QDRO Administration

[austin3515]

What do other TPA firms do to ensure that a participant requesting an in-service distribution or a loan is not being taken after the administrative "hears" that a participant is going through a divorce?

Although most administrators will recognize the issue and a flag will go off, it's possible that the flag won't go off.

Any recommendations? Or do you just process the distributions so long as the Plan Administrator doesn't mention anything...

[Belgarath]

If I were informed that a participant may be going through a divorce, I would notify the Plan Administrator. But determining whether or not to allow a distribution is a fiduciary decision, and we are MOST careful to avoid this. If the Plan Administrator subsequently instructed us to process a withdrawal/distribution, we would do it.

[QDROphile]

Take a look at Schoonmaker.v Employee Savings Plan of Amoco, 987 F2d 410 (7th Cir. 1993), which will tell you that you had better have provisions in the written QDRO procedures if you interfere with the participant's rights before receipt of a domestic relations order. I am not aware of any contrary judicial authority on the subject.

I will tell you that it can be difficult to define what information will justify the interference -- an angry phone call? I prefer to go with what the statute says, which is that you do nothing until a domestic relations order is received, and have that written into the QDRO procedures. You have to understand what a domestic relations order is -- it does not have to be something that looks like it wants to be a QDRO. For example, a stupid California joinder order is probably a domestic relations order and will suffice to suspend distributions (and not because the state law says so).

The Department of Labor postion is different. Evidently a whisper is enough for the DOL. But the DOL is snowed by complaints of unhappy would-be alternate payees, who usually have legitimate complaints -- its sample space is skewed and interferes with formulating a good policy. If the DOL had the courage and thoughtfulness to publish a regulation that would protect the fiduciaries I would have more respect for its position.

Belgarth is correct that the fiduciary makes the decisions, either one by one or by setting a policy that its agents can apply.

[austin3515]

Thank you both for your responses, but perhaps I was unsuccessful at pinpointing my question:

As a TPA, what actions do you take to ensure that the Plan Administrator is not aware of any divorce proceedings, especially considering that the Administrator may not put two and together that the distribution should be questioned.

For example, do you add a clause to the coverletter? Do you add a field to the form to have the participant certify that he/she has no knowledge of a pending QDRO? Etc. etc...

I should have mentioned that our QDRO procedures put a hold after a verbal communication - not the QDRO itself.

[mbozek]

The TPA cannot impose conditions on withdrawals or loans that are inconsistent with or not permitted under the plan. If plan permits a loan or withdrawal without spousal consent then the loan/withdrawal must be granted. The fact that a participant may be going though a divorce is no reason to prevent withdrawal of funds because both parties must file financial disclosure of all assets as of the date the divorce commences and must account for any changes in their financial condition during the course of the divorce. The court can sanction a participant who dissipates assets or award other property to the innocent spouse. State divorce courts do not have the authority to prevent operation of the plan in accordance with its terms.

[QDROphile]

The QDRO procedures say no distribution or loan if the plan administrator has received a communication that suggests that some day the plan will receive a domestic relations order. So be it.

You want to remind the plan adminstrator to do its job. I think your answer depends on the system for distributions/loans. Does the plan administrator review applications and then instruct the TPA to distribute? If so, perhaps the instruction should include confirmation that the plan administrator has had no communication concerning a possible domestic realtions order.

I don't think it is proper to ask a participant about the subject. What are you going to do with the answer? The problem is that once you get some information, it has to be evaluated, and perhaps more inquiry will be required. You don't want to set up such complications.