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Part I of this Appendix discusses certain issues
that are relevant in drafting a qualified domestic relations order
("QDRO"). Part II of this Appendix contains sample language
that can be used in a QDRO. However, the discussion and sample
language do not attempt to address every issue that may arise in
drafting a QDRO. Also, some parts of the discussion are not relevant
to all situations and some parts of the sample language are not
appropriate for all QDROs. In formulating a particular QDRO, it is
important that the drafters tailor the QDRO to the needs of the
parties and ensure that the QDRO is consistent with the terms of the
retirement plan to which the QDRO applies.
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In order to be recognized as a QDRO, an order must
first be a "domestic relations order." A domestic relations
order is any judgment, decree or order (including approval of a
property settlement) which:
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Relates to the provision of child
support, alimony payments or marital property rights to a spouse,
former spouse, child or other dependent of the plan participant
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Is made pursuant to a State domestic relations law (including a
community property law). A State authority must actually issue an
order or formally approve a proposed property settlement before it can
be a domestic relations order. A property settlement signed by a
participant and the participant's former spouse or a draft order to
which both parties consent is not a domestic relations order until the
State authority has adopted it as an order or formally approved it and
made it part of the domestic relations proceeding.
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The sample language in Part II assumes that the
QDRO applies to one qualified plan and one alternate payee. If a QDRO
is intended to cover more than one qualified plan or alternate payee,
the QDRO should clearly state which qualified plan and which alternate
payee each provision is intended to address. |
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The terms of a qualified plan must be set forth in
a written document. The plan must also establish written QDRO
procedures to be used by the plan administrator in determining whether
a domestic relations order is a QDRO and in administering QDROs. The
plan administrator maintains copies of the plan document and the
plan's QDRO procedures. If the plan is required under Federal law to
have a summary plan description, or "SPD," the plan
administrator will also have a copy of the SPD. The information in
these documents is helpful in drafting a QDRO. The drafter of a QDRO
may wish to obtain copies of these documents before drafting a QDRO. |
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A QDRO must clearly specify the name and last known
mailing address (if any) of the participant and of each alternate
payee covered by the QDRO. In the event that an alternate payee is a
minor or legally incompetent, the QDRO should also include the name
and address of the alternate payee's legal representative. A QDRO can
have more than one alternate payee, such as a former spouse and a
child. |
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The "participant" is the individual whose
benefits under the plan are being divided by the QDRO. The
participant's spouse (or former spouse, child, or other dependent) who
receives some or all of the plan's benefits with respect to the
participant under the terms of the QDRO is the "alternate
payee." |
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A QDRO must clearly identify each plan to which the
QDRO applies. A QDRO can satisfy this requirement by stating the full
name of the plan as provided in the plan document. |
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A QDRO must clearly specify the amount or
percentage of the participant's benefits in the plan that is assigned
to each alternate payee, or the manner in which the amount or
percentage is to be determined. Many factors should be taken into
account in determining which benefits to assign to an alternate payee
and how these benefits are to be assigned. The following discussion
highlights some of these factors. Because of the complexity and
variety of the factors that should be considered, and the need to
tailor the assignment of benefits under a QDRO to the individual
circumstances of the parties, specific sample language regarding the
assignment of benefits has not been provided in Part II of this
Appendix. |
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Types of Benefits |
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In order to decide how to divide benefits under a
QDRO, the drafter first should determine the types of benefits the
plan provides. Most benefits provided by qualified plans can be
classified as:
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Retirement benefits that are paid during the
participant's life
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Survivor benefits that are paid to
beneficiaries after the participant's death. Generally, a QDRO can
assign all or a portion of each of these types of benefits to an
alternate payee. The drafters of a QDRO should coordinate the
assignment of these types of benefits. QDRO drafters should also
consider how the benefits divided under the QDRO may be affected,
under the plan, by the death of either the participant or the
alternate payee.
