Most divorced couples aren’t splitting retirement savings, thanks to red tape, fees, confusion
GAO report finds divorcing couples -- and their lawyers -- don't understand Qualified Domestic Relations Orders. Could the DOL do more to help?
Many people going through a divorce could claim part of their former spouse’s retirement benefits — but they aren’t, according to a July 2020 report on retirement security by the U.S. Government Accountability Office.
Though divorce has struck more than a third of adults over 50, the study found very few have made use of a legal process meant to help with the division of benefits. And even when they do, many reportedly fall at administrative hurdles.
The GAO asked an array of large retirement plan sponsors about the use of Qualified Domestic Relations Orders, or QDROs, which allow a former spouse to receive a certain portion of their ex’s retirement plan. To move forward, the orders must be qualified by a plan administrator, who decides whether it adheres to certain procedures before distributing payments.
The Department of Labor doesn’t collect any national data on how many orders are reviewed for qualification, according to the report, which said no federal agencies appear to be compiling any related information either.
But the respondents said very few of their more than 650,000 plan participants had sought QDROs. The Pension Benefit Guaranty Corporation, for instance, reported qualifying about 16,000 QDROs over 10 years, according to the report, which said it administered benefits to about 1.6 million people.
The Health and Retirement Study also found that roughly 18% of its divorced or separated participants had lost at least part of a claim to their former spouse’s pension between 2008 and 2016. The majority belonged to “historically advantaged groups” such as non-Hispanic Whites, according to the report, which concluded that was because they were more likely to have retirement plans.
Why isn’t this avenue of relief more widely used? Experts pointed to a general lack of awareness among couples, many of whom spend time and money filing QDROs that are doomed to fail without extra help from the Department of Labor.
And though the Department of Labor doesn’t have data on fees, QDROs can be pricey, according to the report. It said experts cited fluctuating fees for help preparing draft orders and additional fees from plan or service providers to review them. Retirement plans or their recordkeepers tend to charge between $300 and $600 for QDRO qualifications, according to the experts, who said fees can sometimes be more like $1,200.
That’s a problem for low-income or disadvantaged groups — many of whom also face other hurdles, such as a lack of expertise without a lawyer, confusion about what QDROs can help with and about what retirement benefits their former spouse has.
And of the divorcing couples that did pass these hurdles, plans and recordkeepers reported that many were rejected because of lack of basic information. Meanwhile, experts said that even some lawyers don’t understand all the requirements necessary to get an order qualified.
And though the Department of Labor has published FAQs and holds educational seminars on the process, the report said it “may be missing opportunities.” Experts suggested its informational material might be too out of reach and jargon-laced for divorcing couples to actually make use of.
There are ways to combat that, according to the GAO. It has recommended that the Department of Labor take extra steps to spread awareness about QDROs — perhaps by creating a user-friendly checklist of documents and information needed, and by working more closely with QDRO practitioners — and suggested it find new ways to collect information about QDRO fees, possibly by adding it to existing forms. The Department of Labor generally agreed with the suggestions, the report said.
Without it, experts worry that swathes of people will continue to miss out.
“With a substantial increase in the divorce rate among those aged 50 and over and roughly two million individuals divorcing in the United States each year, it is increasingly important that individuals are informed about their ability to seek a portion of their spouse’s retirement upon divorce,” the report said. “When divorce occurs at older ages, the implications for the divorcing parties’ financial security are even greater.”
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