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Need Help w/QDRO process


Guest agayya

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Guest agayya

This is my fisrt post and I am hoping I can get some help/advice on how to get thru the QDRO process. I apologize in advance if my explanation of my situation takes longer than normal.

I just recently got divorced (finalized on 1/25/2010). It states in the court documents/stipulation that I will front the cost of a QDRO in which my ex is entitled to half of my 401k. There's no date or time frame given to when I have to file the QDRO. My attorney doesn't draft QDRO's and he recommend I go to QDROpro.com. As I was doing my research, I noticed that there was information that I was having to provide to get things started (ex-wife's name, address, plan name, etc...) Well, here is where it gets interesting. I e-mailed my HR department needing my plan administrators name since that was on the "checklist" of what I needed to file. I recieved a response back today from my PA and she advised that my 401k account is now frozen from loans and withdrawls.

Well, on the 19th of this month, I was going to request a hardship withdrawl so that I can pay the balance and trust funds to my divorce attorney ($3800). I have requested hardship withdrawals for this purpose twice already since it took forever to finally finalize my divorce. I read that a PA can place a hold on the account but then I read that the PA has to recieve some formal document or court order for them to freeze the account. I have not yet retained a lawyer or actuarial company to draft the QDRO. There has been no paperwork submitted so is it proper for the PA to freeze my account just by me saying that I will be filing a QDRO in the future and merely asking who and where to send the QDRO once its completed? I understand that my ex is entitled to half of my 401k, and I have no issues with that and by all means not requesting a hardship so that she gets less money. We have 4 boys and I want to be able to provide for them the best I can and I know that this money will help them and my ex tremendously. I do however need to pay my attorney for his services and I have no other way without having to take a hardship withdrawal.

If there is anyone that can shed some light on this situation, I would truly appreciate it. Thanks in advance for those that chime in. :)

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Under usual hardship withdrawal provisions, you cannot get money to pay your lawyer for divorce costs. Most plans operate under a list, and your need is not on the usual list. Your plan administrator should have told you this up front at the time of the orginal request. You may have an ability to borrow from your account.

Most plans blindly and incorrectly follow a practice of freezing accounts/benefits when the plan learns of a proceeding and anticipates a domestic relations order. Assuming that you you are eligible for a distribution or loan, you will need a knowledgeable kick-ass lawyer to get funds from the plan before the former spouse interest is formally resolved, such as qualification by the plan of a domestic relations order.

Assuming you have enough assets in your account, you should be allowed to borrow. But don't count on any intelligence or understanding of the law from the plan administrator.

A plan is required to have written procedures relating to QDROs, available without charge. Ask for them as see what they say.

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Guest agayya

Thanks for the response. So basically, because my PA knows that eventually a QDRO is needed, The hold on my 401k account will be in effect until the QDRO is approved by the PA? Paying for attorney fees is covered under my plans hardship withdrawal rules. This is my dilemma in regards to the HW. My plan requires that I subimit, with the application, the bill for the attorney fees that are not older than 60 days from the request of the HW application. If I get the QDRO ball rolling how long on average can this process take? I know I should have asked this before, but being low on funds can anyone recommend a good attorney or company that can draft a qdro and guarantee approval from the PA that's not going to cost an arm and leg?

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As QDROphile points out, the Plan is incorrectly limiting your rights. As I understand it, the Plan really has no authority to restrict a participant's access to the participant's benefits (to the extent allowed under the plan document) until the Plan receives a domestic relations order (DRO) signed by the judge. Until then, the Plan is obligated to protect the participant's benefits and rights, and no one else has claim to those benefits.

The Plan may claim that it is making sure it has the money that the Alternate Payee (your ex) is supposed to get. But you have court documents that say that she gets half, so such a claim has no bearing on the other half of the account and leaves the Plan with no excuse for refusing you access to some of that other half.

Still, the Plan probably won't listen until a lawyer shows up.

