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QDRO Processing Expenses for DB Plans


Guest mjz

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The recent Field Assistance Bulletin 2003-3 from the DOL says we can now charge individual participants for their QDRO processing - however, the bulletin only specifically references defined contribution plans. Can we now charge individual participants in defined plans for their own QDRO processing (presumably via a direct bill method outside the plan)?

thanks, mjz

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The Field Assistance bulletin references only DC plans because ERISA 3(34) permits adjustment of an individual account for expenses. No such adjustment is permitted for DB plans because the employer is obligated to pay the accrued benefits to the particpant. The Bulletin does note that ERISA places few constraints on how expenses are allocated among plan participants. " In this regard the same principles applicable to determining the method of allocating expenses among all participants, as discussed above, apply to determining the permissibility of allocating specific expenses to the account of an individual participant, rather than among all participants. " If a plan can bill for the cost of processing a loan or the cost of a benefit distribution, then the plan could bill a participant for the reasonable cost of preparing a QDRO providing the SPD discloses the charges. The problem will be collecting.

mjb

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Guest Harry O

I guess I never really thought about it before, but why can't a DB plan charge a participant for certain administrative expenses? It doesn't seem like there is a prohibition on not paying the accrued benefit since you can clearly charge employees for the cost of the QPSA. I'm not sure there is any express prohibition on applying the analysis of FSB 2003-3 to DB plans.

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I concluded the same thing as Harry and made a comment on DB plans when I wrote the following Client Action Bulletin:

http://www.milliman.com/eb/publications/cl...olxpnsalloc.pdf

Since then, I've had numerous attorneys and actuaries tell me I'm wrong, but they haven't been able to convince me (Adrien LaBombarde, who works for me, also agrees with my position and helped write the above article).

The main argument being used against me is the issue of definitely determinable benefits. However, if the participant knows ahead of time that $X will be deducted from their benefit for the cost of processing a QDRO, why isn't that definitely determinable?

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Rev. rule 74-385 states that the DDB rule requires that the participant's benefit can be determined under the plan formula without any discretion on the part of the employer. Therefore the fees should be fixed by the plan admin. If a db plan can charge for the cost of a loan applicaton or the cost of providing a benefit distribution then it can assess a reasonable charge for a QDRO.

mjb

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  • 4 weeks later...
Guest Kevin A. Wiggins

You can ask the participants to pay it outside the plan, but if they refuse you still have to make the QDRO determination. I ask the DOL this specific question and this was their specific, informal reply.

As far as billing a participant inside the plan, it doesn't smell right. You're not charging an account, you are reducing someone's defined benefit. Assessing an individual a particular expense changes the plan's pension formula for that individual.

I have not researched the issue, but have the following thoughts. First, if the plan doesn't allow for it now (and I've never seen any that do), then you can't cut back the participant's accrued benefit. Second, any amendment that would allow changing someone's benefit in the future is going to be a reduction in future benefit accrual. Yes, you can do that with a 204(h) notice if necessary. However, I think it is going to take some pretty sophisticated actuarial handywork to track everyone's accrued benefits to see if they past all relevant tests.

It sounds like many persons are following the line of thought the IBM court shot down when it said, basically, if you want an individual account plan, adopt a DC plan. Don't try and adopt a DB plan and make it look like a DC plan.

Finally, the FAB addresses DC plans only. The DOL's prior advisory opinion that rules a plan may not charge a participant the expense of a QDRO would still be binding (to the extent of any DOL advisory opinion) for a DB plan and would thereby preclude what you are suggesting.

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Ther is a fundimental question of whehter a particpant can be charged for the cost of individual serces such as QDROS and loans in DB plans which are not provided to other participants. Since the DOL revoked AO 94-32A ther is no basis to for concluding that particpants ion DB polans cnnot be charged for the cost of a QDRO. The question is how can the plan be paid. Why cant the plan administrator require that the participant pay the cost of the QDRO directly to the Plan outside of the accrued benefit before the QDRO is reviewed.

mjb

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Guest Kevin A. Wiggins

From what I've heard, the DOL's position is AOL 94-32 has been superceded only to the extent of the guidance in the FAB. For example, when I asked the DOL if the plan could request the participant to pay the cost of the QDRO out of pocket, the DOL said it could, but that if the participant declines the plan must still determine the QDRO. A reading of AOL 94-32 and the FAB together suggests that, if AOL 94-32 is revoked completely, then plan can require the participant to pay out of pocket.

