QDRO

[austin3515]

Maybe I'm just too nitpicky, but I got two QDRO's in one week (both from Oklahoma, I think there is a connection here!) where the award is worded as follows:

"50% of benefits accrued during the marriage, plus or minus any gain or loss on the award up to the date of distribution..."

To which I responded to the attorneys, "That's just cooky. If you meant to say 50% of the account balance as of a date, you would have just said that."

So what does this language even mean? For example, It seems to me that I would need to add back any distributions because the award is 50% of the BENEFITS ACCRUED adjusted only by gains/losses.

Oh, and what happens if I don't catch a break, and they were married AFTER participation in the Plan began. That would be buckets of fun.

Is this an Oklahoma thing? I've been reviewing QDRO's for a long time and its first time I've seen this language.

[hr for me]

It's been years since I worked on QDRO's but that is pretty much how we always saw them in TX. Contributions/balance for a certain period of time (usually marriage date to divorce date) and then earnings on that amount until the end of the certain period until distribution to the AP.

I am not sure why you think it is cooky. The distribution isn't 50% at any specific time unless the distribution happened the last day of that certain period (which is pretty much impossible) and that assumes they were married the whole time the employee was participating which many are not.

If there were distributions during that certain period of time, you would have to decide if the AP got docked for 50% of the distribution at the time. Was it during the marriage?

and yes, these were buckets of fun back in the day of quarterly recordkeeping with no specific contribution dates (just quarterly sums) and on mainframes..... we had some pretty hefty spreadsheets to do to get to the amount that was either segregated to another account OR distributed.

I think you are over-thinking it...

[austin3515]

I'm used to seeing "the AP is hereby awarded 50% of the balance as of 6/30/2014, adjusted for gains or losses." The cookiness is that there is a pot of money and the only relevant question is out of that pot of money how much goes each party. Anytying else is just compliacating the matter...

[My 2 cents]

There was a short article cited just yesterday in BenefitsLink called "Breaking Up (the Pension) is Hard to Do". The article gave three different ways to structure QDROs involving defined contribution plans and three other ways to structure them under defined benefit plans. I think that they called the method you are most accustomed to seeing "coverture". The other methods dealt with ways that one could handle a situation where there was $50K when the parties married and $150K now (coverture essentially paying no attention to the original $50K). If you still have yesterday's BenefitsLink email, you may wish to look at the article.

[austin3515]

But why not just take that into account, and split the remaining $100K 50/50, for $50,000., I get that they might want to take that into account, but let them go through that process as a means to tell me what each parties percentage is. And as the advisor to the Plan Administrator, I'm just not comfortable compiling all those variables.

Anyone with me?

[GMK]

I'm used to seeing "the AP is hereby awarded 50% of the balance as of 6/30/2014, adjusted for gains or losses."

Agreed that this (or a simple dollar amount) is the way we like to see it come in (and because it's a QDRO, why we do a litany of private, superstitious rituals aimed at achieving that result).

But dividing the balance accrued during the marriage is as common as anything else here in the Northland. And the ciphering is a complication they usually leave for us to do.

We report back to the parties the amount we have determined the AP will get with a summary of the numbers we used to made the determination and go with that, subject to objections.

[austin3515]

http://squaredawayblog.bc.edu/squared-away/breaking-up-the-pension-is-hard-to-do/

Here is the article referenced. I read these to be the means of coming up with the award amount, not formulas that should be listed in the QDRO.

[austin3515]

GMK, I'm going to the attorney and saying "forget it, no can do, give me an amount."

I'll let you know what he says.

[david rigby]

Austin, your original post used the term "QDRO" rather than "proposed QDRO". If it's really the latter, and you think it does not adequately identify how to divide, then bounce it back to the attorney.

[austin3515]

It is (thankfully) proposed and that's what I'm doing.

[QDROphile]

This is not a problem and you are going overboard when a solution may be at hand. All you need are the beginning and ending dates dates of participation and the marriage. I certainly have encountered dingbat lawyers who refer to times relating to the marriage but do not provide the relevant dates, as though plan should know what is in all the court documents. You ask them to specify the dates in the order, not demand specification in a rigid format (although I am sympathetic to the idea that they sould do the work, not the plan -- but then the plan will get lots of requests for balances at different dates, which might be more trouble).

