO.
Jurisdiction issues. Although many models may have a provision that identifies the relevant state law or a reservation of jurisdiction clause, one overlooked jurisdictional issue arises when the plan sponsor is an interstate company. For example, ABC Company has its headquarters in State A and has offices in State B and State C. It is possible that the model QDRO was drafted in accordance with the laws of State A and does not address the differences in laws in States B and C. This can have a significant impact on how the model addresses matters such as valuation dates, division of vested and unvested benefits, or community property rights.
Missing information. There are various issues that can be addressed in a QDRO that extend beyond the sample language provided by the plan. Some of these items include the apportionment of investment gains and losses, survivor’s benefits, PBGC takeover clauses, recalculation of benefits, and tax consequences, including the allocation of basis. It is rare that a model QDRO will address all the contingencies that are applicable in your case.
QDROs are frequently drafted and approved several years before the plan participant retires or an event takes place permitting the alternate payee to receive a distribution. Thus, issues may not arise until a significant amount of time has passed, and the parties involved have forgotten the case details. However, this may not absolve the practitioner of the potential liability associated with preparing a QDRO. Therefore, each divorce practitioner should use their own expertise or involve a professional well-versed in QDRO preparation (early in the case) before relying entirely on a model QDRO.