Divorce and the Women Helping Women 403(b) Plan: Understanding Your QDRO Options

Most 403(b) and 401(k) plans involve both employee salary deferrals and employer-matching contributions. In a QDRO, you can request a percentage or specific dollar amount of the account to be assigned to the alternate payee (usually the non-employee spouse). That includes both traditional and Roth contributions, if applicable.

The key is defining whether the division includes:

• Only employee contributions
• Employee contributions plus vested employer contributions
• All contributions regardless of vesting

Typically, the alternate payee is only entitled to the portion of the employer contributions that are vested. That brings us to our next point—vesting schedules.

If Cincinnati’s Women Helping Women 403(b) Plan uses a vesting schedule (most do), it means that not all employer contributions belong to the employee right away. They “vest” over time. For example, after 3 years of service, 60% may be vested; after 5 years, 100%.

QDROs can only assign the vested portion unless both parties agree in the divorce to divide the full balance (including non-vested amounts that may vest later). You need to be careful in the QDRO language—if you assume more is available than actually is vested, the alternate payee might end up with less than expected.

If the plan participant has taken a loan from the 403(b) balance, that reduces what’s available to divide. You’ll also need to determine how the loan is treated in the division:

• Will the alternate payee share the outstanding loan burden?
• Is the participant solely responsible?
• Is the loan excluded from division entirely?

For example, if the account is worth $100,000 but there’s a $20,000 loan, is it a 50% share of the gross $100,000 or the net $80,000? That distinction must be clear in the QDRO.

Many modern 403(b) plans include both traditional (pre-tax) and Roth (after-tax) subaccounts. These require different tax treatment. If the alternate payee receives a portion of Roth funds, she typically has to receive the distribution as Roth funds to maintain the tax benefits.

The QDRO must clearly spell out whether distributions are coming proportionately from both subaccounts, or whether only traditional or only Roth funds are being divided. Get this wrong, and you’re looking at unexpected tax liabilities.

The first step in preparing a QDRO for the Women Helping Women 403(b) Plan is to request the Summary Plan Description and model QDRO language, if available, from Cincinnati or the plan administrator. These should outline:

• How the plan processes QDROs
• Any restrictions on division (e.g., only vested amounts)
• Plan administrator contact info for future communication

QDROs must include very specific legal information, including:

• Plan Name (exactly as listed – Women Helping Women 403(b) Plan)
• Plan Number and EIN (must be obtained before submission)
• Names and addresses of both parties
• Social Security Numbers (provided on a confidential basis)
• The amount or portion of benefits to be awarded to the alternate payee
• How and when the benefits will be paid

Once drafted, QDROs should be submitted to the plan administrator for pre-approval (if allowed), followed by court signature. Once the court signs it, the final order is sent back to the administrator for implementation.

Each case is different. Check out our resource on factors that affect QDRO timelines.