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Types of Qualified Plans |
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Another important factor to consider in the
drafting of a QDRO is the type of plan to which the QDRO will apply.
As discussed below, the type of plan may affect the types of benefits
available for assignment, how the parties choose to assign the
benefits, and other matters. |
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There are two basic types of qualified plans to
which QDROs apply:
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Defined benefit plans
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Defined contribution plans
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Defined Benefit Plans |
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A "defined benefit plan" promises to pay
each participant a specific benefit at retirement. The basic
retirement benefits are usually based on a formula that takes into
account factors such as the number of years a participant has worked
for the employer and the participant's salary. The basic retirement
benefits are generally expressed in the form of periodic payments for
the participant's life beginning at the plan's normal retirement age.
This stream of periodic payments is generally known as an
"annuity." There are special rules that apply if the
participant is married; these rules are discussed in greater detail in
section E below. A plan may also provide that these retirement
benefits may be paid in other forms, such as a lump sum payment. |
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Defined Contribution Plans |
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A "defined contribution plan" is a
retirement plan that provides for an individual account for each
participant. The participant's benefits are based solely on the amount
contributed to the participant's account, and any income, expenses,
gains and losses, and any forfeitures of accounts of other
participants which may be allocated to such participant's account.
Examples of defined contribution plans include a profit sharing plan
(including a "401(k)" plan), an employee stock ownership
plan (an "ESOP") and a money purchase pension plan. Defined
contribution plans commonly permit retirement benefits to be paid in
the form of a lump sum payment of the participant's entire account
balance. |
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Approaches to Dividing Retirement Benefits |
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There are two common approaches to dividing
retirement benefits in a QDRO: one awards a separate interest in the
retirement benefits to the alternate payee, and the other allows the
alternate payee to share in the payment of the retirement benefits. In
drafting a QDRO using either of these approaches, consideration should
be given to factors such as whether the plan is a defined benefit plan
or defined contribution plan, and the purpose of the QDRO (such as
whether the QDRO is meant to provide spousal support or child support,
or to divide marital property). |
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Separate Interest Approach |
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A QDRO that creates a "separate interest"
divides the participant's benefits into two separate parts: one for
the participant and one for the alternate payee. Subject to the terms
of the plan and as discussed in more detail below, a QDRO may provide
that the alternate payee can determine the form in which his or her
benefits are paid and when benefit payments commence. If benefits are
allocated under the separate interest approach, the drafters of a QDRO
should take into account certain issues depending on the type of plan. |
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Issues Relevant to Defined Benefit Plans |
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The treatment of subsidies provided by a plan and
the treatment of future increases in benefits due to increases in the
participant's compensation, additional years of service, or changes in
the plan's provisions are among the matters that should be considered
when drafting a QDRO that uses the separate interest approach to
allocate benefits under a defined benefit plan. |
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Subsidies. Defined benefit plans may promise
to pay benefits at various times and in alternative forms. Benefits
paid at certain times or in certain forms may have a greater actuarial
value than the basic retirement benefits payable at normal retirement
age. When one form of benefit has a greater actuarial value than
another form, the difference in value is often called a subsidy. Plans
usually provide that a participant must meet specific eligibility
requirements, such as working for a minimum number of years for the
employer that maintains the plan, in order to receive the subsidy. |
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For example, a defined benefit plan may offer an
"early retirement subsidy" to employees who retire before
the plan's normal retirement age but after having worked for a
specific number of years for the employer maintaining the plan. In
some cases, this subsidized benefit provides payments in the form of
an annuity that pays the same annual amount as would be paid if the
payments commenced instead at the normal retirement age. Because these
benefits are not reduced for early commencement, they have a greater
actuarial value than benefits payable at normal retirement age. This
subsidy may be available only for certain forms of benefit. |
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A QDRO may award to the alternate payee all or part
of the participant's basic retirement benefits. A QDRO can also
address the disposition of any subsidy to which the participant may
become entitled after the QDRO has been entered. |
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Future Increases in the Participant's Benefits.
