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What is a QDRO?

Years of hard work and savings should pay off with a retirement account that financially supports you in your golden years. You trust that the safety net will provide you a soft landing as you move to the next phase of your life.

Divorce can make that net anything but safe.

Many high-asset divorces involve wealth accumulated in a 401(k). Like any other marital asset, it is subject to division. Upon an order from a judge, the spouse who built the retirement account is notified of the transfer. Only, the bad news often gets worse. In far too many cases, the withdrawal does not end with the court-ordered amount.

QDRO stands for qualified domestic relations order. The acronym carries a large and looming impact for baby boomers going through a divorce. They are already frustrated and exasperated over the uncertainty that comes with a life-changing event. Now, they face a retirement that is not as well funded.

QDRO represents a fee to transfer assets in a defined-contribution account. Those with plans as part of their employment usually do not feel the sting of additional fees. Those charges are often rolled into the plans’ costs and divided among co-workers.

Those who have third parties handling their 401(k) feel the sting of bloated participation charges. Ranging from $300 to $1,800 or more, many see it as a “cash-printing machine” as record keepers often charge amounts as they see fit to enhance profit margins.

Options to fight the fee are limited.

Industry analysis shows that QDRO fees are continuing their trend upward. A 2015 survey of 367 plan sponsors by Aon Hewitt revealed that 55 percent of participants were directly charged a QDRO transaction fee, an increase from 25 percent in 2009.

That additional revenue plan does not seem to be going towards customer service. Dealing with the larger players in the 401(k) industry usually means you will not speak to an actual person. For many, negotiation is not an option when dealing with an automated system.

They are forced to make a choice. Pay the amount or go without the QDRO.

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Goddard & Malmquist
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