QDRO Final Regulations
Time and Order of Issuance of Domestic Relations Orders
Rev. 06/21/10; E-mail Alert 2010-9

The DOL issued final regulations under this section on June 10, 2010 that have an effective date of August 9, 2010. The interim rules had been issued in 2007. Each of the regulation sections makes use of examples to illustrate the rules. The nine examples provide clarifying scenarios on how a DRO issued subsequent to a QDRO is to be handled, although the DOL states that there are circumstances that occur that are not covered by the examples.

a. Scope
The Pension Protection Act of 2006 (PPA) clarified certain circumstances under which a subsequently issued qualified domestic relations order (QDRO) may modify an existing QDRO. This regulation incorporates, with minor changes, the language of Section 1001 of PPA. By reducing uncertainty over the application of the statutory requirements, it is anticipated that the costs of resolving conflicts between the orders will be reduced, and there will be an increase in the efficiency of plan administration.

b. Subsequent domestic relations orders (DRO)
Subject to (d)(1) below, a DRO shall not fail to be treated as a QDRO solely because the order is issued after, or revises, another DRO or QDRO.
 
Example b-1; Subsequent DRO between the same parties
Fact set:
> Participant and Spouse divorce,
> DRO received and determined to be a QDRO
> The QDRO allocates part of Participant's benefits to Spouse as alternate payee.

Subsequently, before benefit payments have commenced:
> Participant and Spouse seek and receive a second DRO.
> The second order:
    >> Reduces portion that Spouse was to receive under the original QDRO.
    >> Does not fail to be a QDRO solely because the second order is issued after, and           reduces the prior assignment contained in, the first order.
>The answer would be the same if the DRO increased the assignment contained in first DRO.

Example b-2; Subsequent DRO between different parties
Fact set:
> Participant and Spouse 1 divorce
> QDRO allocates a portion of Participant's 401(k) benefits to Spouse 1 as the alternate payee.
> Participant marries Spouse 2, and then they divorce.

> Participant's same 401(k) plan receives DRO re: Spouse 2.
> DRO provides Spouse 2 part of Participant's 401(k) benefits not allocated to Spouse 1.
> Second DRO does not fail to be a QDRO solely because the second DRO is issued after the plan has determined that an earlier DRO pertaining to Spouse 1 is a QDRO.

c. Timing
Subject to (d)(1) below, a domestic relations order shall not fail to be treated as a qualified domestic relations order solely because of the time at which it is issued.

Example c-1; Orders issued after death
Fact set:
> Participant and Spouse divorce,
> Administrator of Participant's plan receives a DRO,
> Administrator finds DRO is deficient and determines that it is not a QDRO.
> Participant dies while actively employed.

> A second DRO correcting the defects in first DRO is subsequently submitted to the plan.
> Second DRO does not fail to be treated as a QDRO solely because it’s issued after the Participant’s death.

> DOL notes that the result would be the same if DRO issued after death were the only DRO.

Example c-2; Orders issued after divorce
Fact set:
> Participant and Spouse divorce.
> Former spouse no longer meets the definition of "surviving spouse'' under plan terms
> Then, plan receives DRO requiring former Spouse to be treated as Participant's surviving spouse for purposes of receiving a death benefit that is payable under the plan's terms only to a participant's surviving spouse.
> The DRO does not fail to be treated as a QDRO solely because, at the time it is issued, the Spouse no longer meets the definition of a `surviving spouse'' under the terms of the plan.

Example c-3; Orders issued after annuity starting date
Fact set:
> Participant retires
> Spouse waives survivor rights at time distribution is arranged
> Participant begins straight life annuity, ( $1,000 per month)
> After annuity starting date, Participant and Spouse divorce
> Plan receives a DRO requiring 50 percent ($500) of Participant's future monthly annuity payments plan to be paid instead to Spouse, as an alternate payee (so that monthly payments of $500 are to be made to Spouse during Participant's lifetime).

