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QRDO Quandary


ldr
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6 hours ago, ldr said:

Good morning to all!  Still no word from the participant. 

Larry Starr, you said:

"Procedure prior to receipt of order: The Plan will apply the following procedure prior to the Plan's receipt of a Domestic Relations Order.
1. Suspension of Participant distributions or loans. If the Administrator is on notice (verbal or written) regarding a pending domestic relations action (e.g., a divorce) and has a reasonable belief the Participant's account may become subject to a QDRO, the Administrator may suspend processing the Participant's distribution or loan requests pending resolution.
2. Removing hold on the account. After placing a hold on the account, the Administrator should notify the Participant of the hold on the account. In order to remove the hold, the Administrator should request the Participant to provide written confirmation that a court will not issue a QDRO with respect to the account; such as a property settlement agreement awarding the entire account to the Participant.

 

So, we have an OPTION to suspend processing, but are not required to do so.  We also have the option to suspend processing and if it is not resolved in some short period of time (say 60 days), we can lift the hold and do the distribution.

So you can (hopefully) do the same (assuming your QDRO procedure would allow); tell the parties that what you have been given so far does not meet the requirements of a QDRO and they have XX days to get the order to you, and if not received in that time, the hold will be lifted and distribution made to the participant."

This addresses our whole problem.  Our QDRO procedure, which came with our document software, has no such provisions.  It begins with "Promptly upon receipt of a domestic relations order, the Plan Administrator will....." And that's how the whole mess got started.  We had not been served with a domestic relations order, at least not anything we could recognize or identify as a DRO, and that rendered the rest of our procedure useless.

What you have is perfect.  

Larry, if I send our "canned" procedures document to Word as a rtf file, I can edit it.  May I add on your paragraphs to our procedure without being in violation of something or another?  Would you mind if I do that?  It will be of great help in the future.  Meanwhile I am going to contact the Nice Document Lady at our document software provider's office and suggest that they work on adding this feature to their "canned" document.

Thank you very much for this.

 

Email me at larrystarr@qpc-inc.com and I'll send you a copy of the whole order.  Attribution: it's from Relius (FIS), or SunGard or Corbel, or Pentabs or whatever you would like to call them.

Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC
President
Qualified Plan Consultants, Inc.
46 Daggett Drive
West Springfield, MA 01089
413-736-2066
larrystarr@qpc-inc.com

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1 hour ago, QDROphile said:

You will not appreciate this, but I recommend not adding a provision that requires judgment and discretion into a legal scheme that does not require that of the QDRO fiduciary (yes, you very well may be putting yourself into fiduciary status by what you are doing in QDRO processing).

You may consider this to be a rude insult, but if you know what you are doing, an objective (meaning no discretionary judgment) checklist approach is best. It minimizes exposure to fiduciary liability. If you are not deeply knowledgeable, then adding discretionary judgment is a bad idea.  It is better to have an objective checklist procedure and then seek advice when the strange event that does not fit arises.

From other traffic in this category, we know that Larry Starr’s clients generally involve Larry Starr in the QDRO processing, so it is safe because the fiduciary has an adviser with deep knowledge to provide protection to the fiduciary that has the duty to make discretionary judgments, voluntarily taken on by unnecessarily adding the provision to the written QDRO procedures.

 

I'm a bit confused over what language you are saying is discretionary.  Can you be specific? 

Yes, I am involved with QDRO processing for our clients; more than that, I actually draft most QDROs for participant's lawyers in our plans (maybe 85 - 95% of them).

Note: we are ALWAYS hired by an attorney to draft the order on their behalf which is sent to them to take to the judge for execution.  To work directly with the employee would, in our opinion, be the practice of law on a state level and my Enrolled Agent status would not provide any protection for a charge of unauthorized practice of law since the drafting of QDROs is clearly a state law issue.

Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC
President
Qualified Plan Consultants, Inc.
46 Daggett Drive
West Springfield, MA 01089
413-736-2066
larrystarr@qpc-inc.com

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ESOP Guy: 

The statute defines DRO and it is with reference to state domestic relations law, "including approval of a property settlement agreement".  The OP describes the problematic statement as "a one paragraph passing reference to the participant's retirement account in the Marital Settlement agreement".     We are missing information about whether or not the court approved the settlement agreement.   I also support the "it does not matter conclusions" no matter which of two paths are taken.  Even if the document is a DRO, it is not a QDRO, and because it is not on its face attempting to award an interest in the plan and does not direct the plan to do anything, this is not a failed order that requires a reasonable time to cure defects in qualification.  The order simply directs the participant to do something with proceeds of a distribution.  That may indirectly violate the applicable anti-assignment provisions of ERISA and the Code, but the plan can ignore it because the plan is not involved in any direction or action.  Of course, the plan should not cut any part of the distribution check to the former spouse as a courtesy.  The plan needs remain clear of the order.

You have seen that plan administration (whoever that involves) has decided to get into the personal matters of the participant.  While there are noble intentions, and probably the right understanding of what is better for the participant, I think it is a mistake for plan administration to get involved in reforming, supplementing, or fixing documentation that comes out of the state domestic relations proceeding. 

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Larry Starr:

Idr seems enamored of the following provision:

"1. Suspension of Participant distributions or loans. If the Administrator is on notice (verbal or written) regarding a pending domestic relations action (e.g., a divorce) and has a reasonable belief the Participant's account may become subject to a QDRO, the Administrator may suspend processing the Participant's distribution or loan requests pending resolution."

Although that reflects the DOL's approach, it is not legally required and I think it is dangerous.  Better to go with the objective trigger described in the statute of receipt of a DRO. If not, then define on what basis the fiduciary will form a reasonable belief that a QDRO is forthcoming, such as receipt of a DRO that is not intended to be a QDRO (place saver) or a draft DRO for review of form by the plan (good practice).  Otherwise, how about an angry phone call that says, "I am divorcing that SOB and I am going to get every penny of the retirement plan!" Is it reasonable to suspend a participant right to distribution based on that?

Also, if the suspension is imposed based on something other than a DRO, how long will the plan tolerate silence and  inaction?  And then what does the plan do when it starts to worry that the interference with participant rights was improvidently imposed because nothing has happened since?  All work, potential liability, and for what?

 

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I agree with @QDROphile on this one, I prefer simple and clearly defined over discretion, especially when the practitioner may not be the best suited to exercise that discretion.  

Suspension of Participant distributions or loans. If the Administrator is on notice (verbal or written) regarding a pending domestic relations action (e.g., a divorce) and has a reasonable belief the Participant's account may become subject to a QDRO, the Administrator may suspend processing the Participant's distribution or loan requests pending resolution.

What is notice? Phone call from the ex? water cooler gossip? Participant complaining in the lunchroom that s/he was served with divorce papers?  

What is reasonable belief that participants account may become subject to a QDRO?  You could probably say its reasonable to believe that an account may become subject to a QDRO in all divorces, because you just don't know.  What if the participant says its amicable and they will just leave with what is "theirs"?  is it still reasonable to expect a QDRO?

When do you pull the trigger for the "may suspend" part?  When do you decide not to suspend?

When is it no longer "pending resolution"?  Does a plan fiduciary have to review and "approve" of a property settlement to know that resolution is no longer pending?

 

Why not something that is clearly defined?  When you get X you do Y, otherwise Z!  

Just my opinion of course, we all have our preferences.

 

 

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Just curious (and without concurring with or dissenting from any view described above):

 

How many plans have a procedure in which there is no restraint on a participant’s account until the plan’s administrator has received a domestic-relations court’s order?

For those with such a procedure, how often does it happen that someone disappointed or frustrated by the lack of a restraint complains about it?

Of those, how many become a court proceeding, however meritless, that a plan’s administrator must spend at least some effort to defend?

 

Conversely:

How often does a participant complain that the plan’s administrator used a power to restrain the participant’s account when the administrator had not received a domestic-relations court’s order?  And how much grief or expense to explain or defend the plan’s administration?

