Alphabet Soup
QDRO, TSP, COAP, TRS–they sound like random letters in a hot, steamy bowl of alphabet soup. But in Legal Land, these acronyms represent some of the most valuable assets to be divided in divorces: retirement benefits. Although a rose is allegedly a rose by any other name and is just as sweet, we who live in Legal Land know that in order to draft a Court Order which divides a retirement account, Rule No. 1 is getting the name right. The Plan Administrator of a specific retirement account will reject the Order if the name of the plan is not stated correctly or if the Order itself is titled incorrectly.
So, if you are divorcing and have retirement benefits, your first step in moving forward is to understand the meaning of some of these acronyms. Below is a summary of some of the common acronyms you may encounter during your divorce.
QDRO (Qualified Domestic Relations Order):
A QDRO is a Court Order which requires a private company to divide an employee’s retirement benefits pursuant to a divorce. A QDRO is required before the administrator of the retirement plan can transfer a portion of a participant’s retirement benefits to the ex-spouse in a divorce proceeding. Even if a divorcing couple’s golden years are decades away, the portion of their retirement benefits which were accrued during their marriage is usually divided between the parties in an equitable divorce settlement. As soon as a divorce is final, the best practice is to submit a QDRO immediately to the judge for signing and entry as an Order of the Court.
Within the QDRO itself are two definitions that are critical. The first is Participant. The Participant is the husband or wife (or father or mother) who has earned the retirement benefit being divided. The Alternate Payee in a divorce is usually the former spouse of the Participant, although the Alternate Payee by definition also can be a spouse, a child or other dependent of the Participant.
ERISA (Employee Retirement Income Security Act of 1974):
This federal law was enacted in 1974 with the purpose of protecting employees who participate in employer-sponsored pension plans. Employers who provide pension plan coverage for their employees through privately sponsored pension plans need to keep their plans ERISA qualified under the provisions of the Internal Revenue Code. A properly drafted QDRO always refers to ERISA. So technically, under federal law, the term QDRO means a judgment, decree, or order that creates or recognizes the existence of an alternate payee’s right to receive all or a portion of a plan participant’s benefits payable under an ERISA qualified employee benefit plan.
TSP (Thrift Savings Plan):
TSP is the retirement savings and investment plan for federal employees and is similar to a 401(k) plan. The TSP is administered by an independent federal agency; therefore, it is different than a 401(k) plan for private-sector employees covered by ERISA. This difference is important when dividing TSP retirement funds because the name of the Court Order is not a QDRO. To divide a TSP account, the proper dividing document is called a Court Order Acceptable for Processing (COAP) Under the Thrift Savings Plan.
TRS (Teachers’ Retirement System):
The Teachers’ Retirement System is a retirement plan for public school teachers in Kentucky which includes a traditional defined benefit pension. TRS honors QDROs, but the calculation for division of a teacher’s benefit in Kentucky is complex. The calculation includes taking into account the fact that public school teachers in Kentucky do not pay into the Social Security system. Any divorcing teacher, or spouse of a teacher, should seek legal counsel regarding this complex topic.
TTYL (Talk to you later): Obviously, this acronym has nothing to do with dividing retirement benefits! It is simply a popular Internet abbreviation, and is my way of saying, “Bye for now.” I look forward to chatting with you soon about family law issues on this blog.