Words… there are many in the English language. Add a layer of “legalese” in the mix and often reading and understanding legal documents seems like you are reading a foreign language. This list of QDRO wording, terms and definitions will help you understand common terms used in QDRO matters.
What is a QDRO?
The acronym QDRO, stands for Qualified Domestic Relation Order. We have many articles on this subject that you may want to read. Briefly, however, a QDRO is the act of dividing a retirement account such as a 401K, Profit Sharing Plan, Thrift Savings Plan and other types of retirement accounts through a divorce proceedings. The account is able to be divided without the parties having to pay penalties or taxes. It allows the participant’s account to be divided into two shares, one for each spouse, based on their attributable share of the account as designated in the divorce Judgment.
The following list of QDRO wording, terms and definitions are often contained in Qualified Domestic Relations Orders.
QDRO Wording, Terms and Definitions
Accrued Benefit – The amount of retirement benefits the Participant (see below) has earned under the plan.
Actuarially Equivalent – A term generally used that means one has applied some measurement to two different benefit plans to see if the end values are sufficiently close. Often, two or more payment streams of benefit plans end up having the same “present value” based on the actuarial assumptions.
Alternate Payee – The person who has a right to receive all or a portion of the participant’s pension/retirement benefits under a Plan. The Alternate Payee is often a participant’s spouse, former spouse, child, or other dependent.
Annuity – A type of benefit whereby payments are made at regular intervals (typically monthly) for a specified period of time.
Beneficiary – The person who has been named to receive retirement plan benefits upon the death of a participant or alternate payee.
Contingent Alternate Payee – An Alternate Payee whose is only entitled to receive benefit that are contingent upon the death of another Alternate Payee or some other event.
Cost of Living Adjustment (COLA) – Most Defined Benefit Plans will, from time to time after benefits start, will increase the monthly benefit the parties receive to adjust for inflation. A former spouse, under California law, is entitled to their pro rata share of these Cost of Living Adjustments unless the COLA benefits have been waived by the former spouse.
Date of Dissolution – This is the date that the dissolution becomes final. In California, this is the date Judgment was entered which may be different from the actual date of termination of the marriage.
Date of Division of Account – For Defined Contribution Plans Only. When preparing a QDRO, this is usually the date of separation unless the parties have mutually agreed that a different date be used. Normally, a former spouse is entitled to participate in any gains or losses on the amount determined at Date of Division until it has actually been distributed by the Plan to the former spouse.
Date of Hire – This is the date that the Participant began working for the employer. This date may be before or after the date of marriage of the parties.
Date of Separation – This is the date used in the dissolution as the legal date of separation. In California, the date of separation is referenced on the Petition for Dissolution. The date of separation is typically used in the QDRO process to determinate when community property interest of the Alternate Payee stopped accruing.
Defined Benefit Plan – A Defined Benefit Plan is a retirement plan that provides a specific pre-determinable amount of benefits to a participant. This benefit is based on that individual’s projected date of retirement. Benefits are usually based on a formula that incorporates the Participant’s projected years of service as well as their average salary. This type of plan is a “traditional” pension plan and often offered by large companies.
Defined Contribution Plan – A Defined Contribution plan is a retirement plan that allows for either employee, employer or both to contribute directly to an individual account established for the plan participant. If the employee/Participant leaves their job by retiring, quits or gets fired, the participant is generally entitled to receive the account balance (together with accrued interest, subject to any investment gains and/or losses). There are several types of defined contribution plans. Some common ones are simple profit-sharing plans, thrift plans, 401(k) plans, retirement savings plans, stock bonus plans, and employee stock ownership plans (ESOPs).
Domestic Relations Order – Any judgment or court order that provides child support, spousal support, or other community or marital property rights to a spouse, former spouse, child, or other dependent of a participant that is made pursuant to California domestic relations law.
Earliest Retirement Age – For purposes of preparing a QDRO, the earliest retirement age is the earlier of (1) the date the Participant is entitled to receive payment of benefits under the plan, or (2) the latter of (a) the date the Participant reaches age 50 or (b) the earliest date the Participant could start receiving retirement benefits if he or she no longer worked for the company.
Early Retirement Subsidies – Some Employers offer Early Retirement Subsidies or other Retirement Enhancements. Under California law, a former spouse is entitled to these enhancements benefits unless they are specifically waived by the former spouse.
Fixed Dollar Amount – Instead of a percentage, the Participate and Alternate Payee may agree to a fixed dollar amount of the benefit that should go to the former spouse.
Fixed Percentage – The Participant and former spouse may agree to divide the retirement plan based on a fixed percentage of the benefit being awarded to the Alternate Payee/former spouse.
Guaranteed Benefits – The amount of pension benefits insured by the Pension Benefit Guarantee Corporation (PBGC)
Government Employer – This would apply to any governmental employer with the exception of the Military. This would include County and City employers.
Gross Annuity – As referenced in 5 CFR 838.103 this is the amount of monthly annuity that is payable after reducing the self-only annuity to provide survivor annuity benefits but before any other deductions. It also includes lump sum payments, if any, made to the retiree under section 8343a or 8420a of Title 5, United States Code, unless the court provides otherwise.
Joinder – This is the process during dissolution proceedings that allows the “joining” of a retirement plan as a party in the proceedings. This is often done to provide the retirement plan with notice that there is a potential claim against the retirement funds by the Alternate Payee. If the Plan was joined there will be a filing with the court that is date stamped by the Court. Refer to the Retirement Plan Joinder—Information Sheet which identifies which types of plans require mandatory Joinder.
Joint and Survivor Annuity – An annuity that pays benefits over the recipient’s lifetime and over the lifetime of the person named as beneficiary.
