QDRO Calculation of Past Earnings

[RTK]

A DRO is received for a daily valuation/participant directed plan that awards the alternate payee $x as of 10-14-97 plus or minus a proportional share of earnings and losses from 10-14-97 to date. Because of numerous investment changes, nearly five years of contributions and a couple of two hardship withdrawals, there is no easy way to calculate these earnings and losses.

Any thoughts on the plan's obligation to make the calculation, or for that matter, to accept the DRO as a QDRO?

[rcline46]

This is not a fun task, but it can be done. Work from statement to statement. Slow, tedious, BILLABLE but not to participant!

[QDROphile]

If the plan is not set up to have these sorts of calculations performed for any other reason, I question whether the plan is obligated to go to such an effort. If not, the order is not qualified.

I think it is acceptable to make records available to the participant and alternate payee and let them figure it out and give a number to the plan.

A lot depends on the actual facts and circumstances.

[KIP KRAUS]

I agree with QDROphile. Let the participants and attorneys figure it out. I don’t see that the plan has any obligation to calculate the settlement amount in a 401(k) DRO.

Not only is it tedious it’s almost impossible to come up with a number that will satisfy both parties. Let them figure it out with all of the data provided to them, or let the attorneys figure it out.

[RTK]

Thanks for the responses. My preference is not to provide any information not readily available under the Plan's recordkeeping system because of the time and cost involved. It is good to know that I am not alone on this.

Also, as I think about this more, where QDRO costs are being charged to the plan as general plan expenses, I have a concern that charging these calculation costs to the plan could raise ERISA fiduciary and prohibited transaction issues if the calculation is something that the participant should be doing as part of the divorce. In that case, plan assets are arguably being used for the benefit of a party in interest. Moreover, in a defined contribution plan, these costs effect the benefits of the other participants.

On the other hand, ERISA and the Code states that a QDRO can specify the manner in which the amount of the alternate payee's award is to be determined. Nonetheless, it can be argued that this provision should be applied in the context of the fiduciary concerns noted above, and that a participant and alternate payee should not be able to use the provision to force the plan to incur extraordinary expenses.

Even where the plan sponsor pays expenses, I do not know many clients who are interested in paying additional plan administration fees.