QDRO determination fee paid by the participant.

[FundeK]

Please forgive me if this is a silly question, but it is Friday and my brain isn't working as well as it did on Tuesday.

When you charge the QDRO determination fee directly to the participant, do you have to withhold taxes on the fee?

If the fee is say, $800, is the $800 considered a "withdrawal" and subject to taxes? I have a feeling the answer is no, but I would like confirmation.

Thanks!!

[Belgarath]

I don't have any specific citation to back up my opinion, but I agree with you. I don't see how this could be construed as a withdrawal/distribution subject to taxation. As an aside, do participants in this plan really get charged 800 bucks for a QDRO determination, or was that just a fictitious figure? I ask only out of curiosity - I'd say that seems pretty high, but since these are never paid from plan assets in our plans, I never actually see what clients get charged for the QDRO determination. Maybe that's why they persist in trying to get us to do it!

[FundeK]

Is $800 high? What if it were even more? Would you consider that to be a reasonable fee to be paid by the participant? Who determines what is reasonable?

It seems high to me as well, but I am just wondering what the DOL's view is. They haven't set a $ amount have they?

[Guest Kevin Wiggins]

The DOL will not say what is too high or too low. That is a factual issue which the plan fiduciary must decide on a case by case basis - the same as for any use of plan assets to pay plan expenses. I've been told, but I cannot confirm, that Fidelity charges $300 if you use their model form and $1,200 for any other form. Assuming this is true, to me, $1,200 could be considered too high, but I don't know all the facts. It seems to me there are a lot of people who could review any form, no matter how complicated, for far less cost, where such lower cost would include (1) an initial review of the order and a letter confirming it is qualified, (2) if the order is not correct, a letter to the participant and AP that explains what is wrong, (3) a second review if necessary, and (4) a second letter that confirms the order is qualified, if necessary.

As to your question, it seems to me that no, you don't withhold. I don't have a cite, but it seems to me you don't withhold when you use plan assets to pay for any other expense, so you don't withhold to pay this expense. Although here you allocate the fee to one participant's account, that appears to be a difference without a distinction. There has been no distribution. Instead, the benefits (that will later be distributed) have been reduced as a result of the expense. To use an example, you don't withhold asset management fees charged to a participant's account. I could be wrong on this because I have not looked at it completely, so before I give my final answer I would like to poll the audience.

[Guest GLBath]

Were you able to determine if you were correct in your assessment that QDRO fees are expenses and not distributions? Would the same be true for loan fees? I note that you said you wanted to poll your audience to be sure you were correct, but I don't see any more comments on this topic. Thanks.

[Mike Preston]

Sorry to jump in so late, but I thought that the DOL had already opined that a plan may not charge a participant directly for determining whether a DRO is a QDRO? Did they change their position? Or is it a position that the world just ignores?

[J Simmons]

Sorry to jump in so late, but I thought that the DOL had already opined that a plan may not charge a participant directly for determining whether a DRO is a QDRO? Did they change their position? Or is it a position that the world just ignores?

Hey, Mike, EBSA changed its earlier position (the one against charging for QDRO processing) on May 19, 2003. EBSA Field Assistance Bulletin 2003-3 permits the expenses to be assessed against the specific plan accounts involved. Surprisingly few plans take advantage of this FAB.

[Mike Preston]

Thanks. I should have just looked at our SPD drafting specs. It would have said the same thing!

[Guest GLBath]

I believe that there are still a lot of sponsors who charge a fee - not necessarily for determining whether it's a QDRO, but for the actual processing of the QDRO. I would appreciate hearing if sponsors have dropped this fee based on the DOL.

[Guest EricWings]

We are currently charging $400 for completing the transfer.

[Guest mjb]

Why shouldnt the plan charge a fee for reviewing QDROS? Most of the are horribly written and require extensive revisions. I have seen DROs that have been submitted 5 times and still are not right. Why should the plan or the sponsor absorb the cost of incompetency? If the plan doesnt charge then counsel for the parties take advantage of the plan for free legal advice and dont do their jobs.

[Effen]

I think only DC plans are permitted to charge for this. If it is a DB plan, I don't think you can charge the participant.

[Guest GLBath]

Can you tell me how you treat that $400 if it comes from the individual participant's account for a QDRO? Is it considered an admin fee to the participant? Do you treat it as a distribution to the participant and is a 1099R sent out?

I would have the same question on loan fees that are charged by a record keeper for administration - we charge our participants $50 to take out a loan and that money goes to the record keeper. It's not part of the loan amount and it's not considered a distribution - would that be the standard way of handling this?

Thanks.

[Mike Preston]

Yes. There was a thread on this very point recently. You should be able to find it without too much difficulty.