In a prior blog post, I discussed the Qualified Domestic Relations Order – these are special orders that are required to divide many retirement pensions and 401k’s between spouses in a divorce. However, there are certain types of Plans to which the Employee Retirement Income Security Act (ERISA) – which provides for a Qualified Domestic Relations Order – does not apply. In some of these plans, there may be nothing you can do to force the Plan to divide a share of the pension or savings plan for a non-participant spouse as part of a divorce. Others may allow an alternative type of order, not a QDRO.
Some examples of Plans to which ERISA (and therefore QDRO’s) do not apply are certain types of church plans; some kinds of IRA’s, military retirement and federal government employee retirements such as the Federal Employee Retirement System (FERS) and Thrift Savings Plan (TSP).
The good news about a lot of the Plans listed above is that there ARE non-QDRO alternatives which allow the Plan to be divided between spouses in a divorce. IRA’s may only need certain dividing language in the Final Decree of Divorce itself plus the completion of a few internal transfer forms available from your investment advisor. Military plans can be divided either by including special language available from the Defense Finance Accounting Services (DFAS) in the Final Decree of Divorce or in a special division order for that purpose. Likewise with the various federal employee plans available – a QDRO is not required so long as there is language in the Final Decree or in a supplementing order that meets the requirements of FERS or TSP.
Until recently most state and local government entities in Tennessee considered themselves exempt from ANY type of court order to divide retirement pensions and savings plans set up by the employee under government auspices. This meant that there was no way to grant a spouse direct payment from a state or local government retirement plan and the only way to get this valuable asset divided would be by using an alternative, such as ordering the plan participant to make monthly payments of a share of the benefits when they actually begin receiving them, or by trying to project the estimated value of the state or local government retirement and awarding the non-participant spouse some other valuable thing as an alternative to their share. This made dividing such plans contentious, tedious and fraught with mistakes, enforceability problems and the potential to require the parties to have continued contact for years and years after a divorce.
In the summer of 2015, the General Assembly passed legislation, codified at T.C.A. Section 26-2-105(d) that allows certain types of local and state government retirement plans to be divided by a QDRO. This new statutory provision is now being interpreted by Metro and some other local government entities to allow the division of pensions as well as some voluntary plans that would otherwise be considered “qualified” under ERISA, by using a Qualified Domestic Relations Order. However, there are some entities, namely Nashville Electric Service, that are apparently taking the position that the new statute applies to their pension but not their voluntary 457 savings plan for employees. As of now, the handling and processing of Qualified Orders is all very new to these government entities and the staff are basically trying to develop rules and procedures for processing them, so it may be slow going at first. The manner in which QDRO’s are handled may change as the various government entities develop more experience with these Orders, as well. So things are a work in progress.
The important take-away from this is that if you are getting divorced and there are pensions or retirement accounts involved, you must find out what type of plan is involved and get some information on how and whether it can be divided, before making any final decisions about dividing these important assets. Not knowing the nature of the plan or the rules for dividing it could mean losing out on valuable marital property, or having to go back to court to straighten out mistakes in a divorce decree. You should begin looking at this issue early on in the process!