One approach would be to file a claim (which must be in writing) for a hardship withdrawal benefit. The PA has to respond with the benefit payment or a notice of denial that refers to the specific plan provision on which the denial is based. This claim and denial procedure is described in your Summary Plan Description (SPD). If you can't find your copy, ask the PA for a copy of the SPD. The Plan has to provide it for free. And while you're waiting for the PA to respond to your claim, call the Employee Benefits Security Administration (EBSA) to see if they can advise or help you. Good luck.

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Guest agayya
As QDROphile points out, the Plan is incorrectly limiting your rights. As I understand it, the Plan really has no authority to restrict a participant's access to the participant's benefits (to the extent allowed under the plan document) until the Plan receives a domestic relations order (DRO) signed by the judge. Until then, the Plan is obligated to protect the participant's benefits and rights, and no one else has claim to those benefits.

The Plan may claim that it is making sure it has the money that the Alternate Payee (your ex) is supposed to get. But you have court documents that say that she gets half, so such a claim has no bearing on the other half of the account and leaves the Plan with no excuse for refusing you access to some of that other half.

Still, the Plan probably won't listen until a lawyer shows up.

One approach would be to file a claim (which must be in writing) for a hardship withdrawal benefit. The PA has to respond with the benefit payment or a notice of denial that refers to the specific plan provision on which the denial is based. This claim and denial procedure is described in your Summary Plan Description (SPD). If you can't find your copy, ask the PA for a copy of the SPD. The Plan has to provide it for free. And while you're waiting for the PA to respond to your claim, call the Employee Benefits Security Administration (EBSA) to see if they can advise or help you. Good luck.

Just wanted to send an update...

I contacted my HR department and they are animate that I cannot withdraw from my account until the funds are actually divided and given to my ex-wife. They also state that the IRS dictates this process and the company must abide by these regulations. That doesn't sound correct? The IRS? Really?

I did obtain a copy of the procedural rules. It states in one of the rules that if the PA does not recieve a "QDRO Confirmation", the PA will not delay the payment of any distribution, withdrawal, or loan that other wise would be payable to the participant. By definition in the procedural guide, QDRO Confirmation Confirmation is either (i) a Domestic Relations Order submitted to the Plan Administrator for review by a Participant, an Alternate Payee, or the legal representative of either such party; or (ii) written notice by a Participant, an Alternate Payee, or the legal representative of either such party that a Qualified Domestic Relations Order with respect to the Plan is being sought. A QDRO Confirmation is deemed received when it is actually delivered (by mail, facsimile or personal delivery) to the Plan Administrator. So I'm guess the word "mail" pertains to me sending an email with questions regarding the QDRO...I even mentioned the court document that states she will get 1/2 and isn't the plan obligated to protect my interest for the remaining half? No go. The still state that I can't touch any of the funds until the QDRO is finalized.

I want to thank those that have chimed in.

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Do the Procedural Rules also specifically say that upon receipt of the QDRO Confirmation the Plan will then delay or not allow any distributions to the participant? (We're looking for an opening here.)

It's kind of a catch-22. If you can take the distribution, the QDRO process will begin. If you can't take the distribution (to seek a QDRO), then there's no money for seeking a QDRO (which would make you eligible for the distribution).

You could call the PA and ask if they have the phone number for the area EBSA office so you can confirm what they are telling you.

Then, whether they give you the number or not, find the number for EBSA and call them, tell them the situation, and ask for their advice. At worst, they will tell you the PA is correct.

If you don't want call EBSA yet, at least check out the EBSA website for information.

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You aren't going to like my take on this. I'm not sure I agree with QDROphile that plans which put a hold on the entire benefit can be faulted. Yes, they have a responsibility to preserve and protect your interest, but there is nothing that says keeping it in the plan doesn't do just that. The sections of the Internal Revenue Code and ERISA that deal with QDRO's are not a model of clarity. They seem to focus primarily on what a plan must do once it has received a Domestic Relations Order. They say precious little about what should be done in the all too common scenario which you describe: the Plan Administrator gets wind that a DRO exists or will soon be produced. Plans are therefore free to craft their own procedures to deal with this circumstance, subject only to eventual review by the Courts, which is expensive and therefore rare.

