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QDROs & Reasonable Administrative Fees


Guest ggbrock

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Guest ggbrock

Hi there,

I'm wondering if any of the DB plans you work with take the position based on the DOL 2003 FAB that a DB plan may pass along the reasonable administrative fees related to the preparation of a QDRO. I personally think this is a risk based on what I've read, but I'm curious to know whether market practice has perhaps moved in the direction of charging a fee, in particular because DB plans are far more complicated and thus QDROs for these plans take more time to prepare.

Anyone? Thanks so much!! :unsure:

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Unfortunately, what would be the basis for assessing a charge for review of QDRO? I.e., how can you tell the participant you won't administer the QDRO unless he ponies up? It would, however, seem that the attendant fees could be borne by the plan.

Nonetheless, you offer an oxymoron when you refer to "the reasonable administrative fees related to the preparation of a QDRO." For most of my sustaining clients, I quit writing down time when it passes a perceptively unreasonable length, which is often very early for most QDROs require review, re-review, and re-re-re-review. 414(p) should be revised to provide that the cost of the QDRO should be borne by the participant's and alternate payee's legal counsels. The Lords who created 414(p) clearly had no vision as to the bete noir they created.

The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.

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Guest ggbrock

The phrase "Reasonable Administrative Fees" comes from the DOL's FAB 2003-03, which is the basis for passing along fees relating to the preparation of a QDRO. You don't tell the ppt that it won't be administered if he or she doesn't "pony up". You disclose in your SPD and QDRO procedures that a fee will be assessed and give them formulas to choose between as to how to allocate those fees. It wouldn't be very difficult - its just a question of whether it is legal to do so based on the 2003 guidance on DC Plans.

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... bete noir ...

Oh no! French!

Ugh.

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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The phrase "Reasonable Administrative Fees" comes from the DOL's FAB 2003-03, which is the basis for passing along fees relating to the preparation of a QDRO. You don't tell the ppt that it won't be administered if he or she doesn't "pony up". You disclose in your SPD and QDRO procedures that a fee will be assessed and give them formulas to choose between as to how to allocate those fees. It wouldn't be very difficult - its just a question of whether it is legal to do so based on the 2003 guidance on DC Plans.

What am I missing? You're telling the ppt here are the fees. If they say no and submit the QDRO anyway, then what? The Plan won't accept?

The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.

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A.T.A. --

The participant has no option, and is not being asked for permission to pay the fee otr process the QDRO. ERISA Section 206(d) requires the administrator to process a QDRO. The fees have to be paid as charged. If the employee wants help paying those fees, then that should be taken into account as part of the divorce decree. Remember, the QDRO is at the very end of the divorce process--often, many years after the divorce has been granted--and it does not come as a surprise to the participant.

Until this most recent FAB, the DOL's position was that QDRO fees could NOT be charged against the individual participant, but had to be a plan adminsitrative expense paid as any other administrative expense (usually by all particiant accounts on a pro-rata basis). How fair is that? So, the DOL recanted mandating that approach.

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So, if the participant refuses to pay the fees, then how are they paid (e.g., the participant's accrued benefit is actuarially reduced?). In such case, how is reasonableness substantiated? Suppose because of back-and-forth, the actuary's fees are $1,400. Is the actuary now subjected to the legal process (depositions, etc.) to support such fees? Supose the fees are a more perceptively reasonable $400. Is the actuary still subjected to the same process? Let me add that the QDROs in which I've been involved have customarily involved two angry parties (three if you count the client) and the pension plan, besides the two beaten up jalopies, is the unhappy ex-couple's only significant asset.

You failed to add that most QDROs are not drafted by the knowledge Sieve. They may be boiler plate and require a lot of effort and discussion to arrive at a QDRO that does not contravene the plan or the law.

I can think of at least one aging actuary who would not want any part of this.

The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.

