Legal Definitions - Retirement Equity Act of 1984

The Retirement Equity Act of 1984 is a federal law designed to protect the retirement benefits of spouses and former spouses, particularly in the event of divorce or the death of the primary plan participant.

Specifically, this Act:

• Requires private employer-sponsored pension plans to comply with court orders that divide retirement benefits between divorcing spouses.
• Permits the pension plan administrator to directly pay a portion of a worker's pension or survivor benefits to a former spouse. This direct payment is contingent upon the plan receiving a specific type of court order known as a Qualified Domestic Relations Order (QDRO), which meets federal requirements.

In essence, the Act ensures that a former spouse's rightful share of retirement benefits, as determined by a court, is secured and paid directly to them by the pension plan, rather than relying on the former spouse who earned the benefits to pass them on.

Here are some examples illustrating the application of the Retirement Equity Act of 1984:

• Example 1: Divorce and Direct Pension Payments

  Maria and Robert divorce after 25 years of marriage. During their marriage, Robert accumulated a substantial pension through his employer, "Global Tech Solutions." As part of their divorce settlement, the court issues a Qualified Domestic Relations Order (QDRO) stating that Maria is entitled to 40% of the pension benefits Robert accrued during their marriage.

  How it illustrates the Act: The Retirement Equity Act of 1984 *requires* Global Tech Solutions' pension plan to honor this QDRO. When Robert retires, the plan administrator will directly pay Maria her 40% share of the pension benefits, ensuring she receives her entitled portion without having to rely on Robert to transfer the funds to her.

• Example 2: Protecting Survivor Benefits for a Former Spouse

  Sarah and David divorced, and their QDRO specified that Sarah would receive a portion of David's pension as a survivor benefit if David passed away before her. Years later, David dies unexpectedly while still employed and before he began receiving his pension benefits.

  How it illustrates the Act: The Act ensures that the pension plan *must* comply with the QDRO's provision for survivor benefits. Even though David is deceased, Sarah, as the former spouse, will directly receive the specified survivor benefits from the pension plan, providing her with financial security as outlined in their divorce agreement.

• Example 3: Preventing Employer Resistance to Benefit Division

  When John and Emily divorced, a QDRO was issued entitling Emily to a share of John's pension from his employer, "Midwest Manufacturing Co." A few years later, Midwest Manufacturing Co. is acquired by a larger corporation that attempts to streamline its pension administration by initially resisting direct payments to former spouses, citing administrative complexity.

  How it illustrates the Act: The Retirement Equity Act of 1984 *mandates* that Midwest Manufacturing Co.'s pension plan (now under new ownership) *must* comply with the valid QDRO and pay Emily her entitled share directly. The Act prevents pension plans from refusing to honor valid court orders for pension division, ensuring former spouses receive their benefits regardless of the employer's administrative preferences or corporate changes.