Do custodians decide whether an order is a QDRO?

[Peter Gulia]

Regarding an ERISA-governed retirement plan, a person who wants to be recognized as an alternate payee submits a domestic-relations court's order to the plan's administrator. If such a person submits the order to the plan's recordkeeper, a typical recordkeeper will send the order to the plan's administrator, or do something to make clear that the recordkeeper is not the decision-maker.

What about a 403(b) plan for which the employer seeks (whether to avoid establishing or maintaining a plan within ERISA's meaning, or for other reasons) to not involve the employer in benefit claims decisions (except to furnish factual information that is specially known by the employer)?

In those circumstances, will a 403(b) insurer or custodian make QDRO decisions?

What restrictions or provisions (if any) does an insurer or custodian request?

Does willingness to handle QDRO matters vary between insurers and custodians?

Is there a difference between group and individual annuity contracts?

Is there a difference between group and individual custodial-account contracts?

If both the employer and the insurer or custodian refuse to decide whether an order is a QDRO, what happens?

[BG5150]

Is there a Service Agreement in place?

[masteff]

Might start w/ the next to last two questions here: http://www.dol.gov/ebsa/faqs/faq_qdro.html

[QDROphile]

The document at the site provides a nice example of how the Depatement of Labor can't even read the statute when it comes to QDRO matters:

"QDROs must contain the following information:

• The name and last known mailing address of the participant and each alternate payee"

[Peter Gulia]

mastiff, thank you for the pointer to these EBSA Q&As.

But I'm asking about situations in which ERISA does not govern the plan, or at least the employer does not concede that it established or maintains a plan within the meaning of ERISA.

If the employer says "not me", does the insurer or custodian take over and decide the QDRO matters? Or is there a stand-off that leads to a battle? And how does the battle play out?

[QDROphile]

There are many contract providers that will handle the domestic relations orders. They did it of necessity and control before the tax regulations put into question whether or not we really have non-ERISA plans any more, except for government and church plans. The relationship question is now more complex because it puts the ERISA question sqaurely in faces. Under ERISA the QDRO determination and adminstration if a fiduciary function. Some providers are willing to step up and others try to aoid the question or avoid fiduciary status.

[BG5150]

For non-ERISA plans, is it incumbent upon the employer to find a vendor who will do that? Or, is it the vendors responsibility to either do it, or find someone who will.

From the "Governmental & Tax Exempt Plans" study module from ASPPA:

Discretionary Determinations
The employer does not remain within the safe harbor by having responsibility for, or making, discretionary determinations (e.g., authorizing plan-to-plan transfers, processing distributions, satisfying QJSA requirements, making hardship determinations, qualifying domestic relations orders as QDROs, and determining eligibility for or enforcing loans). Thus, in order for the plan to remain compliant with IRC §403(b) but also remain exempt from ERISA, the employer needs to make sure the provider or custodian takes on these responsibilities.

(my emphasis)

[QDROphile]

If the employer wishes to take the position that the plan is not an ERISA plan, then everything about QDROs has to be done by venders. The employer cannot be involved. I would argue that the employer's limitation on venders based on which ones will administer QDROs could be a problem unless there is an adequate number of venders.

[masteff]

So if ERISA doesn't apply then we have to ask ourselves, under what part of the law are QDROs then permitted in a 403(b). It appears to me that it's IRC 414(p). The most relevant paragraphs for your question are 414(p)(9) and 414(p)(6). 414(p)(7)(A) does seem to leave it open for a court or some other entity to determine qualification.

[Peter Gulia]

masteff (I undid the automated spelling-changing this time) mentions a helpful point.

If ERISA does not govern the plan we're thinking about, it also does not preempt State law. That leaves open that a court's order has whatever effect it has under relevant law, including the law of whether a person that might be called to do something in response to the order is or isn't subject to the court's jurisdiction.

Internal Revenue Code 414(p) governs only a Federal tax treatment that follows from whether an order is or isn't a QDRO. This includes whether a payment from a 403(b) contract is or isn't excused from a 403(b)(7) or 403(b)(11) condition against a too-early distribution. A State's court cannot meaningfully decide whether an order is or isn't a QDRO; only the United States courts could render a decision that binds the Internal Revenue Service.