That doesn't mean that Plan Administrators are free to do what they please. I seem to recall there was a case that relates to a large electronics firm which put a hold on things as you have described and, even though it was a participant directed plan, refused to honor a request from the participant to modify the investment mix. As it turned out the market tanked and the participant had requested that the funds be invested in a way that would have escaped the market plunge. The Plan was taken to court over the issue and, even though I can't lay my hands on it at the moment, I seem to recall that the Plan had to cough up some dough.

But the plan wasn't challenged based on its refusal to allow a distribution (or a partial distribution). It was challenged on the fact that the participant's clear rights under the plan had been stripped and there was no support in the law for having done so.

In your case, as I've already mentioned, the law appears to be silent on how a plan goes about protecting everybody's interests (the plan's interest, the participant's interest and the soon to be ex-spouse's interest) when it hears of an impending QDRO. You are therefore most likely stuck with the plan's own procedures. You need to analyze them in great detail (or have a lawyer do so for you) and see if you can ask the plan to make a distribution to you while still following the exact language of their own procedures. For example, you might want to assert that letting them know via email doesn't satisfy the definition of a "QDRO confirmation" as defined in their procedures so you are respectfully asking them to honor your distribution request because they would not be following their own procedures if they treated the email as a "QDRO confirmation."

Will that work? Probably not, but it can't hurt to try, as long as there isn't anything in the QDRO procedures you haven't produced here that would otherwise grant them the discretion to put a hold on your entire interest.

As has already been mentioned, your best course of action may be to see that the DRO is presented to the Plan Administrator ASAP so that this whole thing can be handled as expeditiously as possible.

A little DRO historical note: the law allows a Plan Administrator an 18-month window during which it can investigate a DRO with the goal of determining whether it is qualified (and thus a QDRO) or not. Many plans have latched on to that 18-month period and say that it is therefore reasonable to wait the same amount of time after being told a DRO is in the wind before removing a hold on a participant's account. As far as I know, which since I'm not a lawyer doesn't mean much (since I don't have access to services which can search court decisions), there have been no cases challenging a Plan Administrator's right to use whatever period of time it thinks is reasonable in this circumstance.

So, while there is no direct support in the law for a specific period of time during which a plan may refuse to honor a request for a distribution to a participant who may soon have a DRO presented to the Plan Adminsitrator, there is no guidance from the courts or regulators saying that a refusal is against the rules.

Maybe somebody on this service is aware of a court case or regulation I'm not aware of and can provide updated information on this all too "squishy" a topic.

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Based on Schoonmaker and the statutes, including the 18-month rule, what should work (except for skull thickness of the plan administrator) is to give the plan a copy of the divorce decree that says the former spouse will get 1/2. The decree is a domestic relations order, but probably not a qualified one. But it should be enough for the plan administrator to realize that the plan is only required, at most, to protect the 1/2 that might ultimately be awared to the alternate payee under a QDRO. That means the participant can get some of the other half (so he says) to proceed. I am not going to spell out the detailed analysis that goes with the steps because it probably will not work. The Schoonmaker case might make the plan administrator pause a bit, except the the plan administrator put unwise provisions in the QDRO procedures (as mentioned in Schoonmaker) and is now put in a position to have to use good judgment and knowledge to get to a correct and practical outcome. Not likely, given the starting point.

Also, you might combine TPA Man's comment to help the poor plan administrator with the dilemma.

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We all like TPA Man's suggestion, which might work, especially with a copy of the divorce decree, which as QDROphile points out, is a domestic relations order, even if not fully qualified.

Otherwise (and maybe at the same time), it's time to bring in QDROphile's

knowledgeable kick-ass lawyer to get funds from the plan

With the hit and miss guidance out there, we PA's can get thick headed and arbitrary, but sometimes we yield to well-founded reasoning.

