As required under the Pension Protection Act of 2006, the U.S. Department of Labor (DOL) recently issued interim final regulations to clarify the qualified status of domestic relations orders (DROs). A qualified domestic relations order (QDRO) assigns all or part of a participantís retirement benefits to a spouse, former spouse, child or other dependent.
Under the regulation, an otherwise qualified DRO will not fail to be a QDRO because of when it was issued, or because it was issued after or revises another QDRO. The clarifications are intended to reduce legal disputes among plans, participants and alternate payees.
The interim final regulation took effect April 6, 2007. The public is invited to submit comments by May 7, 2007, which the DOL will consider in drafting the final rule. (The DOL does not plan to issue a proposed rule.)
The regulation clarifies the qualification rules for second QDROs as follows:
- A subsequent DRO between the same two parties will not fail to be a QDRO solely because it changes the division of benefits before payments have commenced.
- A second DRO will not fail to be a QDRO solely because of an earlier QDRO pertaining to a previous ex-spouse, as long as the benefits assigned to the second ex-spouse were not already assigned to the first.
- A second DRO issued after the 18-month segregation period for an initial DRO between the same parties has expired must receive its own 18-month segregation period.
Timing of QDROs
The regulation clarifies the effect of timing on a DROís qualified status as follows:
- If a DRO is found to have defects, a corrective DRO will not fail to be a QDRO simply because it was issued after the participantís death.
- A DRO issued after a divorce will not fail to be a QDRO solely because it treats an ex-spouse as a spouse for purposes of receiving death benefits.
- A QDRO issued after the annuity starting date may assign a portion of the participantís benefit to an alternate payee ó including a spouse who previously waived rights to a survivor benefit ó under a shared payment arrangement.
Other QDRO Requirements and Protections Unchanged
QDROs remain subject to all relevant requirements and protections under the Internal Revenue Code and ERISA. For example, a QDRO may not provide a spouse with an optional form of benefit that is not provided for under the plan, call for higher benefits than the plan provides or pay benefits that were already promised to someone else by an earlier QDRO.