Example for a DC plan in which the participant had a balance at the marriage date: Take the balance at the marriage date and subtract it from the balance at the divorce date. That is your number as of the divorce date to divide by 2 (50%), effectively giving you the "as of" date you want. It works the same when the particpant was married when participation started. The subtrahend is zero.

[My 2 cents]

This is not a problem and you are going overboard when a solution may be at hand. All you need are the beginning and ending dates dates of participation and the marriage. I certainly have encountered dingbat lawyers who refer to times relating to the marriage but do not provide the relevant dates, as though plan should know what is in all the court documents. You ask them to specify the dates in the order, not demand specification in a rigid format (although I am sympathetic to the idea that they sould do the work, not the plan -- but then the plan will get lots of requests for balances at different dates, which might be more trouble).

Example for a DC plan in which the participant had a balance at the marriage date: Take the balance at the marriage date and subtract it from the balance at the divorce date. That is your number as of the divorce date to divide by 2 (50%), effectively giving you the "as of" date you want. It works the same when the particpant was married when participation started. The subtrahend is zero.

The article I mentioned calls that approach "subtraction". I am not involved with designing or handling QDROs for defined contribution plans, but I KNOW I want nothing to do with what the article calls "tracing assets"!

[austin3515]

"take the balance at the marriage date"

For real? This is a huge hardship. Try and get the balance on a platform for any participant you have on January 17th 1998 and let me know how that works out. I'll bet you have plans where you don't even know who had the money in 1998.

[QDROphile]

For real. The point you make is a good one, but involves different issues and a different set of policies. And I believe that a plan has an obligation to keep historical balances no matter how many changes in record providers, not that they do it properly. I do not think they have to keep daily balances, which gets into policies about using reasonable valuation dates and conventions for identifying the appropriate one to the extent the order does not specify (the valuation date that is nearest the desired date, immediately preceeding, or immediately following?).

Most of my clients can handle January 17, 1998 within legally acceptable tolerances (the answer is December 31, 1997). I am living the dream.

[austin3515]

I could count on 1 hand the number of clients for which such a task would not make me cringe... Most of your clients? That's amazing.

But even still, I still contend that even the people most affected by this should prefer to have the affect of QDRO be more or less known BEFORE it is executed. So let them decide whatever method they wish to figure the amount of the QDRO, but then express the QDRO in simple terms (i.e., fixed dollar or fixed percent). $50,000 for you! The way my "new QDRO" is written, no one really knows what they're going to get until you dig through the archives.

[QDROphile]

I agree with your approach to fit the circumstances. Even in my dream world the plan cannot bring forward earnings from early dates, such as "50% of the balance as of the January 17, 1998 divorce, with earnings on the AP's share until distribution." The parties to the order have to figure out some formula or number for the earnings up to some viable date in the present administration system. There is no legal requirement for the plan to perform that function, so 414(p)(3)(A) would apply. But there is that nasty records requirement for balances. The reason my clients can do it is becuase we have been advising them about what needs to be done when record keeping changes.

[Belgarath]

Austin - I do have a slight advantage over you, in that I have 7 thumbs on one hand, so I have a couple more clients with good records, perhaps.

I agree with pretty much everything that everyone has said! There's no "one size fits all" answer as far as I'm concerned. Like you, we certainly have takeover clients - imagine a plan you took over in 2010, properly updated for EGTRRA, everything clean, but plan has been in effect since 1967. And until 2006, let's say, it may have been pooled accounts. Now you have to figure this out for years between 1977 and 2013. It was a PS plan that allowed in-service distributions, Rollover money in plan. Loans. And two of the prior TPA's are long out of business and the Plan sponsor has no records.

This isn't actually all that far-fetched. And I think the QDRO, as proposed, is simply impossible. So as Qdrophile has suggested, I think the PA sends it back, after determining perhaps what COULD reasonably be done, telling them to come up with something else.

Not being a lawyer, I have no idea what you do if the parties prove to be recalcitrant when it comes to determining a reasonable and administratively possible approach.