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Guest agayya

I really do appreciate all the comments and advise you all have given. I went ahead and bit the bullet and currently having the QDRO drafted. I figured that my PA wasn't going to budge and I might as well start the process so that I can have a chance of taking out the hardship. I even called the EBSA and they too said they can place the freeze if they find out that a QDRO is pending. Now I'm just hoping that I can have the draft approved, signed by the ex and the judge in timely manner. Call me paranoid but I think with all the pushing I did with the PA, I have this feeling that they may take their allotted time (30 days) to approve the draft. I do have one more question that maybe someone could answer...with being on this time constraint with my request for a hardship withdrawl, can I still ask Vanguard if they can send me the application for the withdrawal even tho there's a freeze on the account? I want to have everything in place so if the QDRO gets approved I'll be able to expedite the request for the loan a lot quicker. Once again, thank you all for your insight and help. Take care...

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Filling out the paperwork for the distribution in advance should be no problem for anyone, and I doubt that Vanguard would have any objection to sending you the form.

One last comment is that if you and your ex can agree to a dollar amount to list in the DRO for the ex's benefit as Alternate Payee (and the judge agrees with it), then it will be much easier (and faster) for the PA to know the AP's benefit amount. The PA would not have to take the time to go back and calculate the AP benefit from percentages.

Good luck.

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Guest agayya
Filling out the paperwork for the distribution in advance should be no problem for anyone, and I doubt that Vanguard would have any objection to sending you the form.

One last comment is that if you and your ex can agree to a dollar amount to list in the DRO for the ex's benefit as Alternate Payee (and the judge agrees with it), then it will be much easier (and faster) for the PA to know the AP's benefit amount. The PA would not have to take the time to go back and calculate the AP benefit from percentages.

Good luck.

No go on the paperwork either. :angry: Called Vanguard and they said they can't even send me the app with my account being frozen. Oh well...

In regards to the dollar amount...I have an attorney drafting the QDRO and said he should have the draft done by this evening. Won't the draft say she's entitled to half and I'm stuck with the PA having to figure out the amount from percentages?

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The agreement will say what you tell them to say. So long as you and your ex agree to it, it's unlikely (but not impossible) that the judge will object. If it does say half, be sure it says half as of a particular date -- preferably a date on which you have a statement.

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In total agreement with K2retire, I would add that PA's couldn't be happier than to see a dollar amount in the DRO.

The person who may need convincing is the judge, who will (and should) want to be sure that the dollar amount represents half of what it is supposed to, in keeping with the divorce decree that the judge signed. It helps if you and your ex agree that the amount is the appropriate amount.

Generally, it sounds like you're headed in the right direction. Hang in there.

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Guest agayya
In total agreement with K2retire, I would add that PA's couldn't be happier than to see a dollar amount in the DRO.

The person who may need convincing is the judge, who will (and should) want to be sure that the dollar amount represents half of what it is supposed to, in keeping with the divorce decree that the judge signed. It helps if you and your ex agree that the amount is the appropriate amount.

Generally, it sounds like you're headed in the right direction. Hang in there.

I'm trying my best and I'm praying that I can get thru this dilemma quickly and efficiently. It took close to a yr and a half to finalize my divorce and this is the last major thing I have left to deal with. I just want the draft in the hands of my PA (which should be today or Monday at the latest) and for them to quickly approve the DRO. It's now just a waiting game...Thanks again for all the advice. I'll give updates as this progresses so that if there is anyone that is going thru the same situation, they can have an understanding on this very intricate process. :)

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To the OP: Updates would be appreciated, even if the process takes longer than you would like. We like to keep abreast of how the real world operates.

To the rest of us discussing this: I was looking for a court case that analyzed a given plan's QDRO procedures where those procedures included reference to pre-DRO holds of a certain length. I was aware of Schoonmaker, but that case made it clear there were no actual pre-DRO procedures in the plan or in the QDRO procedures. That case is the poster child for having language in the plan or in the QDRO procedures to cover what a Plan Administrator may, or may not, do. And while the award of damages was based on a similar circumstance to the case I am almost remembering ----I seem to recall it was based in or near Philadelphia and was related to Sperry/Burroughs/NEC in some way---- that is, the investment instructions were not followed leading to significant losses in the account, I was focusing on the length of time a hold could be considered legitimate given that it was documented either in the plan or the QDRO procedures.