A participant's basic retirement benefits may increase due to
circumstances that occur after a QDRO has been entered, such as
increases in salary, crediting of additional years of service, or
amendments to the plan's provisions, including amendments to provide
cost of living adjustments. The treatment of such benefit increases
should be considered when drafting a QDRO using the separate interest
approach. |
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Issues Relevant to Defined Contribution
Plans |
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Investment of the amount assigned to the alternate
payee when the account is invested in more than one investment vehicle
and division of any future allocation of contributions or forfeitures
to the participant's account are among the matters that should be
considered when drafting a QDRO that allocates the alternate payee a
separate interest under a defined contribution plan. |
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Investment Choices. The participant's
account may be invested in more than one investment fund. If the plan
provides for participant-directed investment of the participant's
account, consideration should be given to how the alternate payee's
interest will be invested. |
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Future Allocations. A participant's account
balance may later increase due to the allocation of contributions or
forfeitures after the QDRO has been entered. A QDRO may provide that
the amounts assigned to the alternate payee will include a portion of
such future allocations. |
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Shared Payment Approach |
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A QDRO may use the "shared payment"
approach, under which benefit payments from the plan are split between
the participant and the alternate payee. The alternate payee receives
payments under this approach only when the participant receives
payments. A QDRO may provide that the alternate payee will commence
receiving benefit payments when the participant begins receiving
payments or at a later stated date, and that the alternate payee will
cease to share in the benefit payments at a stated date (or upon a
stated event, provided that adequate notice is given to the plan). In
splitting the benefit payments, the QDRO may award the alternate payee
either a percentage or a dollar amount of each of the participant's
benefit payments; in either case, the amount awarded cannot exceed the
amount of each payment to which the participant is entitled under the
plan. If a QDRO awards a percentage of the participant's benefit
payments (rather than a dollar amount), then, unless the QDRO provides
otherwise, the alternate payee generally will automatically receive a
share of any future subsidy or other increase in the participant's
benefits. |
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QDRO drafters should take into account certain
issues that may arise in connection with the alternate payee's choice
of a form of benefit payments and the date on which payment will
commence. |
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Separate Interest Approach |
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Form of Alternate Payee's Benefit Payments |
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A QDRO either may specify a particular form in
which payments are to be made to the alternate payee or may provide
that the alternate payee may choose a form of benefit from among the
options available to the participant. However, Federal law provides
that the alternate payee cannot receive payments in the form of a
joint and survivor annuity with respect to the alternate payee and his
or her subsequent spouse. |
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The choice of the form of benefits should take into
account the period over which payments will be made. For example, if
the alternate payee elects to receive a lump sum payment, no further
payments will be made by the plan with respect to the alternate
payee's interest. |
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Any decision concerning the form of benefit should
take into account the difference, if any, in the actuarial value of
different benefit forms available under the plan. For example, as
discussed above, a plan might provide an early retirement subsidy that
is available only for payment in certain forms. |
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In addition, the forms of benefit available to the
alternate payee may be limited by § 401(a)(9) of the Code, which
specifies the date by which benefit payments from a qualified plan
must commence and limits the period over which the benefit payments
may be made. Section 1.401(a)(9)-1, Q&A H-4, of the Proposed
Income Tax Regulations addresses the application of the required
minimum distribution rules of § 401(a)(9) to payments to an alternate
payee. The proposed regulation limits the period over which benefits
may be paid with respect to the alternate payee's interest. For
example, the proposed regulation provides that distribution of the
alternate payee's separate interest will not satisfy § 401(a)(9)(A)(ii)
of the Code if the separate interest is distributed over the joint
lives of the alternate payee and a designated beneficiary (other than
the participant). |
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Commencement of Benefit Payments to
Alternate Payee |
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Under the separate interest approach, the alternate
payee may begin receiving benefits at a different time than the
participant. A QDRO either may specify a time at which payments are to
commence to the alternate payee or may provide that the alternate
payee can elect a time when benefits will commence in accordance with
the terms of the plan. In two circumstances, an alternate payee who is
given a separate interest may begin receiving his or her separate
benefit before the participant is eligible to begin receiving
payments. First, Federal law provides that benefit payments to the
alternate payee may begin as soon as the participant attains his or
her earliest retirement age. Federal law defines "earliest
retirement age" as the earlier of:
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The date on which the
participant is entitled to a distribution under the plan, or
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The
later of (I) the date the participant attains age 50, or
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The
earliest date on which the participant could begin receiving benefits
under the plan if the participant separated from service. Second, the
retirement plan may (but is not required to) allow payments to begin
to an alternate payee at a date before the earliest retirement date.
