Wisconsin Lawyer: 101 Divorce, QDROs, and Dividing Wisconsin Retirement System Accounts:

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    Divorce, QDROs, and Dividing Wisconsin Retirement System Accounts

    A domestic relations order, a court order that awards a percentage of a member’s Wisconsin Retirement System account or annuity to the member’s spouse, is filed with the Department of Employee Trust Funds when a marriage is terminated through a divorce, legal separation, or annulment. Learn how to effectively divide your clients’ retirement system benefits and who to turn to with questions and for help.

    David H. Nispel

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    A Wisconsin Retirement System (WRS) account is a valuable asset that is often a primary focus during the divorce of a WRS member. Every year, the Wisconsin Department of Employee Trust Funds (ETF) receives approximately 600 domestic relations orders (DROs) that request the division of WRS accounts. The ETF staff interact with lawyers, paralegals, pro se litigants, and judges while responding to these types of account inquiries. Such inquiries regarding WRS accounts come to the ETF as letters, emails, telephone calls, subpoenas duces tecum, subpoenas to appear at a deposition, or DROs. Lawyers often report they have had a frustrating experience getting a DRO approved by the ETF when working with a WRS client getting a divorce.

    Does the following sound familiar? A WRS member was getting divorced, and the lawyer subpoenaed the ETF for account information rather than contacting the ETF personally. After the subpoena was returned, the lawyer sent the ETF a standard DRO. The DRO had to be resubmitted to the ETF and corrected multiple times before finally receiving approval. What could have been a routine, timely processed request led to a frustrating experience.

    The ETF often receives inquiries and documents that do not comply with WRS statutes even though they may be acceptable for non-WRS accounts. This article provides guidance about the procedures for obtaining member account information, the effects of divorce on the division of WRS accounts, and the proper drafting of DROs that the ETF then accepts as qualified domestic relations orders (QDROs).

    The ETF divides member accounts according to Wis. Stat. chapter 40 (Public Employee Trust Fund). Of particular note are the following:

    • Wis. Stat. section 40.08 (1m), which identifies what information must be included in the order dividing the member’s WRS benefits;

    • Wis. Stat. section 40.02 (18f), which defines decree date; and

    • Wis. Stat. section 40.02 (48m), which provides the criteria for what constitutes a QDRO.

    Section ETF 20.35 of the Wisconsin Administrative Code specifies how the ETF will apply a valid QDRO to the member’s account or annuity and respond to an order that is not a valid QDRO.

    Obtaining Account Information

    The ETF staff understand that member account information is necessary for a property settlement during a divorce. Obtaining WRS account information can be done easily and at no cost when Wis. Stat. chapter 40 procedures are followed. Wis. Stat. section 40.07(1) provides that, “Notwithstanding any other statutory provision, individual personal information in the records of the department is not a public record and shall not be disclosed except as provided in this section.”

    Nonmedical records can be disclosed if the requirements set forth in Wis. Stat. section 40.07(1m) are satisfied. A lawyer should not send the ETF a subpoena or other legal document to obtain WRS account information. Those documents are unnecessary and will be rejected.

    A QDRO must divide the WRS member’s entire WRS account or annuity by awarding a percentage to the spouse.

    Account information can be accessed easily when a lawyer provides the ETF with an authorization form (ET-7406) signed by the member whose record contains the requested information. The ETF staff provide assistance by telephone or email. Staff will explain which forms are needed to obtain an account summary or pension verification to complete the QDRO process, as well as how to obtain those forms. The ETF website is also a valuable tool that can be used to obtain necessary information. Contact information and resources are included in an accompanying sidebar.

    article authors

    David H. Nispel, (back row, left) U.W. 1984, is general counsel with the Department of Employee Trust Funds’ (ETF’s) office of legal services. The contributing authors are long-time employees of the ETF who have worked extensively with WRS members on a variety of issues. Roger Fletcher is member services bureau director with the division of retirement services.

    From left, front row: Vickie Baker is a policy advisor in ombudsperson services with the office of legal services. Pam Licht is trust fund supervisor with the division of retirement services. Julie Keal, U.W. 1987, is a policy advisor with the division of retirement services.

    Domestic Relations Orders

    A DRO is a court order that awards a percentage of a member’s WRS account or annuity to the member’s spouse. The DRO is filed with the ETF when a marriage is terminated through a divorce, legal separation, or annulment. The original DRO or a certified copy must be provided to the ETF; a photocopy of the DRO is not acceptable. If the DRO contains language that is prohibited by Wis. Stat. chapter 40 or does not meet all the statutory requirements, the ETF will reject the DRO and return it to the court or the party’s lawyer. Information explaining necessary corrections will accompany the rejected order.

