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I am interested in learning more about the several QDRO-outsourcing services available in the retirement-services markets, and hope to get information from BenefitsLink mavens’ wide experience.

Of the big recordkeepers, which ones offer a service of deciding whether an order is a qualified domestic relations order?

For those that offer a service, does the service provider accept responsibility as a fiduciary to the extent of its QDRO-or-not decisions?

Or does the QDRO service provider get the plan’s named fiduciary to instruct the service provider to follow a written procedure it designed so that the service provider is not a fiduciary?

I have seen QDRO service procedures that authorize the service provider to approve as a QDRO only an order that is identical (but for the names and addresses, and filling-in the amount or percentage to set over to the alternate payee) to a specified form of order. All else the service provider turns back to the plan’s administrator. How common is this way of doing a QDRO service?

If a QDRO service procedure is not so limited as described in the preceding paragraph, what techniques does the procedure use to get rid of discretion?

Do other recordkeepers or third-party administrators offer a service of deciding whether an order is a qualified order?

Again, does one design it to be fiduciary or non-fiduciary?

Are there are any “stand-alone” QDRO service providers that are not a part of or affiliated with a recordkeeper or third-party administrator?

What methods do they use?

If your customer says it wants to outsource QDRO decisions, what service provider do you suggest to your customer?

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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Don't know why any record keeper or TPA would want to expose itself to fiduciary risk under ERISA for the thankless and financially underpaid task of approving QDROs. Most that I could see is record-keeper or TPA approving a form QDRO for names and addresses SS, or other ministerial duties which do not entail exercising discretion as a fiduciary under the plan.

Any third party who agrees to act in a fiduciary capacity for QDRO will open itself to risk of co fiduciary liability for any other administrative tasks delegated to other fiducaries which can result in big bucks liability. A few years ago a financial advisor for a retail brokerage company who was acting in a fiduciary capacity providing investment advice to a 401k plan was held to be a co fiduciary to the plan for administrative duties after the plan administrator/trustee embezzled several million $ from the plan and then disappeared. The court held the broker to be a co fiduciary liable for the loss of the funds because the broker received all the reports from the plan showing plan investments, payments and contributions which would have made the broker aware of the embezzlement if the broker had reviewed the cash flow reports even though the broker was not responsible for making payments from the plan. I don't know whether a TPA or record-keeper could purchase fiduciary liability insurance to cover such risk at an economically affordable premium.

mjb

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Fearing co-fiduciary responsibility is the strongest reason for not taking on a fiduciary role.

Has anyone seen a QDRO-processing service designed to be "ministerial" so that it's non-fiduciary?

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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I have worked for TPAs that review QDROs and offer a recommendation to the the plan administrator if they think the QDRO should be accepted or not. Once again the recommendation was written carefully to be clear the TPA was not approving the QDRO merely giving an opinion to the plan administrator.

I don't know if I have seen a QDRO processing service that only reviews QDROs. I am not sure how you would ever make enough money doing that.

I know there are attorneys that specialize in drafting QDROs out there. So a divorce attorney that doesn't think they are equipped to handle the complexities of the QDRO portion of the divorce settlement can turn to the specialized law firms.

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... there are attorneys that specialize in drafting QDROs...

Judging by the quality of those I have reviewed, these "specialists" are not very successful.

:)

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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Focusing on the task of deciding whether an order submitted to a plan for treatment as a qualified order is or isn't a QDRO, how often, in your experience, does the employer/administrator make an incorrect decision?

How often does the employer/administrator decide that an order is a qualified order when the TPA or recordkeeper knows the order is not a QDRO?

How often does the employer/administrator decide that an order is not a qualified order when the TPA or recordkeeper knows that it is a QDRO?

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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Based on a recent court decision, it seems that Fidelity's fee for a review of an order is $300 if the order was generated using Fidelity QDRO Center and not altered, or $1,200 if the order is not so generated or is altered.

Thoughts about this?

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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Sounds like my bosses need to raise our fees. We never charge more then $100 to $150 it seems like to review a QDRO. We view it as a money loser in terms of time vs revenue. We will charge more if we go back and forth a few times with the attorney.

We don't have a standard QDRO format so we get what we get from the attorney and we review it.

It seems like most of the time if there is a flaw it is we can't compute the benefit the Alt Payee is supposed to get.

Every now and then you find one with a flaw like no plan name or wrong plan name. But the biggest flaw is failing to describe how to split the benefit in a way that is actionable.

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There are many plans that provide model DROs with standard language and all of the available options listed where the parties can fill in the amount/option selected and who will receive the payment. Some come with instructions to minimize mistakes by divorce counsel. This doesn't stop counsel who will insist on using a non conforming DRO that the attorney believes to be better but is not acceptable to the plan. Plan admin will usually use flat for review where there is a model DRO.

mjb

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Thank you, responders, for the helpful information.

For those who are providing a QDRO-review service, what steps do you use to defend the idea that your review is merely clerical or ministerial, that you do not in practical effect make the fiduciary's decision, and that your service is not the practice of law?

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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I've seen firms that offer a fiduciary service to review and approve QDROs and/or a non-fiduciary "offer observations only" courtesy review service of the sort ESOP Guy describes as part of their larger bundled services. It's a fairly new offering in the marketplace, though, so it doesn't have a big track record yet.

In practice, it's generally much harder to get the fiduciary-level service (when it's even offered) because those that offer it typically have a long list of plan provisions/operations/history that are on their internal no-fly list because of co-fiduciary liability issues. Even something as seemingly unrelated as a past history of late deferral deposits (even corrected ones) can be enough for the service provider to nix it. It's also not uncommon to see more DROs turned back to the parties for revisions/amendments/clarifications in court when the provider is the fiduciary for the same risk-limiting reason.

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SearchLight, thank you for the good help.

Fear of co-fiduciary responsibility concerning an employer's irresponsibility or ineptness keeps service providers away from the employers that need help the most.

But could that be an argument in favor of a separate QDRO service provider so it would deliberately lack knowledge beyond its assigned function?

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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But could that be an argument in favor of a separate QDRO service provider so it would deliberately lack knowledge beyond its assigned function?

I am not a huge expert on fiduciary issues but does a lack of knowledge beyond its assigned function matter?

Back a few years ago there was a strong movement to make appraisers of ESOP stock fiduciaries. One of the strongest objections to this idea was once you make them fiduciaries you make them liable for acts they would not have no control or knowledge about. I got the impression that when it comes to ERISA plans one fiduciary is liable for the acts of all the other fiduciaries of the plan. I remember several lawyers giving the example the appraiser if they were the last deep pocket to go after could get entangled in disputes say over how distributions were handled, or the cash in the ESOP invested. These would be things a stock appraiser would have no control over or even knowledge about in an ESOP. This was enough of a threat that several appraisal firms made it clear if the new rules came into existence they thought they would have no choice but leave the ESOP market and focus solely on Estate tax appraisals and the buy/sell of privately held company market. They believed they could not be compensated enough to take on that kind of risk.

I am willing to be told I misunderstood these conversations but I don't think I did.

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ERISA 405(a)(3) makes an observing fiduciary "liable for a breach of fiduciary responsibility of another fiduciary with respect to the same plan ... if he has knowledge of a breach by such other fiduciary, unless he makes reasonable efforts under the circumstances to remedy the breach."

This is why those stuck in a co-fiduciary role try to avoid receiving unwelcome information.

In some roles and services, it's difficult or impractical to avoid knowledge. For example, if a recordkeeper and a directed trustee are the same person, it's hard not to know that a participant contribution has not been paid over to the trust.

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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