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Shared Payment Approach |
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As indicated above, under the shared payment
approach, benefit payments are split between the participant and the
alternate payee. The alternate payee receives payments in the same
form as the participant. Further, payments to the alternate payee do
not commence before the participant has begun to receive benefits.
Payments to the alternate payee can cease at any time stated in the
QDRO but do not continue after payments with respect to the
participant cease. As noted above, a QDRO must state the number of
payments or the period to which the order applies. |
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Survivor benefits include both benefits payable to
surviving spouses and other benefits that are payable after the
participant's death. These benefits can be awarded to an alternate
payee. In determining the assignment of survivor benefits, QDRO
drafters should take into account that benefits awarded to the
alternate payee under a QDRO will not be available to a subsequent
spouse of the participant or to another beneficiary. QDRO drafters may
consult with the plan administrator for information on the survivor
benefits provided under the plan. |
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A QDRO may provide for treatment of a former spouse
of a participant as the participant's spouse with respect to all or a
portion of the spousal survivor benefits that must be provided under
Federal law. The following discussion explains the spousal survivor
benefits that must be offered under a plan, and identifies issues that
should be considered in determining whether to treat the alternate
payee as the participant's spouse. |
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Only a spouse or former spouse of the participant
can be treated as a spouse under a QDRO. A child or other dependent
who is an alternate payee under a QDRO cannot be treated as the spouse
of a participant. |
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Retirement plans generally need not provide the
special survivor benefits to the participant's surviving spouse unless
the participant is married for at least one year. If the retirement
plan to which the QDRO relates contains such a one-year marriage
requirement, then the QDRO cannot require that the alternate payee be
treated as the participant's spouse if the marriage lasted for less
than one year. |
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Qualified Joint and Survivor Annuity |
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Federal law generally requires that defined benefit
plans and certain defined contribution plans pay retirement benefits
to participants who were married on the participant's annuity starting
date (this is the first day of the first period for which an amount is
payable to the participant) in a special form called a qualified joint
and survivor annuity, or QJSA. Under a QJSA, retirement payments are
made monthly (or at other regular intervals) to the participant for
his or her lifetime; after the participant dies, the plan pays the
participant's surviving spouse an amount each month (or other regular
interval) that is at least one half of the retirement benefit that was
paid to the participant. At any time that benefits are permitted to
commence under the plan, a QJSA must be offered that commences at the
same time and that has an actuarial value that is at least as great as
any other form of benefit payable under the plan at the same time. A
married participant can choose to receive retirement benefits in a
form other than a QJSA if the participant's spouse agrees in writing
to that choice. |
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Qualified Preretirement Survivor Annuity |
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Federal law generally requires that defined benefit
plans and certain defined contribution plans pay a monthly survivor
benefit to a surviving spouse for the spouse's life when a married
participant dies prior to the participant's annuity starting date, to
the extent the participant's benefit is nonforfeitable under the terms
of the plan at the time of his or her death. This benefit is called a
qualified preretirement survivor annuity, or QPSA. As a general rule,
an individual loses the right to the QPSA survivor benefits when he or
she is divorced from the participant. However, if a former spouse is
treated as the participant's surviving spouse under a QDRO, the former
spouse is eligible to receive the QPSA unless the former spouse
consents to the waiver of the QPSA. If the spouse does not waive the
QPSA, the plan may allow the spouse to receive the value of the QPSA
in a form other than an annuity. |
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Defined Contribution Plans Not Subject to
the QJSA or QPSA Requirements |
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Those defined contribution plans that are not
required to pay benefits to married participants in the form of a QJSA