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Guest agayya

UPDATE:

Well, I had the DRO drafted and it's on the way to the PA. I do have a concern tho...When the draft was intially done, it stated that she will bn entitled to half of the vested amount at the time of seperation (valuation date). Now taking the advice of members on this board, I decided to have the attorney include a stated amount instead to hopefully speed up the process of approval by the PA and the Judge. Let's just say if the valuation date amount is 10k and I decide to give 12k. Does the "valuation date" remain the same because when I read the new version of the DRO, the valuation date is now 3/15/2010. 12k is not 50% of the balance as of 3/15/2010? :( The valuation date on the 1st draft was 11/7/2008. I hope this makes sense. Will the DRO be rejected? Or is it standard protocol that the valuation date is always the date of seperation between the 2 parties...

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Thanks for keeping us updated.

If the wording is such that it is clear that the dollar amount is the amount to be distributed, then the PA will not have a problem with it.

The PA could reject the DRO if the wording allows two different interpretations of how much to distribute (with different results).

At this point, gotta just wait and see what the PA says.

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Guest agayya
Thanks for keeping us updated.

If the wording is such that it is clear that the dollar amount is the amount to be distributed, then the PA will not have a problem with it.

The PA could reject the DRO if the wording allows two different interpretations of how much to distribute (with different results).

At this point, gotta just wait and see what the PA says.

Thanks for the response GMK. I'm just worried that since she is due 50%, the stated amount I gave is less than 50% of the account balance of the new valuation date of 3/15/2010. I'll be off approx $1,600. It's pretty clear on the DRO on the dollar amount to be distributed so I don't believe it can be interpreted any other way but I guess the PA willl determine that. :) I just confirmed from my HR dept that they did recieve the DRO and it has been forward to our legal department which is in-house. I was told its better that we have an in-house attorney vs. having it reviewed by an outside entity for time approval purposes. We shall see...

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  • 4 weeks later...
Guest agayya

UPDATE:

I recieved notice that my DRO has been approved by the PA. It was approved on the 8th. I was out of town so sorry for the late update. I submitted the docs to the court on the 16th and was fortunate to personally hand the info to the judges clerk. She states I should have the certified QDRO in a couple of days. So now I just have to wait until I can get the certified copy mailed back to the PA so they can unfreeze my account. I'm pretty happy that this whole process so far, has taken just a little over a month.

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  • 3 weeks later...
Guest agayya

UPDATE:

Well, as of today, the funds that are owed to the ex has been taken from my account and I was able to request my hardship withdrawal. :) I want to thank everyone that chimed in and gave the advice I really needed. I think if I didn't list a stated amount, the process would have taken a little longer but I'm just glad its over. Know its getting my hardship withdrawal taken care of so I can move on and put all of this behind me. I do however want to know, and maybe this is not the right forum to ask or if someone can direct me on the board, when I submit my docs for the hardship, is it normal procedure for the PA to call and verify that the amount I'm requesting is valid? The reason I ask is I'm going to include a written statement requesting more than what my balance owed is because the trust I have to maintain isn't a bill or has a receipt so I really can't provide a proof. Can the PA call my attorney for the complete amount needed and will a verbal verification be sufficient? Thanks again to all those that chime in.

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Great.

Again, thanks for the update. As Mr. Preston pointed out, we do like to see how things happen in the real world.

As to the hardship distribution, it is standard operating procedure for the PA to take the steps that the PA feels are necessary to ensure that any distribution is in accordance with the terms in the plan document, with respect to both the reason and the amount. It is more than a formality. It is a duty the PA has to the plan and the participants. Work with the PA as needed to give the PA the assurances the PA is looking for.

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