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We have had a participant sending us letters for months, warning us that we might receive a QDRO but we should not honor it because it will be bogus (in this case it is a child support QDRO and he claims and has provided some documentation suggesting he is current on child support).

Today we received the QDRO.  It is certified by a court and, under normal circumstances, we would approve and process it.

Questions:

1) should we tell the participant we received the QDRO and give him time to respond?

2) should we give the participant a copy of the QDRO (if not by default, should we if he asks for it)?

3) should we give him additional information, like the cover letter with the attorney's contact information (if not by default, should we if he asks for it)?

My preference is to honor the QDRO if it has been approved by the court, but we have had at least one QDRO submitted in error in the past that was processed (i.e. the account divided and paid out to the AP) and it turned into a big mess.  Our normal process is not to look outside the four corners of the QDRO document, but I want to avoid future headaches.

 

EDIT:  To add some context requested by some of the questions: 

  • "We" refers to the delegate of the Administrator tasked with approving QDROs.
  • I refer to the Order as a QDRO, because we have already determined that it satisfies the criteria necessary to be approved as Qualified.
  • Our process does call for notification of receipt of the Order, but not necessarily providing an actual copy of the Order, and definitely not for providing additional information, such as cover letters and attorney contact information.

The big questions revolve around how much additional information we should provide to the participant upon request, and whether we should give any credence to non-QDRO related information (such as the participant's objection), and if we need to give the Participant time to respond before proceeding.

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Who is "we"?

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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A few points the plan’s administrator might want its lawyer’s advice on:

Read carefully the administrator’s procedure for handling domestic-relations orders.

Ordinarily, a path is to follow the procedure (except to the extent that the procedure is contrary to ERISA’s title I, or contrary to the plan).

If the administrator does not follow the procedure, it might consider putting in writing (with its lawyer’s help) the administrator’s fiduciary reasoning for not following the procedure.

I heard in a recent ASPPA CE course that some administrators’ procedures call for not paying immediately on an order the administrator decided is a QDRO, instead waiting some number of days (for example, 30 or 60 days) selected to make it somewhat likely that the order is final and nonappealable.

This is not advice to anyone.

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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When a domestic relations order is determined to be qualified, notice is given.  That presents an objecting party an opportunity to file a claim for benefits under the plan's claims procedures.  One way to frame the claim in this case is that the participant (claimant) asserts that the participant is entitled to the benefits awarded instead to the alternate payee.  In this case, because the participant has been making so much noise already, evidently before the determination, the appropriate fiduciary (the "Administrator") could contact the participant in connection with the notice of determination and either 1) advise that the plan will treat the noise as a claim, but invite the participant to follow the claims procedures, at least to the extent of formalizing, clarifying, and supplementing the record as to exactly what the claim is, or 2) acknowledge the noise and advise that the matter should be taken up now under the claims procedure, and provide information about how to prosecute the claim (e.g. where to find or obtain the written the claims procedures).

Note that I am not asserting anything about the conduct of the consideration of the claim, such as whether or not the Administrator will look into the bona fides of the court action or simply consider if the formalities of qualification have been satisfied.  The claims procedure is the appropriate avenue for challenge/argument and the best way to rein in the participant.  Under the claims procedure, the participant is sooner or later entitled to see all the documents relevant to the consideration and decision, so once the participant is channeled, the Administrator should be liberal, which in the end will slam the door tightly shut.  Any payments under the QDRO usually should be suspended pending resolution, which should be pursued expeditiously.

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Just to be clear this is a DRO and it was a court that approved it?

 

I ask because I see on a regular basis state departments of family services make claims they are the legal right to get plans to pay child support and they make it look a lot like a DRO.  

Read very carefully it can be found they are not a DRO and in fact if one thinks about the language used is is actually kind of vague on the actual authority the state is claiming they have.   This is always about child support.   So any more my radar goes off when I hear child support and dispute.  

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On 5/13/2022 at 4:29 PM, Bill Presson said:

Well it's not a QDRO when the plan first gets it. The Plan Administrator has to determine it's Qualified and most plans have a process by which that happens including notifying all parties.

I recommend following those procedures.

Exactly. All Qs raised should be addressed in the QDRO procedure, which I believe is a requirement (to have a QDRO procedure).

Ed Snyder

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You are a fiduciary with respect to your Plan Participant.  

In Advisory Opinion No. 1999-13A , the DOL Division of Fiduciary Interpretation Office of Regulations and Interpretations  The full Opinion can be found at https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/advisory-opinions/1999-13a.  The first line of the Opinion states

        "This is in response to your request on behalf of the UAL Corporation (UAL) and United Air Lines, Inc. (United) for an advisory opinion. Specifically, you ask how a plan administrator should treat domestic relations orders the plan administrator has reason to believe are "sham" or "questionable in nature."

Later on the Opinion continues:

        "You have asked for an advisory opinion as to whether, and if so when, a plan administrator may investigate or question a domestic relations order submitted for review to determine whether it is a valid “domestic relations order” under State law for purposes of section 206(d)(3)(B) of ERISA."  

