QDRO Corner: Describing the Amount to Transfer to the Alternate Payee

A necessary element of any QDRO is the amount that the Plan should pay to the
Alternate Payee. The amount is described one way for defined benefit plans (pensions,
annuities, etc.) and another way for defined contribution plans (401k, 403b, TPS, etc.).

Defined Contribution Plans

Defined contribution plans have separate accounts that hold funds designated for a
single, specific person. The transfer amount should be described in terms of a specific
dollar figure or a percentage of the total account balance, as of a specific date. All other
considerations, such as a premarital interest, using the retirement accounts to equalize
or buy-out interest is other assets, etc. should be described in detail within the
Agreement, and ultimately boiled down to a specific dollar amount or percentage to be
used within the QDRO.

Exception: The Federal Thrift Savings Plan is an exception here, as this plan will also
accept awards described as a percentage of the account accumulated between two
dates. This description allows attorneys to divide the TSP on its own, and have the TSP
Board do the math to avoid dividing any premarital or post marital contributions.

Defined Benefit Plans

Defined benefit plans are large funds in which many people have an interest, but funds
are typically not set aside or designated for a single person. Awards to an alternate
payee for these plans should be described as either a flat dollar amount, a percentage
of payments received, or as a fraction.

It is important to keep in mind here that these plans are typically monthly benefits and
many have provisions limiting how much of the benefit can be given to an alternate
payee. So, if using a flat dollar description, it is important to know how much the
participant is receiving, and if there a restriction.

Exception: There are cash-balance defined benefit plans. These plans are a sort of
hybrid between a traditional defined benefit plan and a traditional defined contribution
plan. Some are divided using a defined benefit structure and others are divided using a
defined contribution structure.

At the end of the day, it’s important to know what type of plan is being divided to know
how to describe the award to the alternate payee in a way that the plan will accept. To
do this, it is best to obtain the information regarding the plan during negotiation of the
agreement and to prepare the QDRO along with the Agreement.

We can help with obtaining information from the plan, reviewing draft agreement
language, and preparing QDROs while the agreement is being negotiated.  Contact our office at 240-396-4373.