A guide from the PBGC

QDROs Made Simple

T he Pension Benefit Guaranty Corporation (PBGC) has issued Divorce Orders & PBGC, a booklet designed to help attorneys and others involved with pensions understand how to set up and apply qualified domestic relations orders (QDROs) when the PBGC becomes the trustee for a terminated pension plan. The 32-page guide contains instructions for creating QDROs as well as sample orders. “This guide is something every CPA should have if a client is going through a divorce,” Greg Matthews, CPA, a principal in G. E. Matthews & Associates, Inc., St. Petersburg, Florida, told the Journal. “The CPA will find a useful discussion on QDROs that’s a help to any divorce attorney; it’s something he or she might want to pass along.”

Matthews outlined a typical problem he hopes the booklet will solve: a nontax divorce attorney often drafts a QDRO to divide a pension to meet the marital separation agreement. After the court approves it, the order is sent to the plan administrator. Neither the lawyer nor the judge may be an authority in the labor and tax implications of a QDRO, so it is possible the order violates provisions of the Employee Retirement Income Security Act (ERISA). The administrator is then stuck between being held in contempt of the judge’s order to execute the QDRO and creating a breach of fiduciary duty. Often the problem has to go before another court for resolution, a difficult and time-consuming process.

Basically, in this booklet the PBGC is saying, ‘If you follow this wording, your order will go through, and the administrator’s life-and yours-will be a whole lot simpler,'” said Matthews.

Beyond PBGC
The guide does not take precedence over Internal Revenue Service or Department of Labor interpretations and was written to apply to plans the PBGC has taken over. However, Matthews believes it will have wider implications. He said the Small Business Job Protection Act, passed in August 1996, requires the federal government to issue sample wording for all QDROs. “Everyone recognizes the need for sample language, and it’s very likely the PBGC samples will serve as a model.”

Free copies of Divorce Orders & PBGC (publication 1005) are available by calling the PBGC at 800-400-7242. It also can be downloaded from the PBGC’s Web site: http://www.pbgc.gov . For more information on QDROs, see Matthews’ article in Small Business Tax Solutions, JofA, May96, page 34.