The response was as follows inter alia:

        "When a pension plan receives an order requiring that all or a part of the benefits payable with respect to a participant be paid to an alternate payee, the plan administrator must determine that the judgment, decree or order is a “domestic relations order” within the meaning of section 206(d)(3)(B)(ii) of ERISA — i.e., that it relates to the provision of child support, alimony payments, or marital property rights to a spouse, former spouse, child or other dependent of the participant and that it is made pursuant to State domestic relations law by a State authority with jurisdiction over such matters. Additionally, the plan administrator must determine that the order is qualified under the requirements of section 206(d)(3) of ERISA. It is the view of the Department that the plan administrator is not required by section 206(d)(3) or any other provision of Title I to review the correctness of a determination by a competent State authority pursuant to State domestic relations law that the parties are entitled to a judgment of divorce. See Advisory Opinion 92-17A (Aug. 21, 1992). Nevertheless, a plan administrator who has received a document purporting to be a domestic relations order must carry out his or her responsibilities under section 206(d)(3) in a manner consistent with the general fiduciary duties in part 4 of title I of ERISA."

        "For example, if the plan administrator has received evidence calling into question the validity of an order relating to marital property rights under State domestic relations law, the plan administrator is not free to ignore that information. Information indicating that an order was fraudulently obtained calls into question whether the order was issued pursuant to State domestic relations law, and therefore whether the order is a “domestic relations order” under section 206(d)(3)(C). When made aware of such evidence, the administrator must take reasonable steps to determine its credibility. If the administrator determines that the evidence is credible, the administrator must decide how best to resolve the question of the validity of the order without inappropriately spending plan assets or inappropriately involving the plan in the State domestic relations proceeding. The appropriate course of action will depend on the actual facts and circumstances of the particular case and may vary depending on the fiduciary’s exercise of discretion. However, in these circumstances, we note that appropriate action could include relaying the evidence of invalidity to the State court or agency that issued the order and informing the court or agency that its resolution of the matter may affect the administrator’s determination of whether the order is a QDRO under ERISA.5(5) The plan administrator’s ultimate treatment of the order could then be guided by the State court or agency’s response as to the validity of the order under State law. If, however, the administrator is unable to obtain a response from the court or agency within a reasonable time, the administrator may not independently determine that the order is not valid under State law and therefore is not a “domestic relations order” under section 206(d)(3)(C), but should rather proceed with the determination of whether the order is a QDRO." 

Unless you want to be a part of litigation I would take a few minutes and investigate what is going on.  Not all DROs signed by the judge are prima fascia QDROs.  Act in haste, repent at leisure.  

I would give him a copy of the QDRO and and give him a reasonable time to respond.  Freeze the account.  See what happens.  Technically you have 18 months to qualify the DRO.  
 

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Note: 

ERISA Section 206(d)(3)(G)(ii) requires sponsors of qualified retirement plans to maintain written procedures for the administration of qualified domestic relations orders (“QDROs”), and the Plan Administrator has an obligation to ensure that a domestic relations order received by the plan is “qualified” before making the payments or taking other actions contained in the order.  The written procedures will  can and should be drafted to reflect the terms of the Plans that the Employer/Sponsor maintains.  This will help avoid the time consuming, costly, and sometimes frustrating process of modifying a draft QDRO to make sure that it does not require a form of distribution (or confer other rights) not allowed under the Plan document.  Written procedures will: (i)  Support more efficient review and helps to ensure that the parties will get the basics right and this will expedite the approval process; (ii) Avoid unnecessary expense and frustration by cutting down on the number of drafts that must be exchanged and minimizing confusion and delay.

Here are some well done Plan Procedures.  Verizon QDRO Procedures.pdfVerizon QDRO Procedures.pdfVerizon QDRO Procedures.pdfVerizon QDRO Procedures.pdfVerizon QDRO Procedures.pdf

1420693188_ClarkConstructionQDROProcedures.pdf 1200466141_AllstateQDROProceduresMarch2019.pdf 728352269_UPS401(k)Procedures-2.pdf 262733983_WalmartQDROProcedures.pdf 269814975_PruDCStandardProcedures.pdf 1140691144_Northrop4-3-17byFidelity-1.pdf

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18 hours ago, fmsinc said:

"This is in response to your request on behalf of the UAL Corporation (UAL) and United Air Lines, Inc. (United) for an advisory opinion. Specifically, you ask how a plan administrator should treat domestic relations orders the plan administrator has reason to believe are "sham" or "questionable in nature."

Was this a case, or one of a number of cases, where airline pilots got divorced for the sole purpose of creating (Q)DROs that assigned 100% of their pension benefits to the AP "ex" which could be paid in an immediate lump sum? I thought that was Delta, but maybe multiple airlines. The case(s) I recall were that the divorces themselves were a sham ("paper" only, with no changes to living arrangements, personal finances, etc.) and hence the supposition for the (Q)DRO being a lie disqualified the DRO as invalid.

Agree that plan sponsors (with assistance from qualified service providers) should examine any "scheme" that appears to circumvent qualified plan rules.

Kenneth M. Prell, CEBS, ERPA

Vice President, BPAS Actuarial & Pension Services

kprell@bpas.com

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3 hours ago, CuseFan said:

Was this a case, or one of a number of cases, where airline pilots got divorced for the sole purpose of creating (Q)DROs that assigned 100% of their pension benefits to the AP "ex" which could be paid in an immediate lump sum? I thought that was Delta, but maybe multiple airlines.

The Search feature is very useful.  In this case, your search term is "continental".

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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Considering the extended time-frames for court processing of any matter, to the extent that a child-support QDRO would be applicable only to those payments that are specifically in arrears, once the DRO is deemed qualified, the Administrator should ascertain what the current balance of those specific payments is.  Whatever entity is overseeing the support arrangement should be able to provide that confirmation.  The participant and AP should be notified of the same, and provided a comment period under the Plan's claims process.

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