QDRO Corner: ERISA and Pensions in Pay Status

It is best practice to submit a QDRO as soon as possible following a divorce for many reasons. In the case of the alternate payee of a pension that’s already being paid out to the retired participant, the number of reasons increase. The sooner the QDRO is accepted and processed by the plan, the sooner the alternate payee can receive their share directly from the plan – or start receiving their share at all if the retired participant isn’t making payments to the alternate payee in the meantime.

The Employee Retirement Income Security Act (ERISA) contemplated this situation and includes provisions to protect the funds for the alternate payee. Once a draft QDRO is submitted to a pension plan that is already making payments to a retired participant, the plan is required to withhold the amount of funds awarded to the alternate payee. This withholding will last for a period of 18 months or until receipt of a final, court-executed QDRO is accepted by the plan, whichever first occurs. If the 18 months expires and no final order is received, the withheld funds will be paid to the retired participant. If a final order is received and accepted by the plan, the withheld funds will be paid to the alternate payee according to the provisions in the final court order.

Therefore, the best way to preserve the alternate payee’s share of a pension which is in pay-status is to submit a draft order to the plan right away, even if the terms may change between the draft and the final order.