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Guest ggbrock

The point being made is that a participant can't refuse. If the Plan charges QDRO processing fees, discloses them properly, and the ppt wants a QDRO, they must pay the fee or yes, try to sue on the basis that the fee is not reasonable. Now, in reality suing will obviously cost more than the QDRO fee. So the way it works out is that they pay the fee or just resolve their marital assets OUTSIDE of the plan. I've been involved with many complicated disputes where the parties decided it made more sense to resolve their issues outside of the plan than to deal with the Plan's rules and restrictions. The law doesn't really care what an actuary or any other person thinks about it. Take Sieve's point - is it somehow "more fair" to charge all participants for the fees assessed for one participant's QDRO?

Does anyone have any thoughts on my original question? Does anyone know if ppts and APs in the DB plan context are charged for QDROs based on that 2003 FAB?

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The point being made is that a participant can't refuse. If the Plan charges QDRO processing fees, discloses them properly, and the ppt wants a QDRO, they must pay the fee or yes, try to sue on the basis that the fee is not reasonable. Now, in reality suing will obviously cost more than the QDRO fee. So the way it works out is that they pay the fee or just resolve their marital assets OUTSIDE of the plan. I've been involved with many complicated disputes where the parties decided it made more sense to resolve their issues outside of the plan than to deal with the Plan's rules and restrictions. The law doesn't really care what an actuary or any other person thinks about it. Take Sieve's point - is it somehow "more fair" to charge all participants for the fees assessed for one participant's QDRO?

Does anyone have any thoughts on my original question? Does anyone know if ppts and APs in the DB plan context are charged for QDROs based on that 2003 FAB?

Indeed, "refusing" is a position the participant can hold. The participant submits the QDRO but refuses to pay the fee. What course does the plan then take? Sue? Reduce pension?

The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.

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Guest ggbrock

The plan does not qualify the domestic relations order. Simple. A participant can submit as many DROs as he or she wants. The DRO does not become a QDRO until it is qualified by the plan. The plan doesn't qualify it unless it meets their procedures - including the fees.

Does ANYONE have an answer to my original question? Please?

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The plan cannot refuse to qualify an order that is properly submitted and has appropriate terms.

If you want an ANSWER, I don't think you are going to get it. Charging fees under a DB plan presents some problems and we have no reliable guidance. My experience is that plans do not charge. At least one state has a law that seems to require that certain government plans charge an administrative fee and does not distinguish between DB and DC. The law is fairly stupid because it does not answer the questions it poses.

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Guest ggbrock

"The plan cannot refuse to qualify an order that is properly submitted and has appropriate terms."

I'm not so sure the answer is that clear, at least in the DC plan context. If the law permits plans to charge for QDROs and a plan has disclosed that it is charging for QDROs, I absolutely think there is a basis to NOT qualify a DRO where a ppt refuses to pay the fees. The DRO in that instance does not qualify under the terms of the Plan and the SPD and, moreoever, it would not be fair to the other ppts who do pay the fees. A court could go either way, in my opinion. In addition, the plan can simply issue the participant a bill.

"If you want an ANSWER, I don't think you are going to get it. Charging fees under a DB plan presents some problems and we have no reliable guidance. My experience is that plans do not charge. At least one state has a law that seems to require that certain government plans charge an administrative fee and does not distinguish between DB and DC. The law is fairly stupid because it does not answer the questions it poses."

Actually, the answer I was looking for is exactly what you just posted -- I understand there is no guidance, I simply wanted to know what people's experience was with respect to where the market is heading on this topic.

Jeez, people are wound up here. A simple question doesn't have to get so complicated.

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gg --

It's often the simplest questions that generate the liveliest debates on this Board--and sometimes the OP gets lost during the thrashing. But, I'm glad you stuck with it and found your answer. Perhaps you learned something else in the process.

By the way, if the SPD says there will be an account offset for the fees of reviewing a QDRO, & the QDRO is sent to the Administrator for review, how does a DC participant even have an opportunity to refuse to pay the fee? Besides, the law requires the administrator to make QDRO determinations (or have someone else make them).

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