QDROs and Early Retirement

When a divorce court reaches retirement assets in a qualified plan, it issues a qualified domestic relations order (QDRO). This order may require the retirement plan to begin making benefit distributions to the divorced spouse (i.e., the alternate payee) at any time on or after the date on which the employee reaches the earliest retirement age under the plan, whether or not the employee elects early retirement.

This early retirement option is an exception to the general rule that prevents an alternate payee from receiving benefits to which the employee is not entitled. The order may give the alternate payee the election of receiving these early retirement benefits in any form available under the plan, except for a joint and survivor annuity with his or her subsequent spouse. (There are additional rules regarding survivor's benefits under a QDRO.)

If the order in your divorce proceedings provides that your ex-spouse is to receive benefits from your qualified retirement plan under the early retirement rule before you retire, the benefits will be calculated as if you had retired on the date on which your ex-spouse's benefits are to begin. Only the benefits actually accrued to that date are taken into account in determining your ex-spouse's payments. Any employer subsidy for early retirement is not taken into account. An employer subsidizes an early retirement benefit to the extent that the benefit provided is greater than the actuarial equivalent of a retirement benefit, based on the accrued benefit at the early retirement date, beginning at normal retirement age.

If the employee decides to take early retirement at some date after the earliest possible date and after the unsubsidized payments to the alternate payee, the QDRO may require recalculation of the benefits paid to the alternate payee to take into account the early retirement subsidy actually being paid.