The DOL responded, however, that the FAB supercedes AOL 94-32 only to the extent of the scope of the FAB. Since the scope of the FAB does not address DC plans, the DOL would say AOL 94-32 still applies to DB plans. It is certainly something the DOL could hang its hat on.

As to your specific question, ERISA mandates the plan administrator to make a QDRO determination. The plan administrator cannot refuse that mandate simply because the participant won't pony up out of pocket. The FAB only gives the plan fiduciary the ability to allocate the QDRO expense in a DC plan to the participant's individual account - nothing more (with regard to this matter). It does not allow the plan administrator to ignore ERISA's requirements.

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As noted in the FSA, ERISA contains no provisions specifically addressing how plan expenses may be allocated among participants and beneficaries. If the DOL lacked authority in AOL 94-32 to determine that DC plans subject to ERISA could not allocate the costs of QDROS and other admin expenses to participants, I dont see how it retains any authority to prevent the allocation of such costs to DB plan participants if there is no prohibition against imposing such charges in ERISA.

mjb

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  • 10 years later...

Since no participant in a DB plan, even a cash balance plan, has an account, the fees would be paid by the plan, which in turn means paid by the plan sponsor. Other wise you get a reduction in accrued benefits, and have violated 411(d) (6). Not a good place to be.

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  • 1 year later...

Rcline,

Correct. Nothing prevents a DB plan administrator from using plan assets to pay to process a QDRO, provided that the plan does not prohibit such use of plan assets and the expense is reasonable and necessary for the administration of the plan and the fiduciary is not otherwise breaching its fiduciary duties or engaging in a non-exempt PT by using the plan assets to pay the plan expenses.

But 411(d)(6) prevents a reduction in accrued benefits. The use of plan assets to pay plan expenses is no exception to 411(d)(6).

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  • 4 years later...

I am aware of a DB plan administrator that charges a QDRO review fee to the parties, but doesn't charge the fee from within the plan - avoiding the potential 411(d)(6) issue.  Instead, the parties must write a check for the fee before the administrator will review or administer the QDRO.  The DOL has informally addressed this specific plan/situation and decided this practice was OK.

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R U stating that the PA will refuse to review draft DRO if the participant doesn't pay?  What if it's not draft, will the PA refuse to implement it?

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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  • 3 months later...

The Plan refused to review a draft QDRO we submitted because we did not also include the review fee.  We are currently working with a client who may be willing to challenge the Plan on this.

To update/clarify the informal DOL guidance, it was a phone call with a regional office investigator.  She appeared to indicate (but not clearly) that the Plan could charge the review fee because it is not paid with Plan assets and is different from the situation addressed in previous DOL guidance, but went on to say that the Plan is legally obligated to review/process the QDRO even if the parties do not pay the fee.  The DOL opened cases on this matter (back in 2017) but has refused to further disclose to us anything related to those cases.

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1 hour ago, QDRO Group said:

The Plan refused to review a draft QDRO we submitted because we did not also include the review fee.  We are currently working with a client who may be willing to challenge the Plan on this.

To update/clarify the nformal DOL guidance, it was a phone call with a regional office investigator.  She appeared to indicate (but not clearly) that the Plan could charge the review fee because it is not paid with Plan assets and is different from the situation addressed in previous DOL guidance, but went on to say that the Plan is legally obligated to review/process the QDRO even if the parties do not pay the fee.  The DOL opened cases on this matter (back in 2017) but has refused to further disclose to us anything related to those cases.

Out of curiosity, what authority would the client rely on to force the plan to review a draft DRO?  

They would have obviously have to determine whether a DRO is qualified or not, but why would they be required to review draft DRO?  

 

 

 

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Yes the DOL is pretty useless (and often wrong) in this area, but plans are never required to review drafts; charging for a review of a draft is not a problem for the plan.  Charging for review of something the plan is legally required to do gets more interesting, legally.  However, plans are allowed to charge for expenses of administering an account and can allocate expenses reasonably.  For example,  someone chooses to invest in assets that are more costly to administer (e.g. private equity), the account can be charged the extraordinary extra out-of pocket expenses associated with the account activity. Not necessarily a perfect analogy, or dispositive of the question.

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