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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If I, as the attorney for the Alternate Payee, send you, the Plan Administrator, a copy of the written Agreement of the parties, and/or a copy of the Judgment of the Absolute Divorce, what will you do?  Suppose in my cover letter I tell you that the terms of the Agreement were incorporated into the JAD and that the language of the Agreement or the JAD satisfies the requirements of  29 U.S.C. §1056(d)(3)(c) and may be considered to be a QDRO, but that I and opposing counsel are working on a QDRO - and I send you and unsigned draft of the QDRO and suggest that it will be forthcoming shortly.

I also suggest that you should take whatever actions are necessary to protect the Alternate Payee's interest from any actions by the Participant that would deprive the Alternate Payee of the benefits assigned in the Agreement/JAD/proposed QDRO, and that your failure to do so may involve you in a lawsuit for damages sustained by the Alternate Payee, breach of fiduciary interest, etc. 

First, I think the 18 months begins to run and the Plan has to make a determination of whether the Agreement or JAD in fact  constitute a QDRO.  Attached find a MSPB case dealing with a situation where the Former Spouse applied for a survivor annuity benefit under CSRS after the death of her former husband and without any COAP having ever been submitted to OPM before his death.  It is not an ERISA case but demonstrates the lengths to which judicial tribunals have gone to protect the rights of Former Spouses/Alternate Payees.  Before this case those of us who prepared CSRS and FERS Orders were of the opinion that if the COAP was not in OPM's hands prior to the death of the Employee, the Former Spouse would be SOL.  This is no longer true.  And keep in mind that under the Pension Protection Act of 2006 post mortem ERISA QDROs can be enforced despite not having existed prior to the death of the Participant. 

If I were a Plan Administrator, Files v. ExxonMobil Pension Plan, 428 F. 3d 478 (2005), that you can find at -

https://scholar.google.com/scholar_case?case=16381733883965097154&q=Files+v.+ExxonMobil+Pension+Plan,+428+F.+3d+478+&hl=en&lr=lang_en&as_sdt=20003&as_vis=1

would make me very nervous.   As in the Eagles song, Hotel California, "They stab it with their steely knives,  but they just can't kill the beast".

Second, I think that if I were advising my client I would say that under the circumstances, I would not take any action.  I would not want to see the client become the test case to determine the time and circumstances under which the Plan Administrator must put a freeze on the Participant's interest. 

I had a case recently where the parties were divorced in 2004.  The wife was to get a share of her ex-husband's defined contribution plan and a survivor annuity benefit.  No QDRO was ever submitted to the court.  She found out in 2016 that he was planning to retire and wrote a letter to the Plan Sponsor with a copy of the JAD asking about the amount of her share.  The Plan advised the Participant that they would not make any distributions to him unless and until they had a certified copy of a QDRO in hand.  This is not an uncommon occurrence.   

Petrimoulx case (1).pdf

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3 hours ago, fmsinc said:

Suppose in my cover letter I tell you that the terms of the Agreement were incorporated into the JAD and that the language of the Agreement or the JAD satisfies the requirements of  29 U.S.C. §1056(d)(3)(c) and may be considered to be a QDRO, but that I and opposing counsel are working on a QDRO - and I send you and unsigned draft of the QDRO and suggest that it will be forthcoming shortly.

I would give notice to all parties that a DRO has been received and will be reviewed to determine qualified status.  

 

3 hours ago, fmsinc said:

First, I think the 18 months begins to run and the Plan has to make a determination of whether the Agreement or JAD in fact  constitute a QDRO. 

100% agree.

 

3 hours ago, fmsinc said:

I also suggest that you should take whatever actions are necessary to protect the Alternate Payee's interest from any actions by the Participant that would deprive the Alternate Payee of the benefits assigned in the Agreement/JAD/proposed QDRO, and that your failure to do so may involve you in a lawsuit for damages sustained by the Alternate Payee, breach of fiduciary interest, etc. 

This is fairly easily distinguishable from simply knowing that P is going through a divorce, and that QDRO may or may not be issued at its conclusion.  

