An exception to the anti-alienation clause was created in 29 USC 1056(d)(3)(A), the Retirement Equity Act. This provision births QDROs and distinguishes between non-qualified domestic relations orders and qualified domestic relations orders.
Federal Law and Anti-Alienation - Not Aliens Though
Congress supports the idea that participants of sponsored retirement plans should not be able to gamble, owe or dissipate retirement funds. This value has a strong social purpose. Congress also protects participants' funds from creditors. Dissipated retirement funds pose a liability to the government. ERISA qualified plans are governed by a spendthrift or anti-alienation provisions. The 'spendthrift clause' prevents transfer and serves the same purpose as equivalent provisions written into trusts to prevent a prodigal beneficiary from wasting an inheritance. The law restricts participants from being wasteful with their retirement money while at the same time prevents creditors from invasion.
And Where QDROs Fit In...
Divorce attorneys must use QDROs to allocate interests in qualified retirement plans under a divorce decree. Most divorce decrees say little or nothing about the division of the asset except that the interest should be allocated to one or the other or divided. Most decrees are silent on survivorship provisions and other key issues, leaving the negotiation of the terms of the QDRO open to more litigation and uncertainty, exacerbated by ignorance and procrastination. This may have extremely negative results when a participant retires, remarries or dies.
Other Plans and Their Governing Rules
CalSTRS is governed by the California Education Code and is not a qualified plan. The Teachers’ Retirement Law provides that those members who have retired or are receiving any other CalSTRS benefit, the time rule formula is available while for those members who have not retired and are not receiving any other CalSTRS benefit, the segregation method is available as well as the time rule method. According to the plan brochure 'the plan administered by CalPERS is a 'governmental plan' as defined in section 414(d) of the Internal Revenue Code of 1986, and is not subject to the provisions of section 414(p) of the Internal Revenue Code and section 206(d) of ERISA which govern 'qualified domestic relations orders.' The terms of the plan are s't forth in the California Public Employees' Retirement Law ('PERL'), which can be found at section 20000, et seq., of the California Government Code. The administrator of the plan is the CalPERS' Board of Administration. Nevertheless CalPERS have their own requirements for division of the interests and the process is similar to division of other retirement plans. CalPERS is well organized, cooperative in accepting joinders to a case, and quickly responds to draft PERLs with either an approval or denial as to the acceptance of language in model orders.
For the main part QDROs apply to both defined contribution plans (savings plans, 401(K) plans, 403(B) plans et cetera) and defined benefit plans (classic pensions). QDROs are not necessary to divide civil service or DFAS (US Navy, Defense et cetera). THIS DOES NOT MEAN THAT AN ORDER IS NOT REQUIRED. The administrators of the latter plans (OPM and DFAS) require very specific language in their orders. Some knowledge is also required of survivorship annuities and benefits. While it is possible for laypersons to develop property settlements, parenting plans, and support orders, retirement benefit division is perhaps the most mine-laden area of property division.
Results May be Catastrophic Where Delays Exist
As to when these orders should be prepared. Generally - and almost without exception - these orders should be prepared as soon as possible - before a divorce and well before a death, or subsequent remarriage. Our office prepares and writes these orders, submits these to the court and then the plan. We oversee the process until the Alternate Payee is either paid or assured payment.