> DRO does not fail to be a QDRO solely because it is issued after the annuity starting date
> DRO modifying the benefit after the annuity starting date would be acceptable.
> However, this DRO seeks to re-allocate a part of the determined annuity payments due to Participant, so that the DRO fails to meet the requirements of ERISA §206(d)(3)(D)(i); unless the plan otherwise permits such a change after the participant's annuity starting date.

d. Requirements and protections
1. Any domestic relations order described in this section shall be a qualified domestic relations order only if the order satisfies the same requirements and protections that apply under section 206(d)(3) of ERISA.
   
Example d-1; Type or form of benefit
Fact set:
> Participant and Spouse divorce
> Divorce decree calls for a DRO to be created to assign 50% of Participant's 401(k) assets to the Spouse and to pay that amount in monthly installments over a 10-year period.
> Shortly thereafter, Participant dies while actively employed.

> DRO consistent with divorce decree is subsequently submitted to the 401(k) plan;
> Plan does not provide for 10-year installment payments as called for in DRO.
> DRO does not fail to be treated as a QDRO because it is issued after the death of Participant,
> DRO fails to be a QDRO because the DRO requires the plan to provide a type/form of benefit not otherwise provided under the plan.

Example d-2; Segregation of payable benefits
Fact set
> Participant and Spouse divorce
> Participant's plan receives DRO calling for Spouse to receive benefits immediately if DRO is determined to be a QDRO.
> Administrator separately accounts for amounts covered by the DRO as required by ERISA.
> Administrator finds DRO deficient and thus, it is not a QDRO.
> Administrator receives second DRO after expiration of the segregation period pertaining to the first DRO.

> Second DRO calls for Spouse to begin to receive benefits immediately, if the second DRO is determined to be a QDRO.
> Notwithstanding the expiration of the first segregation period, the amounts covered by the second DRO must be separately accounted for by the administrator for an 18-month period, in accordance with ERISA.

Example d-3; Previously assigned benefits
Fact set:
> Participant and Spouse 1 divorce,
> Administrator of Participant's 401(k) receives DRO and determines it to be a QDRO.
> QDRO assigns a portion of Participant's benefits to Spouse 1 as the alternate payee.
> Participant marries Spouse 2, and then they divorce.

> Participant's 401(k) plan subsequently receives a DRO pertaining to Spouse 2.
> DRO assigns to Spouse 2 a portion of Participant's 401(k) benefits already assigned to Spouse 1.
> Second DRO does not fail to be treated as a QDRO solely because it is issued after the administrator has determined that an earlier order pertaining to Spouse 1 is a QDRO.
> Second order fails to be a QDRO under ERISA because it assigns to Spouse 2 all or a portion of Participant's benefits that are already assigned to Spouse 1 by the prior QDRO.

Example d-4; Type or form of benefit
Fact set:
> Participant retires and commences a straight life annuity (based on the participant's life)
> Spouse consented to the waiver of the surviving spousal rights.
> Participant and Spouse divorce after the annuity starting date
> Plan receives DRO requiring elimination of Participant's straight life annuity and providing that Spouse, as alternate payee, will receive all future benefits in the form of a straight life annuity based on the life of Spouse.
> Plan does not allow reannuitization with a new annuity starting date, as defined in ERISA section 205(h)(2).

> DRO does not fail to be a QDRO solely because it is issued after the annuity starting date,
> DRO fails to be a QDRO under ERISA §206(d)(3)(D)(i) and paragraph (d)(1) of this section because the order requires the plan to provide a type or form of benefit, or any option, not otherwise provided under the plan.
> However, the DRO would not fail to be a QDRO under §206(d)(3)(D)(i) and paragraph (d)(1) of this section if instead it were to require all of Participant's future payments under the plan to be paid instead to Spouse, as an alternate payee (so that payments that would otherwise be paid to the Participant during the Participant's lifetime are instead to be made to the Spouse during the Participant's lifetime).

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