    To help ensure that a DRO is accepted by the ETF, and becomes a QDRO, lawyers should use one of the following ETF forms, both of which are available on the ETF website (etf.wi.gov):

    Reasons That the ETF Rejects Some Domestic Relations Orders

    There are several circumstances in which the ETF will reject a DRO. (See Figure 1.) The most common reasons are:

    • Incorrect information (such as birth dates, Social Security numbers, or date of divorce) is provided or this information is missing from the form;

    • Information such as an original signature or court stamp that certifies the document is missing on the order filed with the ETF; or

    • The ETF form is altered (do not cross off text or change the form).

    The Other category includes the following:

    • The order incorrectly divides the account by including a dollar amount or decimal figure instead of a percentage;

    • The spouse is awarded more than 50 percent of the account;

    • The account is divided before the divorce date; and

    •   A photocopy or draft is submitted to the ETF.

    After the ETF has confirmed that the DRO satisfies all requirements set forth in Wis. Stat. chapter 40, the DRO becomes a QDRO.

    Figure 1

    Common Reasons DROs are Rejected

    figure 1

    Constructing Valid QDROs

    The QDRO, as defined in Wis. Stat. section 40.02(48m), applies to a member’s WRS account and is based on the service, earnings, and contributions pertaining to WRS-covered employment. The effects that a QDRO has on a WRS account and the benefits that are available to the spouse differ depending on whether the WRS member has an active account or an inactive account or is receiving an annuity.

    An active account is that of a member who is currently employed in a position covered by the WRS. An inactive account exists when the WRS member has ceased working in a WRS-covered position but has not taken a retirement benefit or a separation benefit. A WRS member who is retired can receive a monthly annuity check if the person meets retirement criteria. A retiree also can receive a disability annuity payment if he or she meets the requirements of Wis. Stat. section 40.63. If the WRS member is entitled to benefits as a beneficiary of a different WRS member’s account, the QDRO does not apply to the other member’s account.

    A QDRO must divide the WRS member’s entire WRS account or annuity by awarding a percentage to the spouse. A DRO that requests a specific dollar amount will be rejected. The portion of the member’s account or annuity that is awarded to the spouse cannot exceed 50 percent of the total value of the account or annuity on the decree date. Wis. Stat. section 40.02(18f) defines decree date as “the first day of the month in which a participant’s marriage is terminated by a court order under a final judgment, decree or order.” There is no right of survivorship after an account is split.

    A lawyer should not send the ETF a subpoena or other legal document to obtain WRS account information. Those documents are unnecessary and will be rejected.

    A QDRO must contain the following information:

    • The member’s correct name, date of birth, current address, and Social Security number;

    • The spouse’s correct name, date of birth, current address, and Social Security number;

    • The WRS’s name; and

    • The decree date (which must be provided as the date to be used for dividing the member’s account or annuity).

    A QDRO also must require the member to certify whether or not active duty military service is applicable (using form ET-4322, Military Service Certification and Affidavit – QDRO); and must require the member’s employer to submit to the ETF a report of the member’s WRS earnings, service, and contributions as of the first day of the month of the decree.

    The ETF reserves the right to invalidate an otherwise valid QDRO if new information is received that is relevant to the order. Such information includes the death of the member or spouse before the date that the ETF receives the QDRO.

    When all criteria in Wis. Stat. chapter 40 have been met, a DRO will become a QDRO and the WRS account division can be completed. If each party has the option to elect to receive monthly annuity payments, a deposit will be made into each party’s individual account.

    What is the Department of Employee Trust Funds?

    The Department of Employee Trust Funds (ETF) is the Wisconsin state agency that administers benefit programs for state and most local government employers. There are more than 1,500 employers and 596,000 current and former employees in the Wisconsin Retirement System (WRS). Federal law, state statutes, state administrative code, and the common law of fiduciaries regulate the ETF’s programs. An independent governing board oversees the agency. The ETF administers the WRS according to Wis. Stat. chapter 40 (Public Employee Trust Fund), and has a fiduciary responsibility to administer the trust solely for the benefit of WRS participants.