AP is not the ONLY* party with rights that should be protected.

*Edited for clarity.  I somehow left out the only in my last sentence.  Of course AP also has rights that need protecting.

 

 

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Good morning and greetings from the Wild Wild West!  Update:

Our participant was able to get a judge to sign and bless his home-made DRO into QDRO status yesterday.  Tomorrow he is bringing it in person to me and will also sign his own distribution form for his distribution of his half of the account and leave it with me so that I can process his distribution just as quickly as his ex-wife's portion is removed from the account and set up under her name, still under the plan.  She can then respond to the forms to get her part out of the plan at her leisure and it won't impede him.  

I surely didn't set out to start a controversial thread but I am really glad it happened because we see that not even the experts all agree with each other and not everyone has the same approach or the same procedure.  We are still learning from this thread.

Thank you to everyone who participated and is still participating.

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3 hours ago, fmsinc said:

If I, as the attorney for the Alternate Payee, send you, the Plan Administrator, a copy of the written Agreement of the parties, and/or a copy of the Judgment of the Absolute Divorce, what will you do?  Suppose in my cover letter I tell you that the terms of the Agreement were incorporated into the JAD and that the language of the Agreement or the JAD satisfies the requirements of  29 U.S.C. §1056(d)(3)(c) and may be considered to be a QDRO, but that I and opposing counsel are working on a QDRO - and I send you and unsigned draft of the QDRO and suggest that it will be forthcoming shortly.

Petrimoulx case (1).pdf 15.31 kB · 0 downloads

Look I am a simple CPA working for a TPA and all your words are nice and most likely are all legally corerct.

I have been working in the DC field since the early 1990s. 

I have never seen what you keep describing. 

What I get is a phone call from a client and they say:

Joe is saying he is getting divorced what should we do? 

I have never in my life gotten a letter that quotes 20 U.S.C.....

If we got a letter like you describe we would most likely tell the client to go talk to an attorney.  

Or we get a call that says we got this QDRO thing what do we do? 

We some times get a copy of a divorce decree but that is rare.

So to answer your question of what what would I do if I got such things you describe?  My answer is simple:  I will let you know when it happens but in a better part of 30 years it hasn't happened. yet. 

Call me cynical on this one. 

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5 minutes ago, ldr said:

Good morning and greetings from the Wild Wild West!  Update:

Our participant was able to get a judge to sign and bless his home-made DRO into QDRO status yesterday.  Tomorrow he is bringing it in person to me and will also sign his own distribution form for his distribution of his half of the account and leave it with me so that I can process his distribution just as quickly as his ex-wife's portion is removed from the account and set up under her name, still under the plan.  She can then respond to the forms to get her part out of the plan at her leisure and it won't impede him.  

I surely didn't set out to start a controversial thread but I am really glad it happened because we see that not even the experts all agree with each other and not everyone has the same approach or the same procedure.  We are still learning from this thread.

Thank you to everyone who participated and is still participating.

Glad to hear it is working out. 

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In response to "Golfing", the fiduciary owes an obligation to both the Participant and to the Alternate Payee as a beneficiary under 29 USC 1002(8).  Check out Sun Life Assurance Company v. Jackson, Case No. 3:14-cv-41, United States District Court, S.D. Ohio Western Division (September 19, 2018) available at - 
https://scholar.google.com/scholar_case?case=1364917141727116905&hl=en&lr=lang_en&as_sdt=20006&as_vis=1&oi=scholaralrt&hist=bY5nDLcAAAAJ:17102308171145443235:AAGBfm2dXJvPo0nUQKlDLqIPUBXxyXMitw
An excellent case dealing with the guidelines for an award of attorney fees against an ERISA qualified Plan to a participant, beneficiary or fiduciary.  Also, a good discussion of pre-judgment interest. 