My experience is that once told that their method is impossible, they always come up with something else. I've probably just been lucky.

[MoJo]

Virtually every QDRO I have seen has the same or similar language. Take the total amount of contributions made or accruals earned FROM the date of marriage UNTIL the date of divorce (or separation, or some specified date) and divide by two. Now, do recordkeepers balk at that? Some do, some don't.

ERISA does require that records "required to calculate benefits due" be maintained forever, or until the benefits are determined and paid....

p.s. - mostly we're talking about Ohio QDRO's - but when I worked for Schwab, we got them from all over with similar wording.

[SearchLight]

My take on "life of the marriage" awards is to be completely upfront about the difficulty in obtaining balance records, particularly when the dates are far back in time and/or not aligned to typical reporting periods (quarterly/annually). When I get one to review where I know that my organization lacks the records, my typical approach is to inform the sponsor that I can only go back to a certain date (usually the date they engaged services) and any necessary records prior to that will need to be provided by the sponsor or by the participant. I've only ever seen such records produced once or twice.

This approach is almost always effective in making the parties stop to think about which matters more to them - the precision in the amount awarded or the speed at which the award amount can be transferred to the alternate payee's account. Once they can see that trying to obtain records for a balance on 9/18/86 is likely to be a drawn-out and perhaps fruitless search, attitudes start to shift. Much of the time, at least one of the parties is willing to take a financial hit simply to have the issue settled quickly.

[Peter Gulia]

When efforts of the kind that SearchLight describes are unavailing and a would-be alternate payee really digs in, I've seen plan administrators assert a position that an order that would require the administrator to compute a payment or set-aside using an amount that can't be retrieved from the plan's records cannot be a qualified order.

As a part of this, the administrator asserts that it need not look to records that, after applying ERISA and Internal Revenue Code retention requirements, it was not required to keep (and in fact discarded).

What do BenefitsLink mavens think about this?

[SearchLight]

I think that could be an aggressive position to take, particularly given the "nasty records requirement for balances" QDROphile cited earlier (ERISA Section 209, to be precise). If a prospective alternate payee really wants a dogfight and has no qualms about the time and expense involved in litigation, it's plausible he or she could make a case out of a sponsor's failure to produce sufficient records to calculate a benefit.

Within the DOL's guidance on evaluating DROs, they do note that a plan's QDRO procedures should include "an explanation of the information about the plan and benefits that is available to assist prospective alternate payees in preparing QDROs, such as summary plan descriptions, plan documents, individual benefit and account statements, and any model QDROs developed for use by the plan." One could try to read into "that is available" to create cover for rejecting an order that depends on unavailable information for a calculation, but that doesn't seem like enough to create an exemption from the Section 209 requirements.

Here's a nice article I found that discusses both ERISA Section 107 (which is where the oft-cited 6-years-post-filing guideline comes from) and ERISA Section 209, which can expand the retention requirements for certain records to life-of-the-plan-plus-some:

http://www.employeebenefitsupdate.com/benefits-law-update/2012/9/27/retention-of-records-for-employee-benefit-plans-how-long-is.html

[mbozek]

I have always abided by the rule that the Plan administrator determines whether the plan can comply with requests to credit gains and loss or contributions to the parties to comply with a proposed QDRO. Many plans set a limit of how far back they will go -some may only go back 12-24 months. Another option is to tell the attorney that the plan will comply with the request to the extent the plan can find the records but the participant will be required to pay for the cost of searching for the records and doing the calculations. QDROS are not a free service.

As plan keeping records forever, many plan records disappear when companies are acquired or merged and Corporate record retention policies determine how long records will be preserved. And then there are the records that are sent to the warehouse and cannot be located.

[My 2 cents]

I don't work on defined contribution plans, but aren't the vast majority of those plans administered on a balance-forward basis, with no real year-by-year history of balances? Is it incorrect to say that being able to support any kind of demand for historical account information for a QDRO goes well beyond what is needed for "calculating a benefit" under the regs? The "benefit" under a defined contribution plan is, generally, just the current balance as adjusted for vesting, isn't it?

