If you experience a divorce or child custody event in your life, your first thought may be to engage a family law attorney to guide you through much of the process. While family law attorneys can undoubtedly be crucial to navigating these life events, you may also consider seeking the help of an ERISA attorney. If you have an employer-sponsored retirement plan, an ERISA attorney can help you ensure your retirement plan benefits are legally and properly divided if such events occur.
The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that establishes minimum standards for most employer-sponsored retirement and health plans, protecting the benefits of individual participants. ERISA attorneys advise on compliance with ERISA and the employee benefit plans it governs, including pension plans and 401(k) plans.
One hallmark provision of ERISA is its “anti-assignment clause,” which prevents participants in ERISA retirement plans from assigning their benefits to other individuals. For example, a pension benefit recipient generally cannot decide that they would rather transfer their pension benefit to someone else. However, ERISA also provides an exception to this anti-assignment clause in the form of a Qualified Domestic Relations Order (QDRO).
A QDRO is a legal judgment or order that allows for the division of retirement plan benefits between a plan participant and an alternate payee, such as a spouse, former spouse, or dependent. ERISA attorneys can assist with QDROs by drafting and reviewing them to ensure compliance with ERISA and retirement plan specific rules, as well as representing clients in disputes over QDRO implementation.
QDRO Basics:
An ERISA attorney can help guide an individual through the QDRO process outlined below. A QDRO is referred to as a Domestic Relations Order (DRO) until the plan administrator qualifies it as such. The following provides an outline of the lifecycle of a QDRO:
- Drafting and Pre-Approval
- Drafting: An ERISA attorney and the plan participant will collaborate to draft a DRO, which will include specific details on the percentage or amount of the retirement plan to be assigned and information about the alternate payee. For purposes of ERISA, an alternate payee is a spouse, former spouse, child, or other dependent of a retirement plan participant who is granted the right to receive all or a portion of the plan participant’s benefits.
- Plan pre-approval: the draft DRO is sent to the plan administrator for review and pre-approval to ensure it meets the plan’s specific requirements regarding QDROs.
- Court Approval
- Final Review and Signature: Both parties and their attorneys review and sign the pre-approved draft.
- Court Submission: The signed DRO is submitted to the court for a judge’s approval.
- Plan Qualification and Distribution
- Plan qualification: The certified, court-approved DRO is submitted to the plan administrator for final qualification. The plan administrator has up to 18 months to approve the DRO.
- Distribution: Once qualified by the plan, the DRO is deemed a QDRO, and the plan administrator will create a separate account for the alternate payee and distribute the specified portion of the retirement benefits to that separate account.
Common QDRO Mistakes
ERISA attorneys frequently observe the types of mistakes that prevent an individual and an alternate payee from properly dividing retirement assets. Often, individuals wait too long to prepare a QDRO, include incomplete or incorrect plan information in their DROs, confuse the type of retirement plan they are attempting to divide, fail to address survivor benefits, disregard pre-filing guidance from the plan administrator, or mishandle taxes on distributions. These mistakes can lead to incorrect benefit allocations to alternate payees and the loss of an alternate payee’s entitlement to a portion of retirement funds. Working with an ERISA attorney can ensure that these mistakes are avoided, and both parties’ rights to a participant’s retirement benefits are protected.
Conclusion
While various types of attorneys, including family lawyers, can assist in preparing a QDRO, complex pensions, multiple plans, and ERISA disputes, such as survivor benefits, may fall outside the scope of a family lawyer’s practice and may require an ERISA attorney’s expertise. Engaging an ERISA attorney from the outset in retirement or child custody proceedings can ensure that both the participant and alternate payee walk away from the QDRO proceedings with the portion of the benefits to which they are entitled.
