Alternate benefit payees and recipients: Complying with QDROs and QMCSOs

Employees divorcing may result in an employer having the legal responsibility of providing benefits to alternate payees (such as ex-spouses) or recipients (such as minor children). Qualified Domestic Relations Orders (QDROs) and Qualified Medical Child Support Orders (QMCSOs) are court orders that impose this responsibility on employers.

If you're an employer with an employee who is getting divorced, you may have to comply with court orders concerning the employee's medical or retirement benefits.

Court orders require employers to act if:

• The employee is ordered to provide medical benefits to a child who lives with the ex-spouse (in the form of a Qualified Medical Child Support Order, also known as a QMCSO).
• An employee's retirement benefits are ordered to be paid to someone other than the employee (in the form of a Qualified Domestic Relations Order, also known as a QDRO).

Warning

If you receive either of those court orders, we strongly advise that you discuss your responsibilities with your attorney as soon as possible.

Medical child support orders

A Qualified Medical Child Support Order (QMCSO) is a legal document from a court of law ordering you to include a child or children as dependents under your employee's coverage. The situation most typically arises in a divorce case where one of the parties succeeds in having the court order the other party to provide health insurance for the children.

What should you do if you receive a QMCSO? When you receive an order, the first thing you should do is contact the health plan administrator and notify them of the order. Many states have passed laws that also require employers to comply with QMCSOs. Generally, these laws state that when a parent is required by a court or administrative order to provide health coverage that is available through an employer, the employer must permit the parent to enroll the child in family health coverage without regard to enrollment season restrictions.

If the parent fails to enroll the child, the other parent or the state child support agency can make the enrollment. The child cannot be disenrolled unless the employer is provided with satisfactory written evidence that the court order is no longer in effect or the child is or will be enrolled in comparable coverage on the effective date of the disenrollment, or unless the employer has eliminated family health coverage for all employees. The employer must deduct any health insurance premiums from the employee's earnings and pay the premiums to the insurer.

You should work out with your administrator how you will handle a QMCSO if you get one. Among the issues you need to discuss are:

• What do you do with children covered by a QMCSO if the employee quits?
• If the children are beneficiaries, what rights do they have under COBRA?
• What happens when a dependent child reaches majority and is no longer eligible?
• Must the child elect the same coverage as his or her parent or does the child have the right to select different benefits?
• Does a QMCSO supersede any preexisting clauses or other exclusions in your policy so that you have to cover the child no matter the health condition?

Qualified domestic relations orders

Generally, the law prohibits an employee who is entitled to a retirement plan distribution from assigning the payments to someone else. The exception is for Qualified Domestic Relations Orders (QDROs), which are court orders in a domestic relations case (divorce, for example) that require you to send the benefits to someone other than the employee (usually to the ex-spouse or children).

A QDRO cannot require the plan to provide a type, form of benefit, or option not otherwise provided by the plan.

A QDRO can, however, require the plan to begin to distribute benefits earlier for the payee than for the employee.

Example

You receive a QDRO that requires that the benefits be distributed at the earliest retirement age that is:

1. the earliest date a participant is entitled to a distribution, or

2. the latter of the date the participant turns age 50 or the earliest date the participant could begin receiving a distribution from the plan if the participant separates from service.

You would have to comply with this order even though it might require you to distribute benefits earlier than the plan documents would otherwise have required.

A court's domestic relations order must be "qualified." In order to be "qualified," the order must specify the following:

• the name and address of the alternate payee who will receive benefits from the plan instead of the participant
• the name and address of the participant
• the percentage or amount of benefits to be paid or the manner of determining the amount
• the number of payments or the period
• the qualified retirement plan to which the order applies

What should you do if you receive a QDRO? If you receive a QDRO, you or your administrator should do the following:

• Notify the plan participant and designated payee of the receipt of a domestic relations order.
• Segregate accounts or amounts for the alternate payee.
• Pay the amounts due within 18 months of the date specified in the order once you determine it to be qualified.
• Coordinate information when the alternate payee is the former spouse and there is a current spouse for qualified pre-retirement and qualified joint and survivor annuities.