Life Expectancy – The average number of years a person is expected to live after a given age.
Lump Sum – When the entire benefit is paid at one time.
Method of Division – There are two ways to calculate the amount of money to be distributed to the former spouse under a QDRO in a Defined Contribution Plan. 1) A percentage of the account can be used, or 2) an actual dollar amount.
% of account: When a percentage of the account is used, normally the Time Rule is used to calculate what percentage of the account the former spouse will get. The Time Rule is computed as follows:
Number of months during marriage participant was in the Plan through date of division, divided by the Total number of months participant was in the Plan through date of division
This fraction determines the approximate community property share of the account. In more complex matters, the parties may want to calculate an exact amount of the community property share that includes the actual timing of the gains and losses in the account. In this situation, the parties would need to hire an actuary or accountant to do this calculation. This amount would then be divided in two to calculate how much the former spouse is entitled to at the exact date of division.
Military Employer – This would apply to any Non-Civilian Military Personnel. Civilian Military Personnel are considered Non-Military Government Employees.
Net Annuity – Under the Federal Plans this is the amount of monthly annuity payable after deducting from the gross annuity any amounts (1) owed by the retiree to the United States; (2) deducted for health benefit premiums; (3) deducted for life insurance premiums; (4) deducted for Medicare premiums; (5) property withheld for Federal Income tax purposes; (6) property withheld for State income tax purposes. It includes lump sum payments, if any, made to the retiree under section 8343a or 8420a of Title 5, United States Code, unless the court provides otherwise.
Normal Retirement Age – The age at which a Participant can retire under the plan and receive a full pension benefit. The normal retirement age is usually not greater than 65 years of age.
Participant – This is the person who is a member of a pension plan. A Participant is covered by and participating in the plan and in a divorce, is the spouse whose retirement plan being divided. The spouse that is to receive benefits under the QDRO is the Alternate Payee.
Petitioner – The Petitioner is the party that filed the divorce proceedings.
Plan Administrator – The Plan Administrator is the person who administers the plan. Sometimes the Plan Administrator is a third-party and sometimes it is the employer. If the name of the administrator is not in the plan document, the employer is considered to be the Plan Administrator. Information about the Plan Administrator can be obtained from retirement plan statements, a summary plan description, or by calling the retirement Plan or the employer.
Private Employer – An employer that is not a government entity. This would also include people that are self-employed.
Qualified Domestic Relations Order (QDRO) – A Qualified Domestic Relations Order also called a QDRO (pronounced Quad-Row) is a domestic relations order that gives another person (Alternate Payee) the right to receive all or a portion of the plan benefits that are payable to a Participant. The QDRO must meet certain other legal requirements with respect to the information and benefits involved.
Qualified Joint and Survivor Annuity (QJSA) – A Qualified Joint and Survivor Annuity, (QJSA) is a joint and survivor annuity where (1) the Participant receives a definite amount of money at regular intervals for life, and (2) after the Participant dies, the surviving spouse receives a definite amount of money (not less than 50% or more than 100% of the participant’s amount) at regular intervals for life. The former spouse may be designated as the surviving spouse which makes them the beneficiary of the surviving spouse Annuity. When a QJSA is elected by the Participant, the monthly retirement benefit will be lower to pay for the surviving spouse’s benefit. This is because the Plan will have to pay money over the lifetime of both the Participant and the surviving spouse. This benefit can be paid for by the Participant, former spouse or both.
Qualified Preretirement Survivor Annuity (QPSA) – A QPSA is a benefit paid to a named beneficiary in the event the Participant dies before payment of retirement benefits have started. If this option is not selected the former spouse may give up all retirement benefits if the Participant dies before the former spouse commences benefits.
Retirement Enhancements – Some Employers offer Early Retirement Subsidies or other Retirement Enhancements. Under California law, a former spouse is entitled to these enhancements benefits unless they are specifically waived by the former spouse.
Self-only Annuity – Under Federal Plans, this is the monthly recurring benefit payment to a retiree who has elected not to provide a survivor annuity to anyone. Unless the court order provides otherwise, it also includes lump sum payments, if any, made the retiree under Section 8343a or 8420a of Title 5, United States Code.
Single Life Annuity – Also known as a straight-life annuity, this is an annuity that pays benefits over the Participant’s lifetime. Once the Participant dies, the annuity payments stop.
Spouse – Husband, wife or domestic partner as determined under applicable state law. A QDRO can provide that the Participant’s former spouse be treated as the Participant’s spouse.
Spousal Consent – A spouse’s agreement to allow the Participant to waive certain forms of benefits such as the QPSA.
Survivor Benefit – The benefit a survivor receives after the Participant dies.
Temporary Life Annuity – An annuity that pays benefits over the shorter of the recipient’s life or a specified period.
Time Rule – This formula is often used to calculate the community property share of benefits in both a defined contribution plan and a defined benefit plan. The Time Rule is computed as follows:
Number of months during the marriage Participant was in the Plan through determination date, divided by the Total number of months Participant was in the plan through determination date. This fraction will give you the community property share of the benefit. This amount would then be divided in two to determine how much the former spouse is entitled to at determination date.
Determination date can be either, Date of Separation, Date of Dissolution, Date of Retirement, Date of Division, or some other date agreed upon by the parties.
Value – The estimated amount needed at a point in time to provide monthly benefits in the future. Value depends on the amount of the monthly benefit payment, when the benefit payments start and stop, age(s) of the recipient(s), mortality assumptions, and interest assumptions. Value is also called “present value” or “actuarial present value.”
A People’s Choice has over 35 years experience helping the self-represented prepare their Qualified Domestic Relations Orders. Contact us at 800-747-2780 for more information about our QDRO services.