or a QPSA are required by Federal law to pay the balance remaining in
the participant's account after the participant dies to the
participant's surviving spouse. If the spouse gives written consent,
the participant can direct that upon his or her death the account will
be paid to a beneficiary other than the spouse, for example, the
couple's children. |
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Alternate Payee Treated as Spouse |
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A QDRO may provide that an alternate payee who is a
former spouse of the participant will be treated as the participant's
spouse for some or all of the benefits payable upon the participant's
death, so that the alternate payee will receive benefits provided to a
spouse under the plan. To the extent that a former spouse is to be
treated under the plan as the participant's spouse pursuant to a QDRO,
any subsequent spouse of the participant cannot be treated as the
participant's surviving spouse. Thus, QDRO drafters should consider
the potential impact of designating a former spouse as the
participant's spouse on the disposition of survivor benefits among the
former spouse and any subsequent spouse of the participant, as well as
the impact on children or any other beneficiaries designated by the
participant in accordance with the terms of the plan. |
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In determining the portion of the participant's
benefits for which the alternate payee is treated as the spouse, the
drafters should take into account the manner in which benefits are
otherwise divided under the QDRO. In particular, consideration should
be given to whether the formula for dividing the participant's
benefits for this purpose should be coordinated with the formula
otherwise used for dividing the benefits. |
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Under a defined benefit plan, or a defined
contribution plan that is subject to the QJSA and QPSA requirements,
to the extent the former spouse is treated as the current spouse, the
former spouse must consent to payment of retirement benefits in a form
other than a QJSA or to the participant's waiver of the QPSA. For
example, in a defined benefit plan, the participant would not be able
to elect to receive a lump sum payment of the retirement benefits for
which the alternate payee is treated as the participant's spouse
unless the alternate payee consents. Similarly, the former spouse's
consent might be required for any loan to the participant from the
plan that is secured by his or her retirement benefits. In a defined
contribution plan that is not subject to the QJSA and QPSA
requirements, to the extent the QDRO treats the former spouse as the
participant's spouse under the plan, the survivor benefits under the
plan must be paid to the former spouse unless he or she consents to
have those benefits paid to someone else. |
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The Federal income tax treatment of retirement
benefits is governed by Federal law, and a QDRO cannot designate who
will be liable for the taxes owed when retirement benefits are paid.
For a description of the tax consequences of payments to an alternate
payee pursuant to a QDRO, see Internal Revenue Service Publication
575, Pension and Annuity Income. A local IRS office can provide this
publication, or it may be obtained by calling 1.800.TAX-FORM. |
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Sample Language
for Inclusion in QDRO
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Sample Language for Identification of Participant
and Alternate Payee
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The "Participant" is [insert name of
Participant]. The Participant's address is [insert Participant's
address]. The Participant's social security number is [insert
Participant's social security number]. |
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The "Alternate Payee" is [insert name of
Alternate Payee]. The Alternate Payee's address is [insert Alternate
Payee's address]. The Alternate Payee's social security number is
[insert Alternate Payee's social security number]. The Alternate Payee
is the [describe the Alternate Payee's relationship to Participant] of
the Participant. |
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This order applies to benefits under the [insert
formal name of retirement plan] ("Plan"). |
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Instruction: The QDRO should clearly specify
the amount or percentage of benefits assigned to the Alternate Payee
or the manner in which the amount or percentage is to be determined,
and the number of payments or period to which the Order applies. There
are many different forms in which benefits may be paid from a
qualified plan. Because of the diversity of factors that should be
considered, and the need to tailor the assignment of benefits under a
QDRO to meet the needs of the parties involved, specific sample
language regarding the assignment of benefits has not been provided.
