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QDRO Fee - Who Pays?


401(k)athryn

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What is your arraignment on fees?

They could be paid by the plan sponsor, the participant and/or alternate payee could pay them directly or it could be deducted from the participant's account assuming the proper disclosures have been made.

We typically bill the Plan Sponsor who then passes the cost on to the Participant who directs us to deduct it from his account and this is typically split between the Participant and Alternate Payee though the terms of the QDRO sometimes state who will be responsible for the fees.

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Why do you even bother get involved in this question? The plan sponsor and plan administrator have engaged you to do a service. They ought to pay you for that service. if they want to collect from the participant or alt payee (or some combo) that is their business.

The sponsors I work with have always accepted the idea they are going to pay us. Everyone has agreed this is what is meant by an "out of scope service" that is part of our engagement letter. The EA is clear they will pay time and expenses for requested out of scope services. We do enough QDRO reviews I can tell him the amount of time it will take to do a normal review and I let them know if something comes up that will make this beyond a normal review.

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1. What does this have to do with the Form 5500 filing?

2. If you are talking about a defined benefit plan, I don't think that either the participant or the alternate payee can be required to pay for the expense of administering the QDRO.

Always check with your actuary first!

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I am dismayed by the question, but I will spare you (sort of) a diatribe about what you should know if you are in the business of providing QDRO administrative services. Assuming this is a defined contribution plan:

1. Plan administration is an expense of the plan. QDRO processing is part of plan administration. Administrative service providers have contracts with the plan (although many inappropriately have contracts with the plan sponsor in its role as plan sponsor) that address payment for services.

2. Plan expenses can be paid in various ways, not all of which are appropriate. Expenses of QDRO administration can be paid: (a) As a general expense of the plan, allocated proportionately among all accounts. (b) As an expense of the affected account, allocated to that account.* © By the plan sponsor, either directly to the service provider or as a reimbursement to the plan. (d) Maybe other ways.

3. Payment of plan expenses should be addressed by plan terms. For example, if expenses related to an affected account are charged to the account, the plan should have provisions that say so. If QDRO expenses are charged to an account, the plan administrator can decide as a matter of written QDRO procedures if and how expenses can be allocated between participant and alternate payee and if options are allowed (e.g. it may be specified in the QDRO), the QDRO procedures should have a default in anticipation of the QDRO failing to specify. So what does the plan say? What do the QDRO procedures say?

4. As between the plan and the service provider, what does the service contract say? I think the the best arrangement is that the plan pays the service provider but the sponsor has the option to step in to cover the expense. Arrangements between the plan and the sponsor about payment/reimbursement are separate. the participant and alternate payee should have no relationship with he service provider (but see below). the allocation of the charges between the participant and alternate payee are handled within the plan and the service provider is indifferent; so is the plan sponsor if the plan sponsor ultimately pays the service provider.

Although it may be legal. I do not recommend having the participant or participant/alternate payee pay from outside the plan, either to the plan or to the service provider.

*The Department of Labor, in its long standing-tradition of getting everything QDRO wrong, used to assert that allocation of QDRO administration expenses to the affected account was inappropriate.

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Thank you everyone for your feedback. We have the QDRO fees come from the account of the Participant. This is stated in the fee addendum of the SPD, but not stated in the plan document itself. The participant fee disclosures state that the hourly fee will be deducted from the account, but do not get more specific. The timing of the fee deduction (before or after distribution is processed/calculated) and the QDRO language could determine whether the Payee is sharing in the cost at all. For example, if the QDRO is to be 50% of the vested balance at the time of distribution, one company may withhold this fee and then split the account to pay the Payee, which would be a sharing of the fee. Another might split the account and then withhold from the Payee's distribution before processing. A third might split the account and then deduct from the remaining balance. It sounds like all are acceptable.

ESOP Guy - If we just had the sponsor pay and let it get worked out separately, then the Participant would not have the option to pay from his plan account, which can be helpful, since these fees are often a few hundred dollars.

GMK - Interesting that you let the Participant and Payee decide who pays. One more thing to bicker about. It would make life less complicated if there was a set rule, but it seems as though that is not the case.

QDROphile - You are dismayed by my question, but then go on to confirm that there are many ways of handling the fee. I was hoping to get feedback on how others handle, which is what I got, so I stand by my question. Thanks for your thorough answer!

Also, I would not have a QDRO fee shared amongst all plan participants as a general expense, even if this is allowable. Just doesn't seem right. Most of our plans are individually directed, but even with a pooled account, I would apply to the participant's balance.

Thanks again everyone!

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For example, if the QDRO is to be 50% of the vested balance at the time of distribution, one company may withhold this fee and then split the account to pay the Payee, which would be a sharing of the fee. Another might split the account and then withhold from the Payee's distribution before processing. A third might split the account and then deduct from the remaining balance. It sounds like all are acceptable.

How was it done in the past? If never, have the plan administrator come up with a method and just stick to it.

QKA, QPA, CPC, ERPA

Two wrongs don't make a right, but three rights make a left.

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How was it done in the past? If never, have the plan administrator come up with a method and just stick to it.

It may be advisable to note that "plan administrator" means (or should mean) the Plan Administrator (capital letters are important here) as defined in the plan document and/or adoption agreement. It does not mean the TPA, although there is nothing wrong with the TPA being included in the discussion.

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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