Alternate Payee Finally Responds

[Below Ground]

QDRO is issued in 2000. Document holds that Participant's Spouse is due a specific dollar sum, payable on or before a specific date in 2001. Election package is provided prior to that date, but Spouse never responds thinking that since the amount is under $5,000 (apparrently notice of administrative service used by plan at that time must have stated that), the monies will just be paid without an election. That did not happen. Now Spouse is contacting Plan with an election, and demands an interest adjustment. While that sounds reasonable, how do you compute that value (actual experience)? Can you even do this since QDRO originally stated a dollar sum and has no reference to any form of interest adjustment? Is a new QDRO needed or can parties come to some form of agreement, without creating either legal or tax problems for the plan and people involved?

Any help would be greatly appreciated!

[JanetM]

You don't say if this is DB or DC. If this is DC, was the amount segregated into separate account? If it was just give AP the account. If this was not segregated, I would go back to participant, AP and lawyers and get something in writing from them. They need to agree, in writing, on the adjustment to original QDRO.

[Guest mjb]

If benefits were not paid due to APs failure to complete distribution forms requested by Plan admin then no interest is due since QDRO specified amount payable to AP. Who will pay for the interest adjustment ?

[QDROphile]

First you have to decide if the plan administrator should have paid the QDRO amount whether or not the AP responded, or should have been more aggressive about pushing the AP to come through with the necessary material. To decide about the plan obligations, you have to interpret the plan and the QDRO (such as the requirement to pay in 2001) and the other facts, such as the AP's apparent lack of interest in a relatively small sum until today.

If the plan administrator is guilty, then the correction can involve imputed earnings -- an operational error is buried in there somewhere. Depending on circumstances, the earnings could come from the particpant's account. If the plan administrator is not guilty, I don't see how any earnings would be payable. You said the QDRO provided for a fixed dollar amount.

Although the parties can amend the QDRO to take into account the unfortunate history and provide the outcome they want as of today, the plan administrator cannot require the parties to take action to pull the plan administrator out of the fire. If I were the participant, I would not put myself out to solve a problem of the plan administrator and the AP. But I would watch to make sure that my account did not get charged more than the QDRO amount and the actual related earnings.

[Guest mjb]

If plan admin pays out AP pursuant to her election w/out interest there can be no claim by AP b/c:

1. AP is no longer a beneficiary, hence has not right to sue under ERISA.

2. demand for interest in addition to benefits ordered under the QDRO is a claim for money damages which is not permitted under ERISA because it is a law in equity.

3. 6 yr delay in completing election for payment is subject to doctrine of latches which prevents any further amounts to be paid to AP.

There is no requirement under ERISA that plan be "aggressive" in pursuing AP to return election form. Failure to return election is voluntary act by AP to delay payment in order to make a claim for interest. APs frequently lose interest in completing the requirment for being paid under a QDRO and plan is not reeponsible for such delay.

Paying interest to AP now will establish a bad precedent for paying interest in future because of the negligence/delays by AP.

[masteff]

Question for anyone who cares to comment: Is the QDRO's deadline for payment ("payable on or before a specific date in 2001") binding upon the plan sponsor? I've never seen a deadline so don't know how it applies.

[Below Ground]

First, I want to thank all for replies. Both sides appear to be logically presented. Of course, which way to go? That's the problem.

As I see, the Plan can fight any demand for adjustment and will most likely win. Of course defending costs money and the disputed sum involved is not large. Sounds like just looking for a simple settlement is the most logical course.

This position does have problems given the response of MJB. His points indicate that any adjustment would itself create a problem.

By the way, this is a DC Plan and no account was segregated. I suppose this could be the solution as we could compute the expected value of what the account would have been equal to had it been segregated. Does that violate points raised by MJB? At minimum a written agreement on that would be prudent.

Guilt? That is an interesting problem. Since processing was not under our service I can't say what the AP received, but she claims that notices provided stated that if she did not act payment would simply be made to her. If so, is the Plan now at fault? Personally, I find the 6+ year delay by the AP to be beyond explanation. Of course, my "personally" is of no value.

I suspect that the best course will be to see if parties are open to computing the segregated account value. Then, finding some confirmation that this approach would not exposed the Plan. Next, get a written agreement and do it. Any comments on that approach are greatly appreciated. While we do wish to see that the parties are correctly attended to, protection of the Plan as a whole is the number one consideration.

Again, thanks for replies. You help is of great value.

[Guest mjb]

1. what is the QDRO payment due the AP?

2. What is the $ of interest in dispute?

3. who will pay the amount in 2?

[Below Ground]

MJB,

$3000

Unknown

Unknown, but most likely the member's account.