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What's the difference between a QDRO and DRO and which does CalPERS ( a governmental plan ) fall under ?

Cupertino, CA |
Attorney answers 3

Best Answer
Posted

The "Q" in QDRO refers to being qualified under ERISA (Employee Retirement Income Security Act of 1974) and section 414(p) of the Internal Revenue Code. CalPERS is a governmental plan, under 414(d) of the Internal Revenue Code, so it is not a "qualified plan". Court orders dividing CalPERS benefits are called "DROs" instead of "QDROs". The 10% early withdrawal penalty will be waived on a CalPERS distribution pursuant to a DRO (as long as the marriage is recognized under federal law, i.e. as long as it is not a same sex marriage or domestic partnership).

If you are seeking an immediate payment from CalPERS, the member must not yet be retired, and you must select the "separation of account" method of divsion in order to receive a refund of contributions. We have some great information about CalPERS and divorce at the link labeled "CalPERS info" below. You can also call CalPERS for more information at 888-CALPERS - but be ready to wait 40 minutes in order to talk to a representative.

Answers have been prepared for informational purposes only and should not be construed as legal advice. An answer posted on this website is not intended to create, and receipt of it does not constitute, an attorney-client relationship, and readers should not act upon it without seeking professional counsel.

Asker

Posted

Thanks for the link! Question about payment options however: Can monthly allowances under the "Shared" method of division be rolled-over like "Separation of Account" and do the same tax rules apply to both?

Madeline Louise Hill

Madeline Louise Hill

Posted

There is no roll-over option under the Shared method of division - you simply receive a portion of each payment made to the participant when he/she retires. You will pay regular income taxes on the distributions made to you. The same tax rules apply to both. Please note, that if you choose the separation of account method and do a tax-free rollover, if you take a distribution on the roll over account before 59 1/2 then you WILL have the 10% penalty at that time. The additional 10% tax is only waived if you take a distribution under the DRO, not if you later take an early distribution from another account where the DRO funds were rolled over. You should consult a tax professional to determine exactly what the tax rammifications of your actions will be before choosing a method of division.

Asker

Posted

I've read that under the shared method, one can "rollover" each payment by directing CalPERS to make the check out to a bank for deposit into an IRA on behalf of the alternate payee with no tax withheld. Would you say that this a valid statement?

Madeline Louise Hill

Madeline Louise Hill

Posted

I have never personally seen this type of arrangement; however, often my clients begin receiving payments years after the DRO is completed. You should contact CalPERS directly to inquire about this potential method of payment for your particular case. You can reach CalPERS by calling 1-888-225-7377.

Asker

Posted

Ok. Thank you very much for your time and knowledge!

Asker

Posted

Hi, sorry, but I have just ONE more question: Are monthly (lifetime) distributions under the "Shared" method considered "substantially equal periodic payments" in the eyes of the IRS?

Posted

They are the same thing. The Q stands for "qualified" but this word sometimes gets dropped from usage. It's still a Domestic Relations Order, dividing your retirement benefits.

CalPERS has model DRO forms that they'll share with you upon request - usually when you serve it with your joinder (see the court's list of forms for Joinder - Employee Benefit Plan).

Legal disclaimer: The response given is not intended to create, nor does it create an ongoing duty to respond to questions. The response does not form an attorney-client relationship, nor is it intended to be anything other than the educated opinion of the author. It should not be relied upon as legal advice. The response given is based upon the limited facts provided by the person asking the question. To the extent additional or different facts exist, the response might possibly change. Attorney is licensed to practice law only in the State of California. Responses are based solely on California law unless stated otherwise.

Posted

For some reason this question is showing up under slip and fall law.