Thousands of Raleigh residents are employed at Red Hat’s company headquarters in downtown Raleigh. The software giant offers great benefits and fun work environment for employees. Red Hat employees enjoy unique benefits in the form of environmental initiatives; Red Hat is Raleigh’s first bicycle-friendly business and celebrates and award winning World Environment Day. There are also impressive health and wellness and retirement benefits offered to employees.
Red Hat offers jobs in fields ranging from software engineering, operations, and sales, to human resources, finance and marketing. Because Red Hat offers employment to so many, here will offer insight in to how a Red Hat Employee’s Retirement will be distributed in the event of divorce.
If you and your spouse find yourself having to divide Red Hat employee’s retirement incident to divorce, you will want to make sure you know everything there is to know about the process. You’ll want to know what plans are available to Red Hat employees, the particulars of these plans, and what rules you must follow to divide them.
This article is intended to help both Red Hat employees curious about what will happen to their retirement in the event of divorce, and also to help the non-employee spouse understand the procedure and rules that must be followed in order to distribute the account incident to divorce.
What retirement benefits do Red Hat employees have access to?
Full disclosure of all assets and liabilities should be given during divorce proceedings, whether through formal or informal discovery. At a minimum, a spouse of a Red Hat employee should make sure they have balance and plan information for the following plan.
Red Hat offers a defined contribution 401(k) and Profit Sharing plan held at Fidelity NetBenefits. The owner of the 401(k) has forty-one investment plan options to chose from, and enjoys profit sharing that vests over time.
How do you divide the Red Hat 401(k) and Profit Sharing Plan?
In order to divide the Red Hat 401(k) and Profit Sharing Plan incident to divorce, a Qualified Domestic Relations Order (QDRO) must be obtained. A QDRO is necessary to divide all qualified employer plans that are subject to ERISA, the 401(k) Plus Plan is exactly that.
Pursuant to the QDRO, the 401(k) plan administrator will create a separate account for the spouse, and offer the spouse the same investment opportunities that the employee has access to. Or, the QDRO can provide for the spouse to take the funds and invest them in an IRA or other tax qualified account.
What is a QDRO?
A QDRO is a legal instrument that allows the plan owner to transfer rights to an alternate payee for the purposes of child support, spousal support, alimony, or property rights. With regard to property division incident to divorce, the QDRO allows for a person to assign rights in a retirement account to another person, without having to make a withdrawal and suffer a tax penalty.
Who drafts the QDRO?
Because of the complexity of these orders and the specific rules that must be followed, it is suggested that an attorney be the person responsible for drafting the QDRO. It is customary for the spouse who is receiving the funds to be the spouse responsible to pay the legal fees necessary to obtain the QDRO, and it will be that spouse’s attorney who actually creates and files the QDRO. While it is related to equitable distribution, obtaining a QDRO is essentially a separate legal process, and therefore it will take some time to draft and file the order and it can increase your legal fees.
Fidelity is the plan administrator of the Red Hat 401(k) and Profit Sharing Plans, and they offer a useful service for those needing to obtain a QDRO. By visiting their online QDRO center, a person can view the QDRO guidelines and procedures specific to the Red Hat 401(k) and Profit Sharing Plan and get assistance with creating a QDRO.
Using the Fidelity QDRO center for defined contribution plans such as this one, will result in fees that must be paid by either the employee spouse or the alternate payee. The fees range from $300 to $1800 per QDRO.
If the non-employee spouse decides to draft the QDRO using the Fidelity QDRO center, it is still advised that an attorney review the QDRO prior to submitting the order to the court.
Is there an alternative to the QDRO?
Because obtaining a QDRO can increase legal fees, often the non-employee spouse who is owed funds from the Red Hat 401(k) and Profit Sharing Plan may be inclined to accept another asset of comparable value in lieu of obtaining the QDRO to divide the 401(k). For instance, if a spouse is entitled to $50,000 from her husband’s Red Hat retirement plan, she might prefer to take a lump sum in that amount from another investment or bank account.
Or the spouse may even prefer to receive an asset, like a piece of land or a vehicle of comparable worth, rather than going through the process of obtaining a QDRO. The employee spouse may also prefer the aforementioned method as it leaves his retirement account in tact
What goes in the QDRO?
To get a better understanding of what a QDRO looks like, and what actually is included in the document, please look at the sample we have provided.
At a minimum, as mandated by ERISA, the QDRO will require:
- The name of the plan
- The name and last known mailing address of the participant
- The name and mailing address of the participant
- The name and mailing address of the alternate payee (spouse of employee)
- The amount to be paid
- The manner in which the payment is to be determined
- The number of payments or period to which the order applies
Where do I send the QDRO?
Once the QDRO has been drafted, either manually or through the Fidelity QDRO center, it will be submitted to the court for a judge’s signature. The person who submits the QDRO will receive a “court certified” or “true” copy of the order. The true copy will then be sent to the plan administrator at the following address:
Fidelity Investments
QDRO Administration Group
P.O. Box 770001
Cincinnati, OH 45277-0026
ATTN: Red Hat, Inc.
Additional questions about the retirement plan or the QDRO can either be directed to Fidelity through the online QDRO center, or by phone by calling Fidelity at 1-800-835-5097.
What happens next?
Once the Plan Administrator has the certified or true copy of the order it will be reviewed to ensure compliance with the plan requirements. If something is missing, a notification will be sent to all relevant parties and corrective measures will need to be taken.
Unlike other court orders, a party cannot simply modify the existing QDRO by making an appropriate motion. Rather, the party must draft a new QDRO, including a provision clearly stating that the new order amends or supersedes the previous QDRO. The new one will have to be submitted to the court, signed by the judge, and sent to the Plan Administrator, just as the original one was.