[austin3515]

Balance forward plans are few and far between although I have a lot of "micro clients" where it's making a comeback out of a desire to avoid fee disclosure notices and QDIA notices. But probably 95% of DC plans are valued every day.

[My 2 cents]

Balance forward plans are few and far between although I have a lot of "micro clients" where it's making a comeback out of a desire to avoid fee disclosure notices and QDIA notices. But probably 95% of DC plans are valued every day.

Speaking (as usual) as someone not practicing in the defined contribution arena, I was thinking of plans that are valued every day that do not keep long-standing records to permit recreation of the current balance. Perhaps my use of the term "balance forward" was not what I meant. When I said "balance forward" I was thinking of plans that keep track of the current investment holdings for each account and that value them every day but that cannot supply any information as to what was there two years ago. There is a need,of course, to go back to balances a year or so ago and to be able to say what the after-tax basis is, both for normal tax reporting, but how would information from 2011 be needed to "calculate benefits" under the normal operation of the plan? Implementing a QDRO that requires information not needed when administering current account balances does not fall under my concept of "calculating benefits". If the QDRO requires information from long ago or complicated splitting of the balance based on historical investment performance, let the burden of providing that information fall on the divorcing parties.

[GMK]

^as to records from long ago, see the linked article in post #21.

[My 2 cents]

^as to records from long ago, see the linked article in post #21.

Quoting from that article: “...maintain benefit records with respect to each of [its] employees sufficient to determine the benefits due or which may become due to such employees...” Let us suppose that the employer/administrator retains such records, but the provisions of the QDRO cannot be followed because the requirements of those provisions fall outside of what is needed to establish the benefits due or which may become due to the EMPLOYEE so no such records are maintained. Is this a violation of the recordkeeping requirement? The Alternate Payee with the imaginative lawyer is not an employee or participant in the plan. Is it necessary to retain records sufficiently comprehensive to support account splits of every imaginable variety? Is it permissible for a defined contribution plan to exclude, by its terms, provisions of a proposed QDRO that goes beyond applying a service ratio and a percentage against a specific recent (or current) account balance, allowing the plan administrator to reject out of hand any court order requiring more? Just wondering.

[hr for me]

Kind of off topic --

I know that balances aren't kept in daily plans on a daily basis since the units they are based on are valued differently each day, but do daily recordkeepers not do snapshots that are archived on a periodic basis? (I know I do this on my and my spouse's own 401k and other mutual accounts). I can't imagine not having backups at least quarterly or monthly if not weekly or daily such that you could go back to a period of time that is close to the date needed and iterate from there. Participant statements are usually generated quarterly and I would think there would be at least a backup of those to both the client and the plan administrator. The HR consulting firm I worked with kept the records for 7 years and counseled clients to keep them forever or at least until the plan terminated, everyone was paid out and the 7 year SOL passed. That was probably based on Section 209.

I remember transferring huge historical files to new recordkeepers right as quarterly processed plans started to go daily with Merrill Lynch and Fidelity. It was my job to produce those transaction files so they had the history. Are recordkeeping companies/clients not doing so any more? Is it because of the fact that earnings are now calculated more often/differently? I would still think you would need to keep some type of snapshot of units over time if not balances.

It was my understanding years ago that as long as a participant had a benefit payable to them, the backup to that benefit should include all activity (contributions, earnings, distributions) over time that could be added up to make back that balance if needed to be proven for any reason. But it's been years since I have been practicing directly in the 401k field.

Obviously once money is distributed or rolled out of the plan, the lump sum amount is just passed on to the new recordkeeper/investment firm. But is this the general rule now when a whole plan switches recordkeepers?

Just curious!

[mbozek]

Cant rely on proposed regs under ERISA 209 because it is not a final reg which has the effect of law.

Second, participant suing a DC plan for incorrect benefits must provide a plausible basis under the facts pleaded in the complaint for which there is a remedy under federal law. In other words the participant must demonstrate that benefit values in plan statements are incorrect. Participant cannot merely allege that his account balances should be higher based on performance metrics for funds published by fund co. If participant cannot provide a plausible basis demonstrating that account balance under plan records are incorrect the case will be dismissed.