Peter Gulia

Some administrators' QDRO procedures give the participant and each proposed alternate payee an opportunity to submit whatever information one wants the administrator to consider in evaluating whether an order submitted for treatment as a QDRO is a QDRO. In an ERISA litigation, some judges use a litigant's failure to present an argument at an administrative stage as support for dismissing a complaint. And if an argument is presented and the administrator renders a reasoned decision, a Federal court often defers to an administrator's decision (unless it was an abuse of discretion).

And to further support the reasoning about why the employer's hiring practice does not abuse the nondiscrimination provision, one might record the employer's independent business reason for selecting the particular worker. For example, someone who previously served as a regular worker in the business and, even when not working, has informal communications with its chief executive might have business knowledge or skills superior to those of others who are available to work on a temporary basis.

In nonrule guidance, the Labor department stated a view that a plan’s administrator need not question a domestic-relations court’s description of a person as the participant’s former spouse, even if the same court in the same proceeding decided that there was no marriage. ERISA Adv. Op. 92-17A (Aug. 21, 1992) https://www.dol.gov/sites/default/files/ebsa/employers-and-advisers/guidance/advisory-opinions/1992-17a.pdf If there is a proceeding about whether a plan’s administrator met or breached its responsibility to administer the plan, a court need not defer to (and might not be persuaded by) that interpretation. In addition to other steps in evaluating whether an order is a QDRO, a plan’s administrator might evaluate whether the order “relates to the provision of child support, alimony payments, or marital property rights to a spouse, former spouse, child, or other dependent of a participant[.]” ERISA § 206(d)(3)(B)(ii)(I). Please understand that I don’t express a view in either direction.

A Labor department rule distinguishes compensation for services, overhead, and direct expenses. 29 C.F.R. § 2550.408c-2 https://www.ecfr.gov/cgi-bin/text-idx?SID=24dba48a3e2a9983025132fa53bf4ce0&mc=true&node=se29.9.2550_1408c_62&rgn=div8 For a fiduciary who gets full-time pay from the employer, that rule allows only a “reimbursement of direct expenses properly and actually incurred and not otherwise reimbursed.” Even then, a fiduciary must not benefit herself or a person in which the fiduciary has an interest that could affect the exercise of the fiduciary’s best judgment as a fiduciary. And there can be more restraints than those.

At least one IRS-preapproved document appears to allow an involuntary cash-out if “the vested amount of an Account payable to a Participant or Beneficiary does not exceed $5,000 . . . at the time such individual becomes entitled to a distribution hereunder[.]” (Your plan's governing document might state different provisions.) But ERISA § 404(a)(1)(D) commands a plan’s fiduciary to follow the plan’s governing documents only insofar as the documents “are consistent with” ERISA’s title I. Even if one may rely on the Internal Revenue Service’s opinion letter for some assurance that a document is not contrary to Internal Revenue Code § 411, there is no assurance about anything for ERISA’s title I. ERISA § 203(e)(1) [29 U.S.C. §1053(e)(1)]: “If the present value of any nonforfeitable benefit with respect to a participant in a plan exceeds $5,000, the plan shall provide that such benefit may not be immediately distributed without the consent of the participant.” Consider also 26 C.F.R. § 1.411(a)-11(c)(3)(i): “Written consent of the participant is required before the commencement of the distribution of any portion of an accrued benefit if the present value of the nonforfeitable total accrued benefit is greater than the cash-out limit . . . on the date the distribution commences.” I recognize I have not answered your question. Perhaps others on BenefitsLink might steer you toward more knowledge than I have. And whatever you learn, you should evaluate with your lawyer's advice.

cpc0506, if you suggest the plan’s sponsor search for its written plan, consider these possibilities: An investment issuer or custodian might never have had possession of its customer’s written plan, nor an obligation to cause its account holder to make one. Some financial-services businesses might set up an account based on an applicant’s statements, with little checking on the accuracy of those statements. In my experience, even organizations with reasonable know-your-customer procedures might not detect that a customer lacks a written plan.

QDROphile, thank you for your helpful observations. All the people I'm thinking about are non-owners, and also have no way (beyond good work) to influence whether the employer continues the employment. So, it's about how much work means still-employed rather than retired.

