Passing fees to participants

[AlbanyConsultant]

Now that we have an OK to pass the costs of a QDRO along to a participant, what sort of notifications should we have in place?

A client of mine just had their first since this new attititude, and it's been a doozy; probably several thousand dollars of time when it's all added up. The document says that the plan can pay expenses from the trust. The SPD doesn't say anything about this, though it does mention that if a court finds that an action of a particular participant is detrimental to the plan as a whole (which I would say could potentially include trying to have the whole plan pay the costs of one participant's QDRO drafting/review), the plan can be ordered to offset your benefit by a court.

Not exactly what I was looking for. But does the plan have enough justification to say that the plan document allows it, so we can do it?

If the participants should be notified upfront, does that mean we have to re-write the SPD's of all our plans?

[QDROphile]

I assume you have read Field Assistance Bulletin 2003-3. I think you need a good disclosure foundation for charging expeneses to accounts.

[rcline46]

So where does the plan pay the expenses of drafting a QDRO??? The fee that may be passed on is only the PA's fee for REVIEWING the DRO to see if it is a QDRO.

Only expenses of administration of the plan may be passed on, and drafting a DRO is certainly not an expense of the plan nor of the sponsor.

[SoCalActuary]

This brings to mind a problem of a few years ago, when a large plan kept rejecting a badly written DRO, and finally helped the family law attorney get it done acceptably. No good deed goes unpunished, and the attorney asked to court to have the plan pay him the expense of preparing the DRO, as if he had helped them draft it. The court went along, on the premise that the plan had the only deep pockets and could afford to pay.

Naturally, this was appealed, and the plan had to pay none of the QDRO costs.

From my perspective, the DRO is the expense of the divorcing parties. They need to agree on the person to pay for it. One choice would then be to take the expense out of the distribution amount itself before completing the payment, although it is not the only choice that makes sense.

From a fiduciary or plan administrator's perspective, it would be a benefit to participants to know that the plan will charge reasonable expenses to review proposed DRO's, and this should be in either an SPD or the correspondence to the participant when one is requested.

[QDROphile]

If you are going to charge anything to the account, are you going to allocate the charge between the participant and the alternate payee? It seems to me that if you are going to charge, you need to figure out when and how you are going to charge, have a published warning (e.g. SPD) that you are going to charge, and have the details available in writing in advance, such as in the written QDRO procedures.

[Effen]

So where does the plan pay the expenses of drafting a QDRO???

The Plan should NEVER draft the DRO! As SoCal points out, you are just asking for trouble.

Also, I think it needs to be pointed out that Field Assistance Bulletin 2003-3 only applies to DC plans.

[mbozek]

While the plan can charge a participant for the reasonable costs of reviewing a QDRO, the amount must be disclosed in the plan documents such as the SPD or QDRO procedure if a separate document. The Plan should use a fixed fee and not just pass along counsel's bill for reviewing the QDRO because this may not be reasonable. The plan will need to have an arrangement with counsel as to how much will be paid for each QDRO review. The plan could have different charges such as one charge if the parties use the model QDRO and one if plan counsel reviews a customized QDRO. In order to charge it would be advisable for a plan to have a model document, especially in DC plans where there is little need for customized language and the parties can insert the variable terms so as to keep the charges to a reasonable amount.

[AlbanyConsultant]

From my perspective, the DRO is the expense of the divorcing parties.  They need to agree on the person to pay for it.  One choice would then be to take the expense out of the distribution amount itself before completing the payment, although it is not the only choice that makes sense.

Ah, SoCalActuary, if only that had been thought of before the alt payee had taken his money and run! Would you need to have that written into the QDRO, though? Especially since most of the times, the bills from us (TPA) and the lawyers don't come until after the distribution occurs.

At this point, I think our advice is going to be that we recommend against it because there was no prior notification, but that if the Trustees REALLY want to charge the participant's account, it's their call, and they have to be ready to defend that in case the participant goes howling to the DOL. And then the next sentence is what kind of policy to put in place on a going-forward basis.

[Guest dazdarren]

Now that the DOL guidance is a few years old can I ask how many sponsors are passing QDRO fees to the individual member and their soon to be ex-spouse. My company is considering doing it and is told by our TPA that 90% of their clients pass the fees on. Thanks in advance

[J Simmons]

90%? It may be that TPA is guiding its clients to do so. What I've noticed is more like 40-50% passing the cost along.

[John Feldt ERPA CPC QPA]

Yes, for DC plans we are also around the 40% to 50% scenario. Almost half pay it from the participant's DC account, the plan sponsor foots the bill on the other plans.

Of course, for all of our DB plans, the plan sponsor pays the cost.

[IRA]

I have not looked at the FAB recently, but I'm pretty sure it has to be in the SPD or you can't pass it along.

[John Feldt ERPA CPC QPA]

The disclosure of the fees requirement, yes, our approach has been to list them in the SPD.