A qualified domestic relations order, also known as a QDRO, is a court order that also requires a retirement plan to direct a portion of the participant's retirement benefits directly to their former spouse, spouse, and/or dependent children. This type of order typically applies to a retirement plan that corporations provide. Most QDROs are completed during the divorce process or after it’s finalized.
This article will explain more about QDROs in Michigan, along with some standard terms you should know.
Standard terms related to QDROs
Here’s a list of standard terms related to QDROs in Michigan:
- Participant: A participant is an employee who participates in the retirement plan.
- Alternate payee: An alternate payee is a former spouse, current spouse, child, or other dependents of the plan participant who is assigned all or a portion of the participant’s interest in a retirement plan.
- Plan administrator: The entity, typically the employer, administers the plan.
- Accrued benefit: This is a retirement benefit earned on a specific date.
- Assigned benefit: The portion of the retirement benefit awarded to the alternate payee pursuant to the QDRO.
- Valuation date: The date that the participant’s interest in the retirement plan is valued to determine the assigned benefit.
- Defined contribution plan: There are various savings plans, like 401(k), 403(b), Money Purchase Plans, Employee Savings Plans, 457 plans, and Profit Sharing Plans. They are called defined contribution plans because the money the employer or employee contributes is defined, but the plan participant bears the investment risk. The amount available at retirement will depend on the economy and market performance.
- Defined Benefit Plan: These are traditional pension plans that promise the employee lifetime payments as retirement. The payment amount is typically based on years of service and salary for the highest three years before retirement. They are called defined benefits because the amount the employee will receive at retirement is defined, and the plan sponsor bears the risk of investment.
- Cash balance pension plans: These defined benefit plans are often confused with defined contribution plans. They are essentially hypothetical accounts that earn a rate of return set by the employer. The alternate payee must wait for the participant’s earliest retirement age before they can take a distribution of the assigned benefit. It is a defined benefit plan because the amount available upon retirement is defined, and the plan administrator bears the investment risk.
- Early retirement subsidy: This applies to some traditional pension plans. It is a plan provision allowing participants to retire before the average retirement age without a full actuarial reduction of the monthly benefits. Not all pensions give early retirement subsidies. And if the participant does not retire early, there will be no early retirement subsidy to assign to the alternate payee.
Contact Anne N. Pastrana PLLC to expedite your divorce.
At Anne N. Pastrana PLLC, we have the experience to handle both simple and complex QDROs. We also understand that divorces can be emotional, stressful, and confusing. Our goal is to draft your document as accurately as possible and get it to you quickly so that you can complete the divorce process and move on with your life. Unlike some divorce attorneys, we do not charge a premium for fast delivery. Our rates are reasonable, and all our clients enjoy the same level of attention.
If you need legal divorce services related to a QDRO, contact Anne N. Pastrana PLLC today.
