Why Does Confusing a Defined Contribution Plan with a Defined Benefit Plan Cause Problems with QDROs?
In the QDRO for a defined benefit pension plan, never include language that provides the alternate payee with interest and investment income on her share of the participant’s benefits. Under a defined benefit pension plan, there are no individual accounts and hence no interest nor investment earnings posted to them. The only way to provide inflationary protection for the alternate payee is to utilize the coverture approach, which bases the alternate payee’s share of the benefits on the participant’s accrued benefit as of his date of retirement, not the date of divorce. Of course, a coverture fraction (years of service during marriage divided by total years of service) is then applied to the participant’s benefit at retirement.
