In a divorce, one of the crucial aspects to consider is the division of assets, which may include retirement plans. One way to divide retirement assets is through a Qualified Domestic Relations Order (QDRO), which assigns a portion of the retirement plan to the non-employee spouse or alternate payee. However, one critical question that arises after the QDRO is approved is when the payments will start. This blog post aims to answer this question by discussing the timing of payments in 401k-type plans and pension plans after a (Q)DRO.
In a 401k-type plan, the payments typically start as soon as administratively feasible after the court-entered (Q)DRO is approved by the plan. Once the plan has a copy of the court-entered (Q)DRO, it can take an average of 30-60 days for the plan to approve the (Q)DRO. However, the payment may take longer if there are disputes or issues that need to be resolved. For instance, if the QDRO does not comply with the plan requirements or if there are discrepancies in the plan beneficiary designation, the payment may be delayed until these issues are resolved.
In a pension plan, the timing of payments depends on whether the participant is in pay status or not. If the participant is not in pay status, meaning they have not started receiving pension payments, the payments will not start until the participant reaches a particular retirement age. For instance, the plan may specify that the pension payments will start five years after the participant reaches age 65. However, the plan may allow the alternate payee to receive payments earlier than the participant's retirement age if the QDRO specifies it.
If the participant is already collecting their pension, payments to the alternate payee will typically begin the month after the plan has approved the court-entered (Q)DRO. However, some pension plans may require the alternate payee to wait until the participant's death before receiving any payments. Therefore, it's crucial to review the plan's requirements and provisions carefully to determine the timing of payments accurately.
Factors that may Affect the Timing of Payments:
Apart from issues related to the (Q)DRO or plan requirements, other factors may affect the timing of payments in both 401k-type plans and pension plans. For instance, if the plan sponsor or administrator changes during the approval process, it may cause delays in payment processing. Furthermore, changes in the market condition or economic environment may affect the payment amount or frequency. Therefore, it's essential to monitor any changes or updates related to the plan to ensure timely and accurate payments.
In summary, the timing of payments in a (Q)DRO depends on several factors, including the type of plan, the participant's payment status, and the plan's requirements and provisions. While 401k-type plans typically start payments as soon as administratively feasible after the (Q)DRO is approved, pension plans may have specific retirement age requirements, and the alternate payee may have to wait until the participant reaches a specific age or dies. Additionally, several factors, such as plan changes or market conditions, may affect the timing of payments. Therefore, it's crucial to review the plan's requirements and provisions carefully and monitor any changes to ensure prompt and accurate payments.