What Is a Domestic Relations Order – DRO

What Is a Domestic Relations Order – DRO

Let me explain what a Domestic Relations Order, or DRO, really is. It's essentially a court order that grants a spouse or dependent the right to receive all or part of the benefits from an employee's qualified retirement plan when a divorce happens. You'll typically see this order sent to a plan administrator or employer for review, and if it complies with the relevant laws, it leads to the benefits being distributed between the involved parties—usually the employee and their spouse.

Regulations for Public Employees

Now, let's talk about the regulations that apply here, especially for public employees. The Retirement Equity Act of 1984, which is part of the Employee Retirement Income Security Act (ERISA), makes it clear that a public employee's retirement benefit plan is an asset shared by both the employee and their alternate payee. According to the IRS, an alternate payee can be the spouse, ex-spouse, or dependent of the employee, so in a divorce, this asset has to be considered and divided accordingly.

When a DRO gets approved, it becomes what's known as a Qualified Domestic Relations Order, or QDRO. Federal laws require QDROs for qualified plans like defined benefit plans, ESOPs, 401(k) plans, and profit-sharing plans to distribute benefits to an alternate payee. Once it's qualified, the attorney gets notified of the approval, makes any final revisions, and submits it to the court for judgment. Then, an official copy of that judgment goes to the plan administrator to start processing the benefits. Remember, a QDRO is mandatory and must be followed exactly by the employee's company or plan administrator, but if there's an error in qualifying it, you can take it back to court for corrections or changes.

Plan Administrator Review

Here's how the review process works with the plan administrator. Usually, the employer or plan administrator handles reviewing a DRO. They might have in-house HR staff knowledgeable in pension laws, or they could outsource to external administrators who specialize in these assessments. When an attorney sends the order for review, the administrator uses a checklist to verify if it meets the requirements to be qualified and enforceable under the plan.

If the order doesn't qualify—say, because the requested benefits aren't supported by the retirement plan or the terms violate federal laws—the administrator will notify the attorney representing the beneficiary, explaining the issues. From there, the attorney can amend the DRO and resubmit it for another review.

DRO Processing Times

Processing times for these orders can vary, depending on the type of retirement plan and the court's stipulations. Once payments are distributed, the plan gets split, and the alternate payee ends up with their own account in their name.

For a qualified defined benefit plan, the alternate payee might not get any payout until the employee retires or hits the plan's normal retirement age, though some plans allow immediate payments. With qualified defined contribution plans, a check can be issued to the alternate payee as soon as it's practical. Keep in mind that ERISA governs private qualified plans, but it doesn't apply to government benefits and plans. For those—like state, military, federal, county, or city retirement benefits—you'll use a DRO without needing it to be a QDRO, since they're not qualified under ERISA.