If you've been researching QDROs, you've probably come across a lot of acronyms, terms, and legalese that cause confusion (and maybe a headache or two).
Participants, nonmembers, payees, and more
First, it's important to understand how you will be referred to during the process (and in our resources):
- If you are the employee with the retirement plan being divided, you will be referred to as the participant, the employee, or the employee member.
- If you are the spouse who will be taking funds from your ex's retirement plan, you will be referred to as the nonmember, the alternate payee, the payee, or the former spouse.
Now, let's break down the rest of the jargon.
Defined benefit plan
Offered by public and private employers, this type of retirement plan is either (1) a traditional pension or retirement plan that pays monthly over time once you start taking your benefits, or (2) a cash balance plan that provides a lump-sum payment with the option to receive monthly payments over time.
Defined contribution plan
Offered by public and private employers, a defined contribution plan deposits pretax money directly into an account for each employee. Contributions may be made by the employee, the employer, or both. The retirement plan could be any of the following: a 401(k) plan, profit-sharing plan, savings plan, money purchase pension plan, employee stock ownership plan, 401(a) plan, 457(b) plan, 403(b) plan, tax-sheltered annuity, thrift plan, or deferred compensation plan.
Domestic relations order (DRO)
A domestic relations order (DRO) is a court order that requires the division of a public retirement plan. (State, federal, and military employees, this is you.)
ERISA is an acronym for the Employee Retirement Income Security Act of 1974. All qualified retirement plans are governed by ERISA. This federal law has a subsection that allows for direct payment of a retirement benefit to a former spouse for marital or community property or for child or dependent support.
A "joinder" is a California-only procedure. In this procedure, the retirement plan is made a party to the divorce by filing "joinder pleadings." The pleadings formally put a retirement plan on notice that there may be a marital property claim against those benefits.
You must "join" the retirement plan in a dissolution action before the domestic relations order will be processed. This applies to all California public plans and some private plans if the rules require it. Most private plans governed by ERISA do not require the service of joinder pleadings.
Notice of adverse interest
A notice of adverse interest provides notice to a plan of a divorce or pending divorce. In many cases, this triggers a hold on the plan benefits until a QDRO is served on the plan.
A Qualified Domestic Relations Order (QDRO) is a court order used to divide a private retirement plan.