If designed to require no more than IRC 401(a)(9) requires, a retirement plan (other than an IRA) need not compel a distribution to a participant who is not a 5% owner until after "the employee retires." Lacking a detailed rule about when for 401(a)(9) purposes an individual-account plan's participant "retires", many administrators treat severance-from-employment as the dividing line. But is there any range in which someone who remains on the employer's roster as an employee works so little that she should be treated as retired to invoke a required beginning date? For some examples, how about an employee who works: 20 days in one month (with no work in the other 11 months)? one day every month? a half-day every month? one day each quarter-year? a half-day each quarter-year? (All these describe real situations.) Is it good enough for 401(a)(9) purposes to treat an employee as not retired until a calendar year's W-2 wage report shows zero wages?

If a plan's fiduciary finds the expense of allocating an amount among participants overwhelms the amount of the settlement proceeds received, what instruction do you ask for? That the settlement proceeds be allocated to a plan-expenses account? If the plan does not already have a plan-expenses account, do you establish one? Are there other practical solutions?

If anyone is wondering, I have for many years expressed my belief that any person should be free to give legal advice, and to bear responsibility for her advice. And in an IRS TE/GE conference a few years ago, I suggested (in response to an IRS speaker’s question about what the IRS could do to help plans comply) that the Internal Revenue Service could assert power to treat not only submitters of IRS-preapproved documents but also their licensees’ workers who help users fill-in the documents as engaged in practice before the IRS, subjecting them to the Treasury department’s “Circular 230” rules for that practice. While not a complete response to the problem, it could be a way to push some document assemblers closer to the practices that commenters here advocate.

austin3515, thank you for a clear answer. Do other BenefitsLink mavens have concurring or differing views? My question is less about what current law does, and more about what you feel the responsibility ought to be. And would your answer change if, instead of a TPA’s custom handling, a recordkeeper assembles documents for 100,000 users?

So, here’s a related question: How much responsibility ought a third-party administrator, recordkeeper, or other service provider that’s not a law, accounting, or actuarial firm have for guiding a preapproved document’s user to adopt a plan that meets tax-qualification conditions and meets ERISA title I required provisions? Imagine this hypothetical situation. A TPA licenses from an unaffiliated business preapproved-documents software. The TPA’s employee drafts, for a user’s approval, an adoption agreement. The TPA’s employee fills-in information from the user, including about its intent to exclude an employee who works less than 1,600 hours. The software does not flag that exclusion as even a potential error. The customer asks no question, and the TPA says nothing, about whether the filled-in text might be inconsistent with IRC § 410(a) or ERISA § 202(a). (Assume the TPA knows the user has not asked any lawyer, accountant, or actuary to review anything.) Even if a user doesn’t ask, ought the TPA to have some responsibility for warning the user that its desired provision might be legally ineffective under ERISA sections 202(a) and 404(a)(1)(D), or might tax-disqualify the plan. Imagine there is a general warning—perhaps in the TPA’s service agreement, and usually on the preapproved document itself—that no one gives any assurance that the user has properly used the preapproved document to state a tax-qualified plan. Is such a general warning enough? Or ought a TPA be responsible to call attention to the specific point? Most important, what’s your reasoning for how much or how little responsibility the TPA ought to have? BenefitsLink mavens, what do you think?

Under the rules for a preapproved document, the IRS does not issue an opinion letter for “[p]lans that include blanks or fill-in provisions for the employer to complete, unless the provisions have parameters that preclude the employer from completing the provisions in a manner that could violate the qualification requirements[.] Rev. Proc. 2017-41 at § 6.03(17). Did the adoption-agreement form include an instruction to constrain what would be proper for the fill-in line the employer used?

kmhaab, is the plan stated as an "individually-designed plan" or using a preapproved document? If a preapproved document, was the provision you observed within the parameters the adoption-agreement form allows?

QDROphile, thanks. The $300 limit is in the statute, which a rule can't disobey. Side observation: Proposals for a selection I ran last year for a State's plan showed at least two competitors with QDRO-processing fees much higher than Oregon's limit.

