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Guest Article
(From the March 12, 2007 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.) DOL Issues Interim Final Rules on QDROsThe Department of Labor’s Employee Benefits Security Administration (EBSA) on March 7, 2007 issued interim final regulations to clarify certain issues relating to qualified domestic relations orders (QDROs), as directed by the Pension Protection Act (PPA) of 2006 (P.L. 109-280). The interim final rule, which is effective on April 6, 2007, specifically addresses issues relating to whether domestic relations orders can be QDROs if they are issued after another QDRO, or after certain events such as the divorce, the participant’s annuity starting date, or the participant’s death. Background As a general rule, a retirement plan participant’s benefit may not be assigned or alienated. See ERISA § 206(d)(1) and IRC § 401(a)(13). One of the few limited exceptions to this rule is for QDROs. A QDRO is a domestic relations order that assigns all or part of a participant’s retirement plan benefit to the participant’s spouse, former spouse, child, or other dependent, and satisfies certain statutory requirements. Retirement plans must have written procedures for plan administrators to follow when determining whether an order is a QDRO, and for administering a participant’s benefits while this determination is being made. A retirement plan administrator must disregard any order purporting to assign all or part of a participant’s retirement plan benefit to an alternate payee if the order is not a QDRO. An order may fail to be a QDRO because it does not contain certain required information, such as the amount or percentage of the participant’s benefits to be paid to each alternate payee (or how to determine such amount or percentage), or the number of payments or period to which the order applies. Additionally, an order will not be a QDRO if it requires the plan:
The PPA (§ 1001) directed the Secretary of Labor to issue regulations under ERISA § 206(d)(3) and IRC § 414(p) to clarify that a domestic relations order otherwise meeting the requirements to be a QDRO shall not fail to be treated as a QDRO solely because –
Additionally, the PPA requires the Secretary of Labor to issue regulations to clarify such orders are subject to all of the same requirements and protections that apply to QDROs, including the rules requiring a plan administrator to separately account for amounts that would be payable to an alternate payee pursuant to an order while the plan administrator determines whether the order is a QDRO. See ERISA § 206(d)(3)(H) and IRC § 414(p)(7). The PPA directs the Secretary of Labor to issue these regulations within one year of the PPA’s date of enactment, which was August 17, 2006. In order to comply with this mandate, the EBSA decided to issue interim final rules instead of proposed rules. However, the EBSA is accepting comments on the interim final rules until May 7, 2007. Overview of Interim Final Rule The interim final rule adds a new DOL Reg. § 2530.206, which uses a series of examples to clarify each of the issues specified in the PPA. Subparagraph (b) specifies a domestic relations order will not fail to be treated as a QDRO solely because it is issued after, or revises, another domestic relations order or QDRO. This subparagraph includes an example to illustrate how this rule operates when a subsequent domestic relations order is issued between the same parties, as well as the following example involving a situation where the subsequent domestic relations order is between different parties:
Subparagraph (c) specifies, “a domestic relations order shall not fail to be treated as a qualified domestic relations order solely because of the time at which it is issued.” This subsection includes three examples, including one to clarify that an order issued after death can be a QDRO and a second to illustrate how an order issued after the participant’s annuity starting date can be a QDRO. The third example, which follows, discusses orders issued after the participant’s divorce.
Finally, subparagraph (d) states the general rule that any domestic relations order described in the new regulation is “subject to the same requirements and protections that apply to qualified domestic relations orders under” ERISA § 206(d)(3). Thus, for example, subparagraph (c) clarifies a domestic relations order issued after the participant’s death can still be a QDRO. However, such order will not be a QDRO if it requires the plan to provide a type or form of benefit, or any option, not otherwise provided by the plan. Also, subparagraph (a) clarifies a subsequent domestic relations order can still be a QDRO, but not if it tries to assign benefits already assigned to an alternate payee pursuant to the previous QDRO.
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