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QDRO in a 403(b) Plan


Guest Ron
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Who is responsible for determining the qualified status of a domestic relations order when it pertains to a 403(B) plan that is not subject to ERISA. Is it the custodian, or the plan's responsiblity?

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Guest PeterGulia

The "QDRO" concept supposes that there is a plan administrator available to decide. That sets up a logic gap when a court order refers to something that is not a plan and not part of a plan.

For a 403(B) arrangement that is not part of a plan, it's unclear whether there is a "plan administrator" and, if so, which person is the "plan administrator" (of the "plan" that doesn't exist). Frequently, an insurer or custodian will assert that the employer is, for purposes of deciding whether a domestic relations order is sufficient to instruct a payment to an individual other than the participant, the "plan administrator", and the employer will deny that it has that responsibility. (Some insurers and custodians are willing to respond to a domestic relations order.) A close reading of the relevant Treasury regulations suggests that the participant is the plan administrator [26 CFR 1.414(g)-1(B)(4)], but it seems unlikely that a court would allow a participant to determine that a court order is not a qualified domestic relations order.

Any person asked to respond to a court order that refers to a 403(B) arrangement that is not part of an ERISA plan should remember that if ERISA doesn't govern it also won't preempt state law.

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If ERISA does not apply, there is no such thing as a QDRO. So unless the employer has a contract with the 403(B) provider that obligates the employer to deal with divorce orders (shame on you if you do -- you may have just created an ERISA plan), the employer can simply refuse to play and let the divorce parties go after the provider under state law. This may not be the best approach for the employee compared to a QDRO, but the employer can decide how much it wants to get involved (hint: in most cases it does not).

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