ERISAlaw

In fact, here is the statement from the PA: "It appears the retirement assets of both parties are marital assets subject to equitable division by an adjudicating judge in a divorce proceeding. It is quite possible that either parties’ retirement assets could become subject to a QDRO. As such, no distributions should be made to either party until there is a modification to the standing order, or other such direction by the relevant court (e.g., a QDRO), which should specifically address allowing distributions and rollovers from the retirement plan accounts."

The PA has interpreted this provision as: if the PA hears about a divorce and has a reasonable belief that a participant's account MAY BE subject to a QDRO, then the PA can place an indefinite hold on the participant's account. In other words, in any divorce I suppose it is always within the realm of possibility that a party's account MAY BE subject to a QDRO, so the PA can place a hold on the account. Obviously, stretches the meaning of “may become subject” beyond reason. A proper reading suggests that a suspension is appropriate only if there is a reasonable belief that a QDRO is likely or imminent—not just a mere possibility. In other words, the PA should have some affirmative indication that a QDRO is being pursued (e.g., court filings, attorney communications that a QDRO will be sought and likely obtained on an account, etc.).

Below is an excerpt from some form QDRO Procedures (Relius), which is part of a Retirement Plan. I am trying to understand how this provision is compliant with ERISA: Below are the some of the problems that I see with this provision. Am I missing something? 1. Freezing a Participant’s Account Based on Mere Knowledge of a Divorce (Without a DRO) • ERISA’s QDRO Rules (ERISA § 206(d)(3)): ERISA’s anti-alienation provisions generally prohibit plans from restricting a participant’s rights to their benefits unless a valid DRO is received and under review for qualification as a QDRO. • DOL Advisory Opinion 2002-03A: The Department of Labor (DOL) has stated that a plan administrator may suspend distributions only when there is a pending domestic relations order that is being reviewed to determine whether it qualifies as a QDRO. • ERISA and DOL Guidance: Under ERISA § 206(d)(3) and Internal Revenue Code § 414(p), a plan administrator may place a temporary hold on distributions IF there is notice of a pending domestic relations order (DRO) that could become a qualified domestic relations order (QDRO). • The phrase "on notice (verbal or written)" is problematic. While a plan administrator may place a hold upon receipt of a DRO, simply having a "reasonable belief" that an account may be subject to a QDRO (without an actual DRO) could be seen as an impermissible restriction on a participant’s rights. • DOL guidance (Advisory Opinion 2002-03A) suggests that a temporary hold is allowed only if there is an actual pending domestic relations order and it is being reviewed for qualification as a QDRO. 2. Placing a Hold Based on "Reasonable Belief" That the Account "May Be" Subject to a DRO • Allows a hold solely because the plan hears of a pending divorce, even if no DRO exists. This creates an impermissible restriction on the participant’s rights because ERISA does not authorize a plan to preemptively place a hold based on speculation that a QDRO may be issued. • Problems with "Reasonable Belief" Standard: o The language allows the Plan Administrator to act based on a subjective belief that the account "may become" subject to a DRO. o This exceeds the authority provided under ERISA, as there is no legal basis to restrict a participant’s account based on speculation or indirect information. o It also creates potential fiduciary risks, as the administrator might inconsistently apply this standard or unfairly restrict a participant’s access to their benefits. 3. Problems With the Release of the Hold • Requiring a participant to provide written confirmation that a court will not issue a QDRO may go beyond ERISA’s requirements. • The burden is on the Plan Administrator to determine whether a QDRO exists, not on the participant to prove that a QDRO will not be issued. • A participant may not be able to obtain such confirmation, as courts do not typically issue "non-QDRO" determinations. • Instead of requiring a participant to provide a property settlement agreement or written confirmation, the Plan Administrator should instead remove the hold after a reasonable time period (e.g., 18 months per ERISA § 206(d)(3)(H)) unless an actual DRO is received. • The Plan Administrator could also release the hold if there is written confirmation from both parties that no DRO will be submitted.

Not sure if the rollover request got forwarded but the TPA said at one point that it wasn't going to forward the rollover request to the Plan Admin because of the TPA's determination that the automatic standing order prevented trading the account.

As divorces are common and they typically come with an automatic standing order, does this constitute a legal basis to freeze the account and prevent an otherwise standard rollover request? After separation of employment, does a participant (with a pending divorce) have a right to rollover (or at least have the right for a fiduciary to consider the rollover request)? Do you think that the TPA's "exercise of discretion," judgment, and interpretation in denying/refusing to forward a rollover request is a ministerial act or constitutes assuming the role of a fiduciary?

Grateful for Help on this Question: Can a Plan Administrator or TPA refuse to process a rollover request from a plan participant where the participant is a party to a pending divorce and an automatic standing order is in place? Background: 1. The participant wife is in a pending divorce that has been going on for some time. As is the case for all divorces in this jurisdiction, a standard form “Automatic Domestic Standing Order” went into effect when the divorce was filed. The Standing Order, by its terms, is binding only on the parties to the divorce. The Standing Order is not a QDRO, does not direct the plan fiduciaries to do or refrain from doing any act, and does not specifically mention the Plan. The closest thing that the Standing Order addresses regarding the 401(k) Plan is that it prohibits certain transfers or trading of property located in the county if such transactions are not in the ordinary course of business. 2. Husband and wife were previously employed by the same family business and are participants in 401(k) Plan. Husband is trustee of the Plan and sole owner of the Company that is the Plan administrator. Wife previously rolled over a portion of assets in Plan from prior employer and is 100% vested in her 401(k) account. As wife is no longer employed by Company, she filled out the proper forms with the TPA to initiate a direct rollover of 100% of her account to another 401(k) account set up at another institution. The TPA notified (but did not formally forward the rollover request to) the husband/trustee/administrator who objected. 3. The TPA stated that the distribution request cannot be honored citing the following: a. If the Plan Administrator is on notice (verbal or written) regarding a pending domestic relations action (e.g., a divorce) and has a reasonable belief that the participant’s account may become subject to a QDRO, the Plan Administrator may suspend processing the participant’s distribution or loan requests pending resolution. b. The Standing Order puts The Retirement Plan Company (TRPC) on notice that a divorce is pending and prevents both parties from trading any of the assets, which arguably is what would be done in a rollover distribution from the Plan. c. It appears the retirement assets of both parties are marital assets subject to equitable division by an adjudicating judge in a divorce proceeding. It is quite possible that either parties’ retirement assets could become subject to a QDRO. As such, no distributions should be made to either party until there is a modification to the standing order, or other such direction by the relevant court (e.g., a QDRO), which should specifically address allowing distributions and rollovers from the retirement plan accounts. Is the TPA taking on a fiduciary role in refusing to forward the rollover request to the Plan Administrator?