Learning the basics of retirement plans will give you a foundation you need for successful QDRO drafting.
By Gale S. Finley (Ohio)
Beginning in the mid-1990s, I spent a great deal of time working with family law practitioners. Frankly, the interaction was not always a love-fest. The fact of the matter is that those attorneys did not always like me very much (despite the fact that I am a very lovable person). I was seen as a thorn in their side. I was the person who was preventing them from closing their divorce files and moving on to new divorce matters.
You see, I am an attorney who represents retirement plans. I am charged with reviewing domestic relations orders to determine if they can be accepted by my clients as qualified domestic relations orders (“QDROs”). Back in the 1990s, I spent a lot of time informing family law practitioners that their orders could not be accepted as QDROs, even after several attempts. So you can see why I was not very popular with those folks.
The source of frustration for these family law practitioners was the sense, created by Congress when it created the QDRO as a means to get at retirement benefits, that all they had to do was follow the statutory “recipe.” Congress had provided a checklist, in section 414(p) of the Internal Revenue Code, of those things that a QDRO must include, and those things that a QDRO may not include. Family law practitioners would write orders that would comply with the checklist, and then could not understand why their orders were getting kicked back to them.
The reason was that complying with the checklist did not mean that the provisions of the order that actually described how to divide the plan participant’s benefits made any sense. Providing the name and last known address of the participant and the alternate payee, identifying the plan to which the order applies, and specifying the percentage of the participant’s benefits to be paid to the alternate payee were necessary — but not sufficient — elements of an acceptable QDRO. In essence, the root of the problem was that the people who had the responsibility to draft these new domestic relations orders did not know much about retirement benefits in order to understand how to split them up. Retirement plans and the laws that have been enacted to regulate them, frankly, are complicated.
Because I did not enjoy head-butting other attorneys, I decided to try to be a facilitator rather than an obstacle. I prepared a program to try to help local family law practitioners master the art of QDRO drafting. My program was aimed at providing enough information about how retirement plans work so that QDROs would be easier to draft successfully.
The feedback that I received from the program participants was positive. I started thinking about how to broaden the scope of my audience, and I began expanding my program materials so that they would be sufficient to instruct without my elaboration. I finally ended up with a book, now in its second edition. My objective has always been to provide the family law practitioners the basic tools necessary to understand retirement plans and the effective assignment of benefits payable by those plans to their participants. My interest in teaching the fundamentals of retirement benefits continues today.
I have prepared an article under the title “A QDRO Primer” that you can find on the Family Lawyer Magazine. This article addresses QDRO basics and provides an overview of the different types of retirement plans. It also explains what I call “the great QDRO challenge.” That challenge consists of understanding a participant’s interest under a defined benefit plan in order to effectively assign part of that benefit to someone else. By now, most family law practitioners have become pretty comfortable with defined contribution (account balance) plans, such as 401(k) plans. But defined benefit plans still create confusion and attempts to assign defined benefits still cause domestic relations orders to be rejected.
Confusion and rejection need not be part of your professional life, at least as they relate to QDROs. Learning the basics of retirement plans, especially defined benefit plans, will give you a foundation you need for successful QDRO drafting.
Gale S. Finley heads the Corporate Law Department at Sebaly Shillito + Dyer, in Dayton, Ohio. As part of his practice, Mr. Finley represents and counsels numerous retirement plans and plan administrators, including a national multiemployer pension plan, and has reviewed and evaluated QDROs submitted from across the United States. He has written and lectured extensively on retirement plans and the assignment of retirement benefits. He received his B.A. from The Ohio State University and his J.D. from the University of Dayton School of Law. Mr. Finley is a member of the Ohio and Missouri bars, the United States District Court for the Southern District of Ohio, and the United States Court of Appeals for the Sixth Circuit.