See the discussion in Part I for further information. |
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Instruction: Drafters using the separate
interest approach may use paragraph 1. Drafters using the shared
payment approach may use paragraph 2. Drafters using the separate
interest approach for a portion of the benefits allocated to the
alternate payee and the shared payment approach for the remainder
should modify the sample language to specify the benefits to which
each paragraph provided below applies. |
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Separate Interest Approach |
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The Alternate Payee may elect to receive payment
from the Plan of the benefits assigned to the Alternate Payee under
this Order in any form in which such benefits may be paid under the
Plan to the Participant (other than in the form of a joint and
survivor annuity with respect to the Alternate Payee and his or her
subsequent spouse), but only if the form elected complies with the
minimum distribution requirements of § 401(a)(9) of the Internal
Revenue Code. Payments to the Alternate Payee pursuant to this Order
shall commence on any date elected by the Alternate Payee (and such
election shall be made in accordance with the terms of the Plan), but
not earlier than the Participant's earliest retirement age (or such
earlier date as allowed under the terms of the Plan), and not later
than the earlier of:
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The date the Participant would be required to
commence benefits under the terms of the Plan or
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The latest date
permitted by § 401(a)(9) of the Internal Revenue Code.
For purposes
of this Order, the Participant's earliest retirement age shall be the
earlier of:
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The date on which the participant is entitled to a
distribution under the Plan, or
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The later of (I) the date the
Participant attains age 50, or
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The earliest date on which the
Participant could begin receiving benefits under the plan if the
Participant separated from service.
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Shared Payment Approach |
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The Alternate Payee shall receive payments from the
Plan of the benefits assigned to the Alternate Payee under this Order
(including payments attributable to the period in which the issue of
whether this Order is a qualified domestic relations order is being
determined) commencing as soon as practicable after this Order has
been determined to be a qualified domestic relations order or, if
later, on the date the Participant commences receiving benefit
payments from the Plan. Payment to the Alternate Payee shall cease on
the earlier of: [insert date or future event, such as the Alternate
Payee's remarriage], or the date that payments from the Plan with
respect to the Participant cease. |
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Instruction: The Alternate Payee may be
treated as the Participant's spouse only if the Alternate Payee is the
Participant's spouse or former spouse, and not if the Alternate Payee
is a child or other dependent of the Participant. |
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If the Alternate Payee is the Participant's spouse
or former spouse, drafters may select sample paragraph 1, sample
paragraph 2, or sample paragraph 3. Sample paragraph 1 applies if the
Alternate Payee is treated as the Participant's spouse for all of the
spousal survivor benefits payable with respect to the Participant's
benefits under the Plan. Sample paragraph 2 applies if the Alternate
Payee is treated as the Participant's spouse for a portion of the
spousal survivor benefits payable with respect to the Participant's
benefits under the Plan. Sample paragraph 3 applies if the Alternate
Payee is not treated as the Participant's spouse for any of the
spousal survivor benefits payable with respect to the Participant's
benefits under the Plan. |
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Alternate Payee Treated as Spouse For All
Spousal Survivor Benefits |
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The Alternate Payee shall be treated as the
Participant's spouse under the Plan for purposes of §§ 401(a)(11)
and 417 of the Code. |
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Alternate Payee Treated as Spouse For a
Portion of the Spousal Survivor Benefits |
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The Alternate Payee shall be treated as the
Participant's spouse under the Plan for purposes of §§ 401(a)(11)
and 417 of the Code with respect to [insert percentage of benefit or a
formula, such as a formula describing the benefit earned under the
plan during marriage]. |
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Alternate Payee not Treated as Spouse |
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The Alternate Payee shall not be treated as the
Participant's spouse under the Plan. |
