Wright & Filippis, Inc.. 401(k) Retirement Plan Division in Divorce: Essential QDRO Strategies

Most 401(k) plans—including the Wright & Filippis, Inc.. 401(k) Retirement Plan —include two types of contributions:

• Employee Contributions: Fully vested and available for division.
• Employer Contributions: Subject to a vesting schedule and may not be fully available to the participant (or alternate payee) at the time of divorce.

Be sure the QDRO distinguishes between these two sources so the alternate payee doesn’t accidentally receive more than what’s truly vested. If the plan participant has unvested employer contributions, the plan administrator will not include those in the distribution.

Because the Wright & Filippis, Inc.. 401(k) Retirement Plan is a corporate-sponsored retirement plan, it’s highly likely a vesting schedule exists for employer contributions. This means a spouse could lose out on a portion of the retirement balance if they don’t factor in what’s actually vested as of the cutoff date (usually the date of separation or divorce).

When drafting a QDRO, always confirm:

• The plan’s vesting schedule
• Which contributions are vested as of the marital cutoff date
• If a “shared interest” or “separate interest” approach is appropriate

401(k) participants may borrow against their own retirement account. If your spouse has an outstanding loan from the Wright & Filippis, Inc.. 401(k) Retirement Plan, the QDRO must clarify if:

• The loan balance is to be included in the account value used for division
• Loan repayment is solely the participant’s responsibility
• The alternate payee’s share will be unaffected by unpaid loans

If not addressed, loans can distort the intended 50/50 split and lead to compliance issues with the plan administrator.

The Wright & Filippis, Inc.. 401(k) Retirement Plan likely includes options for both traditional (pre-tax) and Roth (post-tax) contributions. These two account types must be handled separately in a QDRO. Roth 401(k) money has already been taxed, so the treatment upon withdrawal—and division—differs significantly from traditional funds.

Your QDRO must allocate Roth and non-Roth funds proportionately or specifically, depending on your state’s rules and the couple’s agreement.

Unlike pension plans governed by one central administrator, employer 401(k) plans like this one may follow unique review processes for QDROs, including optional pre-approval. Always contact the plan administrator before drafting the QDRO to request the Summary Plan Description (SPD), sample QDRO form, or procedure guide, even if some information was provided during the divorce.

The QDRO must specify the percentage or dollar amount of the retirement account to be allocated to the alternate payee. It should clearly state:

• Whether the award is based on a percentage or flat dollar value
• The valuation date (date of separation, date of divorce, or another agreed-upon date)
• Whether investment gains/losses between the valuation date and date of distribution are to be included

Once the QDRO is drafted and both parties agree to the terms, the order must be signed by a judge and submitted to the plan administrator for review. If there are any changes required for compliance, they must be resolved before execution. This process can take weeks or months if not handled properly.

That’s where we come in.