What does the acronym DRO stand for in relation to qualified plans?

The acronym DRO stands for Domestic Relations Order in relation to qualified plans. A Domestic Relations Order is a legal order typically issued by a state court that recognizes the rights of an alternate payee, often an ex-spouse or dependent, to receive a portion of the benefits from a qualified retirement plan. This order is crucial in the context of divorce or separation, as it allows for the equitable distribution of retirement assets without violating the plan's provisions regarding distribution.

In the context of 401(k) plans, a properly drafted DRO ensures that the retirement benefits are divided in compliance with both the plan rules and federal laws, particularly the Employee Retirement Income Security Act (ERISA). It's essential for administrators of qualified plans to understand the significance of a DRO because it impacts how and when benefits can be paid out to alternate payees while maintaining the plan's tax-advantaged status.

This clarity around the meaning and implications of a Domestic Relations Order is vital for ensuring compliance and protecting the interests of all parties involved in retirement benefit distribution.