Under Oregon Revised Statutes § 243.507, an Oregon State or local government employer’s eligible deferred compensation plan “shall” pay money or deliver a right to an alternate payee as provided by a domestic-relations order the plan’s administrator received. (Not all governmental plans provide for a non-participant following a domestic-relations order.) That statute leaves the rulemaking, including allocations of plan-administration expenses, to the Public Employees Retirement Board or, for a local plan, its administrator. Or. Rev. Stat. § 243.507(7); see also Or. Rev. Stat. §§ 243.472, 243.478. An Oregon PERS rule states: “The Deferred Compensation Program, when collecting administrative expenses and related costs, shall allocate those expenses and costs between the participant and the alternate payee on a pro-rata basis, based on the fraction of the account received by the participant or alternate payee. The Deferred Compensation Program may not charge the participant and alternate payee more than a combined total of $300.00 for administrative expenses and related costs incurred in obtaining data or making calculations.” Or. Admin. R. 459-050-0250(2) (“Fee for Administration of a Court Order”). To return to J Simmons’ query, I might focus an inquiry in this order: Does Internal Revenue Code § 457(b)-(g) preclude a QDRO-processing charge? No, if the charge is reasonable and does not otherwise result in an exclusive-benefit violation. Does the State’s enabling statute (a law that authorizes establishing and maintaining the plan) state a power or restriction? Does a rule or regulation implementing or interpreting the enabling statute state a power or restriction? Is the QDRO-processing charge logically consistent with the State’s statutory and common law of trusts? What powers or restrictions (if any) are stated in the plan’s governing documents? Information about “Using Plan Assets to Pay for Necessary Services” is in 457 Answer Book chapter 18—Fiduciary Duties to a Governmental Deferred Compensation Plan.

As always, Read the Fabulous Document. One imagines a plan could provide its administrator a power to supersede a claims administrator's decision. I once heard a knowledgeable employee-benefits lawyer debate, with herself, whether it would be good or bad for a plan's creator to provide such a power.

The proposed rule remains a proposed rule. Analyzing all comments, writing explanations about how an agency was or wasn’t persuaded to revise the proposed rule, and other work required under the Administrative Procedure Act and other Federal laws is, even for experienced agency lawyers, difficult and time-consuming work. The November 14, 2018 notice of proposed rulemaking about hardship distributions set January 14, 2019 as the due date for comments. Because the Treasury department then had a funding lapse through January 25, there have been only ten business days available for work on the comments. (And for the three lawyers assigned, this rulemaking is not the only project.)

Kevin C, thank you for the good learning.

To the extent the plan provides that forfeiture balances are allocated among participants' accounts or are used toward plan-administration expenses that would be charged against participants' accounts, does the Internal Revenue Service expect the plan's administrator to restore a portion of the forfeiture balance and correct the accounting to what would have resulted had the administrator correctly applied the plan's (before-amendment) provisions? Does the IRS ask for a showing that no one beyond the employer/administrator was harmed by the error?

ERISAgeek111, before your client assumes that the radiologist would not be eligible based on the health plan's 30-hours eligibility condition, might the plan's administrator consider how the employer or service recipient counts hours and consider whether the plan's measure is wider? While I don't know your client's facts, I can imagine that a medical professional who works only 24 hours in patient-facing medical procedures and care might work another six (or more) hours in activities that count as service for the relevant employer or service recipient. (Of course, much depends on the particular plan's provisions and definitions.)

I had a client for which the business owners believed (without any advice or information from me) that not allowing a QDRO distribution before the participant's earliest retirement age would improve the participant's leverage for a divorce negotiation, if ever there might be a divorce to negotiate. QDROphile, do you find that some domestic-relations lawyers write the QDRO and fill out the plan's claim form to specify as the alternate payee's address the address of the lawyer's office?

Kevin C, thank you for the further information, especially about a publisher that offers an adoption-agreement choice.

There has been an uptick in fraudsters impersonating regulators, not only EBSA and IRS but also banking, insurance, and securities regulators. It’s frequent enough that last year the Financial Industry Regulatory Authority sent securities broker-dealers an alert about the problem. And some fraudsters use techniques much smarter than those your client described to you. There are many ways to get rid of a faker while not offending a caller who is a legitimate government inquirer or investigator. Among them, one can respond that the person the to-be-examined fiduciary will assign to respond to the inquiry or investigation will initiate her own communication with the regulator. It’s unnecessary to ask for a telephone number or even a name because an experienced person already knows how to communicate with the regulator and get the status of a matter.

While I don't suggest it's likely, among the remaining possibilities is one Lou S. suggested in the first response: a plan with no asset beyond insurance contracts. ERISA section 403(b)(1)-(2) https://www.govinfo.gov/content/pkg/USCODE-2017-title29/html/USCODE-2017-title29-chap18-subchapI-subtitleB-part4-sec1103.htm