Under 29 USC 1132(a)(1)(B) a participant or an alternate payee (who is classified as a beneficiary), can sue "to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan;"

Under 29 USC 1132(e)(1) it states that: 
"(e)Jurisdiction(1)Except for actions under subsection (a)(1)(B) of this section, the district courts of the United States shall have exclusive jurisdiction of civil actions under this subchapter brought by the Secretary or by a participant, beneficiary, fiduciary, or any person referred to in section 1021(f)(1) of this title. State courts of competent jurisdiction and district courts of the United States shall have concurrent jurisdiction of actions under paragraphs (1)(B) and (7) of subsection (a) of this section."

So I see the Plan as being a nice target for the litigious attorney.  

In my years of practice I only filed one lawsuit under this section, in the US District Court in Baltimore.  The Plan of a large corporation had fired an employee for embezzlement (I never asked and he never told me if he did it or not) and deducted $20,000 from his 401(k) to reimburse the Sponsor's loss.  I won the case, he received his $20k, and I was awarded $32,000 in legal fees.  Nice day at the office.     

"Do you feel lucky punk?" ....Clint Eastwood as Dirty Harry.  

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3 hours ago, Fiduciary Guidance Counsel said:

Just curious (and without concurring with or dissenting from any view described above):

 

How many plans have a procedure in which there is no restraint on a participant’s account until the plan’s administrator has received a domestic-relations court’s order?

 

For those with such a procedure, how often does it happen that someone disappointed or frustrated by the lack of a restraint complains about it?

 

Of those, how many become a court proceeding, however meritless, that a plan’s administrator must spend at least some effort to defend?

 

Conversely:

 

How often does a participant complain that the plan’s administrator used a power to restrain the participant’s account when the administrator had not received a domestic-relations court’s order?

 

And how much grief or expense to explain or defend the plan’s administration?

Question 1:  We have a mix that have and don't have a procedure that puts a hold if the plan thinks there is a QDRO coming or not.  (My sample is all ESOPs now)

Question 2:  I don't recall there ever being a major fight over the procedure to put a hold on an account as long as we can explain this has been the procedure for years and it has set time limits.  If you can convince people they are being treated the same as everyone else and you let them know this procedure is about making sure the plan has all the information so it can do things correctly most people seem fine with trying to be right. 

Question 3:  I don't think I have ever heard of a plan going to court on this issue.  

Question 4:  I don't ever recall it.

Question 5:  It doesn't seem to be high .

 

In fact the thing that gets me yelled at more than anything else is more unique to ESOPs.  Being as the stock price is set once a year we have a hard time explaining why they should write that the account balance be split as of an allocation date (most of the time a 12/31) and why ESOPs are so slow to pay in general.  People are used to 401(k) plans being able to split and pay a QDRO within days of the judge signing the thing.  An ESOP can still take months to know what the balance that needs to be split is and to split it. 

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fmsinc:

I think Golfing is squarely in the sunshine and cool breezes of ERISA compliance and very practical and efficient practice.   I would rephrase his sentence ever so slightly to,  "AP is not the only party with rights that should be protected."  That is something the DOL fails to see in the law.  And the DOL gave us completely useless regulations to guide us through the  thorny issue of dealing with post-death QDROS, especially under DB plans, after Congress directed the agency to give us regulations.

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1 hour ago, ldr said:

Good morning and greetings from the Wild Wild West!  Update:

Our participant was able to get a judge to sign and bless his home-made DRO into QDRO status yesterday.  Tomorrow he is bringing it in person to me and will also sign his own distribution form for his distribution of his half of the account and leave it with me so that I can process his distribution just as quickly as his ex-wife's portion is removed from the account and set up under her name, still under the plan.  She can then respond to the forms to get her part out of the plan at her leisure and it won't impede him.  

I surely didn't set out to start a controversial thread but I am really glad it happened because we see that not even the experts all agree with each other and not everyone has the same approach or the same procedure.  We are still learning from this thread.

Thank you to everyone who participated and is still participating.

Tell him it will take you 18 months to determine if the QDRO is "qualified".    Have a medic ready.  

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Update:  The account has been split according to the terms of the QDRO and the alternate payee now has an account under her own name and social security number.  Both parties have completed their respective distribution forms and by Thursday this account will be history.

Thank you again to all the participants in the thread.  

 

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