Intro to QDROs

What is a QDRO?

When an employee accrues retirement plan benefits, those benefits remain solely in the name of the employee. However, in Illinois, those benefits are considered to be marital property. A QDRO (Qualified Domestic Relations Order) is an Order issued by the Family Law Court to divide the retirement plan between the divorcing spouses in a way that will not subject the parties to adverse tax consequences.

OK, so what is a QILDRO?

State and municipal employers are not subject to federal law governing retirement plans (ERISA). Illinois enacted legislation in 1999 to require state and municipal employers to divide retirement assets between divorcing parties while maintaining the tax advantages to both the participant employee and the non-participant spouse. QILDRO (Qualified Illinois Domestic Relations Order) was the result. It is the counterpart to QDRO for all state and municipal employees.

When is a QDRO needed?

Many Plan Administrators have model QDROs which may be acceptable, especially if the plan is portable and the non-participant spouse will be removing the plan from the employer's control. However, many plans have benefits that do not commence until the employee's retirement and thus the benefits remain in the control of the employer.

It is also important to keep in mind that the objectives of the Plan Administrator and employer may not be consistent with the objectives of the alternate payee and his/her attorney. For example, many plans offer cost of living adjustments. Many model orders do not provide a pro rata share of the COLA for the non-participant spouse. There are many similar examples, thus it may be important to review the model Order and modify or add language to it.

Do QDROs cost more than model orders?

In some instances Plan Administrators charge substantially higher processing fees for orders that deviate from the model orders offered by the Plan Administrator. You should determine if the cost is outweighed by the increased benefit to your client.

What is an "Alternate Payee"?

This is one who is not a participant of the retirement plan and, according to the Plan itself has no rights under the plan, but has an interest in the Plan according to the Family Law Court. The QDRO or QILDRO (or similar order) formalizes this person's rights under the plan.

	Introduction to QDRO's What is a QDRO? When an employee accrues retirement plan benefits, those benefits remain solely in the name of the employee. However, in Illinois, those benefits are considered to be marital property. A QDRO (Qualified Domestic Relations Order) is an Order issued by the Family Law Court to divide the retirement plan between the divorcing spouses in a way that will not subject the parties to adverse tax consequences. OK, so what is a QILDRO? State and municipal employers are not subject to federal law governing retirement plans (ERISA). Illinois enacted legislation in 1999 to require state and municipal employers to divide retirement assets between divorcing parties while maintaining the tax advantages to both the participant employee and the non-participant spouse. QILDRO (Qualified Illinois Domestic Relations Order) was the result. It is the counterpart to QDRO for all state and municipal employees. When is a QDRO needed? Many Plan Administrators have model QDROs which may be acceptable, especially if the plan is portable and the non-participant spouse will be removing the plan from the employer's control. However, many plans have benefits that do not commence until the employee's retirement and thus the benefits remain in the control of the employer. It is also important to keep in mind that the objectives of the Plan Administrator and employer may not be consistent with the objectives of the alternate payee and his/her attorney. For example, many plans offer cost of living adjustments. Many model orders do not provide a pro rata share of the COLA for the non-participant spouse. There are many similar examples, thus it may be important to review the model Order and modify or add language to it. Do QDROs cost more than model orders? In some instances Plan Administrators charge substantially higher processing fees for orders that deviate from the model orders offered by the Plan Administrator. You should determine if the cost is outweighed by the increased benefit to your client. What is an "Alternate Payee"? This is one who is not a participant of the retirement plan and, according to the Plan itself has no rights under the plan, but has an interest in the Plan according to the Family Law Court. The QDRO or QILDRO (or similar order) formalizes this person's rights under the plan.