EBSA Issues Final QDRO Timing Rules

Friday, June 11, 2010

On June 10, 2010, The Employee Benefit Security Administration (EBSA) of the U.S. Department of Labor released its final rules on the timing and order of Qualified Domestic Relations Orders (QDRO). Generally, QDRO’s are court orders directing retirement plan administrators and/or other responsible parties to transfer up to 50% of the value of an employee’s or retiree’s retirement plan value to an alternate payee. Most often, this action is being taken as the result of a divorce and the alternate payee is usually the ex-spouse. The final rule finalizes an interim final rule released on March 7, 2007, and was adopted in response to § 1001 of the Pension Protection Act of 2006 (PPA). The section required the Secretary of Labor to issue regulations clarifying issues relating to both the timing and order of QDRO’s under § 206(d) (3) of the Employee Retirement Income Security Act of 1974 (ERISA). The rule provides guidance on the qualified domestic relations order (QDRO) requirements under ERISA and is effective on August 9, 2010.

ERISA § 206(d) (3) and the related provisions of § 414(p) of the Internal Revenue Code (Code), establishes an exception to the prohibitions against retirement plan benefit assignment and alienation as contained in ERISA § 206(d) (1) and Code § 401(a) (13). Under this limited exception, a retirement plan benefit may be assigned to an alternate payee, defined as the participant’s spouse, former spouse, child, or other dependent. This assignment is pursuant to a “qualified” domestic relations order (QDRO). If the plan administrator determines the order meets ERISA QDRO requirements, the plan administrator must then distribute the designated portion of the benefits to the alternate payee or payees.

The plan’s procedures to “qualify” a QDRO must be reasonable, in writing, require prompt notification and disclosure to participants and alternate payees upon receipt of an order, and must permit alternate payees to be allowed to assign representatives for notice purposes.

The plan administrator must execute the determination (qualifying) and notification process for participants and alternate payees within a reasonable period after receipt of the order. Potential alternate payee’s interests are protected during the determination (qualifying) and notification process for a period of up to 18 months. During this period, the plan administrator must separately account for amounts that would have been payable to the alternate payee if the order had been immediately treated as a QDRO up on receipt and must pay these amounts to the alternate payee if the order is later determined to be a valid QDRO.

The full final rule is available in Federal Register / Vol. 75, No. 111 / Thursday, June 10, 2010 / Rules and Regulations, http://edocket.access.gpo.gov/2010/pdf/2010-13868.pdf