From Marriage to Division: QDROs for the The Washington Latin School Tax Deferred Annuity Plan Explained

Unlike pensions that calculate a monthly benefit, 401(k)s accumulate actual dollars. QDROs can divide this money by dollar amount or percentage. What’s often overlooked is that 401(k)s like the The Washington Latin School Tax Deferred Annuity Plan usually include:

• Employee deferrals: Contributions made directly from the employee’s paycheck
• Employer matching contributions: Funds added by the employer, often subject to vesting schedules

Be sure to determine whether any employer contributions are unvested. If they aren’t vested as of the division date, those funds may be forfeited, which can affect the alternate payee’s share.

It’s common for business-backed 401(k) plans like this one to include a vesting schedule. The corporation of the washington latin school likely has its own rules governing when employer contributions become non-forfeitable. Any unvested portion at the time of divorce may not be eligible for division. That’s why you need the most recent plan statement and SPD when preparing your QDRO.

A good QDRO will clarify that only the vested portion of employer funds is to be divided. Without that, disputes can arise post-divorce when the expected amount falls short.

401(k)s often allow participants to take loans, and it’s critical to understand how these affect division. If the participant (the plan member) took out a loan, that balance is usually deducted from the account value when calculating the marital portion.

There are two common approaches:

• Include the loan as a reduction: The alternate payee’s share comes from the net account value.
• Exclude the loan from division: The full pre-loan balance is used for the QDRO, putting repayment responsibility on the participant.

It’s important that your divorce lawyer and QDRO drafter clearly state the chosen method in both the marital settlement agreement and the QDRO to avoid confusion down the line.

This is another area of frequent errors in drafting. 401(k) plans like The Washington Latin School Tax Deferred Annuity Plan may contain both Roth (after-tax) and traditional (pre-tax) contributions. Each must be handled separately in the QDRO or the tax consequences for the alternate payee can be severe.

The QDRO should stipulate how much of each account type is to be divided. Also, the alternate payee must receive notice specifying that Roth funds retain their tax-free withdrawal status upon eligibility, and pre-tax funds are taxable upon distribution.

Start by requesting the Summary Plan Description and recent account statements from the participant or plan administrator. You’ll also need the plan number and EIN to complete your QDRO documentation.

Because this plan is a 401(k) backed by a business entity, you need language addressing:

• Employee vs. employer contributions
• Vesting conditions and forfeitures
• Loan treatment
• Roth and pre-tax account allocation

We’ve seen many QDROs rejected simply because they left out one of these key elements. Visit ourcommon QDRO mistakes page to learn more.

Some plan administrators for business organizations like The corporation of the washington latin school allow for pre-approval of QDROs before court filing. This can save weeks or months of re-drafting and reduce errors. Check with the plan’s HR department to confirm the process.

Once preapproved (if applicable), the QDRO needs to be signed by the court that issued the divorce decree. Make sure it’s submitted through the correct court procedure before sending it to the plan administrator.

Finally, submit the court-signed QDRO to the plan administrator. Keep a copy of confirmation that it was received. It can take 30 to 90 days for them to process the order and establish an account for the alternate payee.