DOL Updates QDRO Administrative Guidelines

February 21st, 2008

The Pension Protection Act of 2006 (PPA), Section 1001, required the Department of Labor (DOL) to issue regulations clarifying:

  • Whether a domestic relations order (DRO) which is issued after a Qualified Domestic Relations Order (QDRO) or revises a QDRO, will be deemed a QDRO, and
  • Whether a QDRO will not be treated as a QDRO due to timely issuance.

On March 6, 2007, the DOL released interim final regulations addressing these issues.  The regulations were effective April 6, 2007, and provide that a DRO will not fail to qualify as a QDRO solely due to the fact that:

  • It modifies a prior QDRO,
  • It revises another QDRO, or
  • It is issued after the participant’s death, divorce, or annuity start date

The regulations do make clear that a DRO that falls into one of the above categories must still otherwise satisfy all of the Internal Revenue Code (IRC) QDRO requirements.  In other words, a DRO that complies with all of the requirements of a QDRO may not fail as a QDRO only on the basis that it modifies or revises a previous QDRO, or that it was not issued prior to death, divorce or the beginning of an annuity.

The DOL final interim regulations give various example situations to illustrate the new rules:

Timing Guidance

  • DROs issued after a participant’s death:

o Situation: A plan administrator receives a DRO and deems it deficient. Shortly after this decision, the participant dies while actively employed.

o Regulation: A second DRO that corrects the deficiencies of the first DRO may be considered by the plan administrator for QDRO status even though the participant has died.

  • DROs issued after a participant’s divorce:

o Situation: A former spouse submits a DRO which, for purposes of receiving the plan’s death benefit payable, requires that the former spouse to be treated as the participant’s surviving spouse.

o Regulation: If the DRO meets all IRC requirements for QDROs, it does not fail to be treated as a QDRO only on the basis that the ex-spouse no longer meets the definition of a surviving spouse.

  • DROs issued after a participant’s annuity start date:

o Situation: A participant and spouse divorce after the participant has begun receiving single life annuity on which the spouse had waived surviving spousal rights.

o Regulation: A DRO which provides that the spouse is to receive ½ of the participant’s single life annuity payments at a future date may be considered for treatment as a QDRO.

Order of Issuance Guidance

  • DROs issued subsequent between the same parties:

o Situation: A DRO between a participant and a former spouse is issued that reduces benefits previously awarded via a QDRO to the former spouse.

o Regulation: The second DRO may be a considered a QDRO.

  • DROs issued subsequent between different parties:

o Situation: A DRO is issued between a participant and former spouse #1. Participant remarries and another DRO is issued between the participant and former spouse #2.

o Regulation: The second DRO may be a QDRO, but only if the benefits assigned to former spouse #2 are not already assigned to former spouse #1.

Employers need to ensure that their QDRO policy and procedures are updated to reflect these regulations, and that operations have been adjusted as well.  Benefits counsel should be consulted to review and recommend adjustments to the existing procedures to ensure full compliance with the new regulations.

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