    The WRS is a qualified governmental plan under I.R.C. §§ 401(a) and 414(d). As a 401(a) plan, the WRS is not subject to the federal Employee Retirement Income Security Act (ERISA) or the Retirement Equity Act of 1984. The I.R.C. provides that the division of an account by a qualified domestic relations order (QDRO) issued in connection with a governmental plan is governed by state law, not federal law.

    Use the ETF Website for Forms, Publication, and Webinars

    The ETF website provides useful forms and publications as well as informative webinars. The ETF staff recommend reviewing the ETF brochure titled How Divorce Can Affect Your WRS Benefits (ET-4925). This valuable resource provides information on how to navigate the QDRO process successfully within WRS rules. Please call the ETF before submitting a DRO that does not comply with WRS requirements. The ETF can often find a solution that makes the DRO acceptable and that will still meet the needs of all the individuals involved in this process. Such a call can prevent the frustration of receiving a rejected DRO.

    Locating Forms Mentioned in the Article

    Contact Information for the ETF

    Toll-free telephone: (877) 533-5020

    Local telephone: (608) 266-3285 (hearing-impaired individuals can use the Telephone Relay Service)

    Fax: (608) 267-4549

    Secure email address: To send the ETF a secure email, go to the ETF website: etf.wi.gov. Click on the “Contact ETF” button on the left side of the home-page. You will need to register for the secure site to send a secure email to ETF.

    Mailing address: Wisconsin Department of Employee Trust Funds, P.O. Box 7931, Madison, WI 53707-7931

    Building address: Wisconsin Department of Employee Trust Funds, 801 W. Badger Rd., Madison, WI 53713

    A Former Spouse Becomes an Alternate Payee

    An “alternate payee” is the former spouse of a WRS member. The definition of an alternate payee is found in Wis. Stat. section 40.02(2m). A QDRO awards an alternate payee a percentage of the member’s WRS account balance based on the decree date. The appropriate benefits are transferred from the WRS member’s account into a new separate account that is created for the alternate payee. Information regarding calculating benefits for an alternate payee is found in Wis. Stat. section 40.24.

    The WRS member’s future benefits are reduced by the value of the benefit percentage that was awarded to the alternate payee and by the corresponding years of service.After the WRS account is divided, the WRS member and the alternate payee each receive a “Statement of Account after Division.” The account statement explains that the member has no rights to the portion of the account that is awarded to the alternate payee.

    Until the WRS member reaches his or her minimum retirement age and is vested, the alternate payee is eligible only for a separation benefit, also called a lump-sum payment. That benefit includes only the employee contributions and interest that accrued in the account. Once the member reaches minimum retirement age and is vested, the alternate payee is eligible to apply for a retirement benefit based on both the employee’s and the employer’s contributions. The rules for lump-sum payments are at Wis. Stat. section 40.25.

    Beneficiary Designations

    Some WRS members and alternate payees have accounts with death benefits. After the ETF accepts a QDRO, both the WRS member and the alternate payee should file new beneficiary-designation forms with the ETF. A beneficiary designation does not automatically change after a divorce. If a member has named a spouse as the primary beneficiary and the marriage is terminated, the former spouse remains the member’s named beneficiary.

    A new beneficiary-designation form should be filed with the ETF to change the name of the person who will receive the benefit after death. Beneficiary is defined in Wis. Stat. section 40.02(8). The member and the alternate payee should complete a Beneficiary Designation form, (ET-2320). Additional information regarding beneficiary designations is at Wis. Stat. section 40.74. If a beneficiary designation is not on file with the ETF, survivor benefits are paid based on the statutory standard sequence under Wis. Stat. section 40.02(8)(a)2.

    Conclusion

    Using this information, lawyers can efficiently prepare and file a QDRO in the most timely and cost-effective manner when working with WRS members. WRS accounts are unique financial accounts, and it is important that everyone involved understand how to navigate the complexities of the WRS.

    The ETF staff recognize that it is frustrating when requests for information are rejected, orders are found invalid, and account divisions do not turn out as expected. Figure 1 in this article shows that 62 percent of the DROs that the ETF returns are sent back because they are missing an original signature or are not certified by the court, as well as DROs that are not complete or have incorrect information. An additional 17 percent of the DROs the ETF receives are returned because the ETF form is altered in some way.

    The information here will help avoid these frustrations and other key pitfalls during and after a divorce. In making this article available for use in the legal community, the ETF staff are also serving the needs of WRS members and alternate payees because lawyers, paralegals, pro se litigants, and judges have the information and resources needed to successfully complete the WRS QDRO process.