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QDRO Policy provisions


Guest Gordy

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Can a plan QDRO policy require that the QDRO specify the amount or percent that is to be distributed. The regs add a provision " ...or how the percent or amount is to be determined". Some of the formulas are complicated with premarriage benefits, post seperation deferrals, proration of income, and the qdro is frequently prepared two years after separation, etc. They will take a lot of work and are subject to complaints by both parties.

If you can't require a specific amount or % by policy-we can scare 'em with fees and maybe they'll come up with the number? Do you provide copies of the calculations and require the participant and alt payee to sign off along with their resqective attorneys?

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I am not aware of any supporting authority, but I think it is a matter of degree. In the extreme, the order would fail under section 414(p)(3)(A) because it requires the plan to do something that the plan is not designed or equipped to do. Example: if the plan has to obtain or derive data that is not necessary for operations of the plan and that the plan does not otherwise have reasonably available to it. But I don't think this would cover reasonable mathematical operations on data that the plan has available to it. You and I might differ on what we think is reasonable.

I suppose the plan could charge reasonable amounts for the extra efforts to deal with the unusually exotic divisions, but you will have a hard time defining them and drawing the line. As you know, the plan can charge for all processing to avoid having to choose which orders qualify for the deterrent charges. Perhaps you can set a base amount of processing cost that will not be passed on and then charge for costs to the extent they exceed the base.

I think a plan should report to the participant and alternate payee the numerical results of the calculations prescibed by the order and a description of any interpretations made as part of the calculations. The results and interpreations should be included in the notice that the order is qualified, if possible. Upon request, the workup should be provided to the parties. If the parties don't like the result, they can appeal under the appropriate claims procedures. The plan should be rather intolerant of bickering. If the parties present a reasonable and united interpretation and recalculation of th result, the plan should probably accept it and "correct" its interpretation or calculation. However, if the parties want to fight about the elements and methodology, the plan should rule that the order is ambiguous and determine that the plan is therefore not qualified unless the plan is persuaded that it was wrong in its initial interpretation or calculation. If the plan decides it was wrong, then it should come up with a new answer and stick with it. Fights over methodology and elements should be conducted in the state court as a matter of fixing the terms of the order.

I don't think the plan can require a simple "fill in the blanks" with a number or percentage. The law allows more flexibility with respect to instructions about how to calculate the division. However, I have had some success with refusing to do crazy calculations by dumping the relevant raw data on the parties and telling them to come up with a satisfactory number in the order. For example, if the instructions would require some sort of interpolation that is outside what the plan would do for regular benefit calculations, I would have the parties do it. They can fight over the number in court before presenting the order for qualification. But if the plan does not have the data or cannot understand what data would be needed, it can just refuse.

I have not seen this tested, but I don't think a court would make a plan jump through crazy complex hoops to achieve a down-to-the penny division of benefits. I think a court would put the burden on the parties to come up with a number if they wanted some unusual or difficult division. The plan might have to provide reasonably available data to the parties to enable them to produce a reasonable instruction to the plan.

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Another source of QDRO info might be this:

http://benefitslink.com/modperl/qa.cgi?db=...elations_orders

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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My practrice is to provide the divorcing parties with a model QDRO at no cost which has the basic provisions with blanks for the variable provisions which the parties can fill in. I have found that most divorce attorneys will accept a model QDRO because it cuts down on the amount of work they have to do and makes it easier to get approval from the Plan admin. Most dc plans have few variables and can be used by all parties with little modificaton. If parties want exotic or complicated distribution options or calculations then they should be charged for the cost of doing such calculations because the plan is not a charity and the plan should not absorb the cost.

mjb

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Thanks for your help. The formula is in the order. The problem is that there are premarriage monies, marriage monies, and post separation monies. The date of separation was 4/1/99 with 401(k) deferrals made after that date. It's in mutual funds. It will be a time consuming calculation-proration of dividends on a transaction basis etc.

I was looking for a way of requiring the two parties to duke it out and come up with the figure before the plan (and therefore myself as TPA) got involved.

QDROphile: Why can't the plan charge for all time (other than settlor type expenses) related to the QDRO? Why a base fee that the plan, and therefore other participants, or the employer has to absord?

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Where do you find the statment that the plan can't charge for all costs?

I interpreted your inquiry about scaring them with charges to relate only to the bad apples, not all orders, so I offered a suggestion to fit your question. Look at the second sentence of the second paragraph.

I do suggest that the plan can't charge only for the orders you don't like while charging nothing for your favorites.

By the way, most of the mutual fund providers can bring down investment earnings on a portion of an account from a specified date, or at least they purport to do it. If yours can't, I think it is unreasonable for a domestic relations order to require hand calculation. The plan has no other need for such capacity or calculation, so I don't think you have to do it to for the QDRO. You can develop a reasonable (but not perfectly accurate) method for estimation of subsequent earnings without tracing each transaction by hand. If they don't like your method, they can figure it exactly themselves from the raw data you povide. You might not even be able to provide all the raw data necessary for the perfect answer.

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A couple of plans I work with have stated in QDRO procedures that because of participant directed investments, daily valuation, periodic contributions and periodic distributions, the plan cannot readily provide or determine past earnings and allocations for a participant's account. The QDRO procedures also state that the plan is not required to make the calcuation and will not approve a QDRO requiring the calculation. So far no challenges.

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