North Carolina State Employee retirement plans differ greatly from their Federal counterparts. For instance, to divide a Department of State Treasurer retirement plan you will need to obtain a Domestic Relations Order (DRO), which is different from a Qualified Domestic Relations Order (QDRO). There are other key guidelines and principles to follow in the distribution of North Carolina State employee plans.
What is a Domestic Relations Order?
A Domestic Relations Order is considered the appropriate means of distributing funds without harsh tax-penalty assessments. The DRO is very similar to the QDRO in that it changes the plan’s beneficiary. Since neither state employee plans nor federal employee plans are subjected to the Employee Retirement Income Security Act (ERISA) guidelines, the difference between QDRO and DRO distributions lies in how they handle the change of a beneficiary. For example, if there is a plan that is subject to ERISA, and the owner would like to change the listed beneficiary, the plan owner’s spouse would be required to waive his or her potential rights in the benefits before the change could be made. However, because state employee plans are not subject to ERISA, the plan owner can make changes on the plan at any time without a waiver from his or her spouse, so long as there is no DRO in place.
The two most common plans that require a DRO are the Teachers and State Employee’s Retirement System (TSERS) and the Local Governmental Employees Retirement System (LGERS). However, there are other plans like the defined contribution plans, which also require DRO for the distribution of retirement assets. The difference between these types of plans is that the TSERS and LGERS plan are mandatory for employees operating in those fields. Defined contribution plans are completely voluntary. Another difference between these plans is that a defined contribution plan can be divided incident to divorce at any time. So, for example, you can begin collecting your share of the retirement benefits prior to your spouse retiring and receiving their share. However, no disbursements can be taken from a defined benefit plan until the plan owner retires. In other words, if your spouse has a defined benefit state retirement plan, you won’t receive your marital share until your spouse retires and begins collecting the benefit.
Another difference is that the recipient of a defined contribution plan has the choice whether to receive funds in a lump sum or in periodic payments.