DRO issued in mid-90's, notification now?

[John A]

A judge issued a DRO in the mid-90's. The spouse is just notifying the plan sponsor now, in 2001. The participant is still active in the plan. What action should the plan sponsor take when the DRO is received from the spouse?

[QDROphile]

Why would you do anything but process it normally? By the way, the plan sponsor does not do anything with DROs. DROs are handled by the plan administrator. If the plan sponsor is also the plan administrator, someone should consider a change

[david rigby]

Might be a problem is there was a distribution to active employee. However, plan administrator should be protected as long as you have documentation as to the date received.

As implied by QDROphile, the plan administrator is now on notice to determine if the DRO is a QDRO.

[Guest Harry O]

QDROphile wrote: "If the plan sponsor is also the plan administrator, someone should consider a change."

Why?

[QDROphile]

It is a bad idea to have the plan sponsor be the plan administrator for several reasons. One is that you want the settlor actions to be distinct from fiduciary actions. If you make the sponsor (settlor) a fiduciary, you blend or confuse the functions and actions. Settlors can do things that fiduciaries either can't or would agonize about. If the settlor is a fiduciary, it hampers the settlor's abilities. Another reason is that if the sponsor is a fiduciary, what live being is really responsible as a fiduciary? In a corporation, you put all the directors and officers at risk of fiduciary liability because corporations act by and through directors and officers. Do you want all your directors and officers to be named defendants in an ERISA lawsuit? It is better to identify exactly the persons who have fiduciary responsibility. Those persons know they are on the job and have to act accordingly and everyone else is then off the hook.

A better alternative is to name an Administrtive Committee as the plan administrator. Put persons on the Commitee who really have the job of plan administration.

[Steve72]

This thread has taken an interesting turn.

QDROphile:

But if you make the plan sponsor the fiduciary, at least you have protection for the officers and directors against individual liability through the existence of a corporate entity. Naming the committee, or an individual as the plan administrator does not afford such protection (unless you plan on incorporating the committee.....)

[Guest Harry O]

QDROphile-

1. Recent Supreme Court cases have made it very clear that the employer can act in both a settlor and fiduciary capacity. The Supremes have not been troubled that the employer can wear "two hats" and have examined the nature of the employer's acts to determine whether the action was taken in a fiduciary or settlor capacity. I don't see a lot additional protection here.

2. Your second point has some validity. But why does this create significantly greater protections than having the employer (as plan administrator) delegate certain authority to specified individuals and committees? Obviously the employer (through its BODs and officers) would have an obligation to delegate to competent individuals and ongoing obligation to oversee their activities, but this is just the type of oversight that most employers want to have with respect to these plans.

Steve72-

ERISA provides for personal liability for fiduciary violations.

[Steve72]

Horry O:

I'm aware of the personal liability provisions, but 409 requires that the individual be a fiduciary to be held personally liable.

I'm also aware of the functional definition of fiduciary, however in many the fiduciary violation cases which most often arise, the fiduciary involved would be the corporation.

[QDROphile]

Harry O:

1(a) Physical separation of the actors by function will help the actors appreciate what function they are exercising so they can exercise properly. The distinction is often confusing. The different hats help remind people that they are subject to different standards and concerns when exercising different functions. Also, why put yourself through the exercise of untangling a web of actions to characterize them later? Among other things, you may have blown attorney client privilege by not respecting separate functionsin the moment. I won't get further afield in a dialogue about attorney client privilege. It is too complex, murky and circumstantial for this forum.

1(B) You still have the question about who should be focused on plan administration (see 2 below). Naming the employer as the plan adminstrator is not specific. Your suggestion of more specific delegation would address the vagueness problem. How many employer/administrators have formal and specific delegations that are kept up to date?

2 I don't think that a Board of Directors has the same interest in oversight of plan administration that would be appropriate for a fiduciary that has delegated some or all of its fiduciary responsibility, and I think the directors in many companies are too far removed to properly monitor even if they theoretically wanted to. Oversight appropriate for the Board is achieved by officer reporting to the Board.

Steve72:

I wouldn't bet on the corporate veil for protection against an ERISA fiduciary claim. I would worry more about the ERISA shotgun.

[Kirk Maldonado]

Steve72:

You are legally correct, but as a practical matter, if someone sues the corporation, the directors will also get individually sued. The rule of thumb among litigators is sue everybody in sight, because if you don't name them and somebody else prevails in a lawsuit on similar grounds, the attorney could be charged with malpractice.

My experience is that outside directors find it abhorrent to get individually named in lawsuits involving benefit matters.

Accordingly, I subscribe to QDROPhile's viewpoint.

[IRC401]

Regardless of the theory, aren't there some practical differences depending on the size of the company? My experience has been that large companies have administrative committees that actually meet and make decisions. I've also seem plenty of plans with no functioning committees even though someone wrote a committee into the plan document. If the owners, officers, and directors are the same people, is there really any advantage to not naming the employer as the fiduciary?

[Guest Harry O]

I guess I must be missing something . . .

A fiduciary is anyone exercising discretionary authority with respect to the plan. A plan names the corporation as the plan administrator but Officer A, in fact, exercises all discretionary authority relating to plan administration. Why isn't Officer A subject to personal liability without regard to whether the corporation is named as the fiduciary?

In other words, the corporation only exercises discretionary authority through individuals. Why aren't those individuals exposed to personal liability regardless of the fact that they are officers of a corporation?

[MWeddell]

Returning to the original question, there's an 18-month retroactive limit in the law, but it refers to the payment date, not the date used for calculating the portion to be assigned to the alternate payee. For defined contribution plans (you did post this in the 401(k) bulletin board, so that's a fair assumption), this typically isn't a problem.

Let's be more specific. Suppose:

- DRO issued in mid-1990s.

- DRO uses a date in the mid-1990s to compute amount assigned to alternate payee.

- DRO defines payment date as occuring no earlier than when the plan accepts the order as a QDRO.

- Plan still has records from the mid-1990s as needed to determine the amount assigned to the alternate payee.

- Plan still has enough in participant's account to honor the assignment to the alternate payee (or DRO is drafted to never assign > the amount in the participant's account).

No reason here that the DRO could not be a QDRO.

[John A]

MWeddell: THANK YOU! I enjoyed the turn in the discussion, but I appreciate getting back to the original question.

However, what if the participant has terminated employment and received a lump sum prior to receiving (or being notified) of the DRO? Could the Plan Administrator then ignore the DRO, or automatically determine that it is not a QDRO but still go through the QDRO procedures, or could the DRO possibly still be a QDRO?

[david rigby]

John has a good point. Considering the situation he proposed, it seems that ignoring the DRO would be the worst thing the plan administrator could do. However, having the PA determine that it is not a QDRO (because it was delivered too late), and notify all parties of this conclusion, is an interesting option. Anyone know if that is possible? preferred?

[QDROphile]

pax:

It is not only possible, it is required. All domestic relations orders get responses and determination of qualification.

[MWeddell]

If the participant's account holds $0 because the participant has already received a complete lump sum distribution and the DRO requires $x to be paid to the alternate payee, then the order must be rejected as not meeting the QDRO definition. The formal reason is because the order would require the plan to provide increased benefits in violation of IRC 414(p)(3)(B) and the parallel provision in ERISA.

I agree that simply ignoring the order seems to violate IRC 414(p)(7) and is probably not good advice.