Enhanced QDRO Service?

[Peter Gulia]

Some 401(k) recordkeepers offer an optional service, for an incremental fee, under which the recordkeeper will review a domestic-relations order to decide (but for the plan administrator's rubber stamp) that an order is a QDRO.

For those that offer such a service, does the recordkeeper allow the plan's administrator to specify how the expense is allocated among participants' accounts? Can the allocation be proportionate across all participants' balances?

Does a recordkeeper require or permit an allocation of these QDRO-service expenses only to the account that is the subject of a division or proposed division?

Does the recordkeeper provide an indemnity to stand behind the accuracy of its decision or recommendation?

Is this kind of service worthwhile?

[K2retire]

How could an expense be allocated across the accounts of unrelated participants and still be a "reasonable" plan expense?

[QDROphile]

Back to the original Department of Labor position, except that the Department said that it was impermissible to allocate the charge to the participant's account. The Department's recant only said that is was permissible to allocate to the participant. It did not say that treating the expense as a general expense of administration was improper.

[Peter Gulia]

So if either expense allocation is possible, does a recordkeeper allow an employer to specify which allocation the employer prefers?

[QDROphile]

"does a recordkeeper allow"

For any respectable plan administrator,there's the rub, innit?

[david rigby]

When we say things like "... does the record-keeper permit or allow...", is there concern that the record-keeper starts to look like a fiduciary?

- Is there a service agreement that defines this service?

- If so, should that SA already address some of these other issues?

[My 2 cents]

And, of course, if we are talking about a defined benefit plan, the parties to the QDRO cannot be charged for the cost of the plan dealing with it.

[Peter Gulia]

David Rigby, both of your observations are good.

In formal terms, a recordkeeper doesn't preclude an administrator from doing something; rather, a recordkeeper chooses which service it offers (or doesn't offer). If an employer doesn't have big-plan buying power, what recordkeepers offer often is a practical restraint on what an administrator chooses.

You're right that a service agreement would state the add-on services. My work as counsel to administrators is about employee-benefit plans with tens of thousands of participants and enough buying power to custom-negotiate each service agreement. But my inquiry here is about unusual work for a small plan, and they won't ask for the QDRO add-on unless I advise them that it's worth considering.

So that's why I ask BenefitsLink mavens: Is a recordkeeper's QDRO-review service worthwhile?

(I'm hoping to see the usual sharpness of different viewpoints.)

[ESOP Guy]

Is a recordkeeper's QDRO-review service worthwhile?

Yes.

I find that the plan administrator often times needs someone to review the QDRO. Maybe it is because I work in the TPA world I find our reviews are better then the attorney's. While the attorney is often times very sharp on the law they tend to have never had to deal with the practical aspects of QDROs. Just read a random selection of QDRO questions on this board. What at first glance seems like a reasonable description that is very specific on who to split the accounts often times isn't very clear when the TPA looks at it.

Simple example that happens all the time with ESOPs. Since most attorneys are used to 401(k) plans that are valued daily we get ESOP QDROs that will say split the account as of 9/8/2015. The reality is the valuation only happens once a year for most ESOPs and if it is a calendar year plan that mean the last annual work was done 12/31/2014. So do we split the account as of the 12/31/2014 value as that is the value as of 9/8/2015 (my preferred answer by the way) or do you reject the QDRO as not having a good enough description of how to split the account (the preferred answer of some of my co-workers at this ESOP specialized firm)?

Like I said to many attorneys why wouldn't you give the date of the divorces as the date to value the account for the split? To an ESOP TPA that causes issues.

An ESOP TPA will note this on a review every time. Even when I review a QDRO while I think my answer is good I note the issue in my review for the plan administrator to decide if they want to reject the QDRO or not.

Back when I did 401(k) plans I found often times an attorney signed off on a QDRO only to have me start to ask really good questions that pointed out that the order isn't clear on earnings from the date of split to date of payment and I could go on. Once again read all the QDRO questions on the board and you see real quick a lot of practical issues get missed until the TPA is forced to deal with the QDRO.

[Peter Gulia]

ESOP Guy, thank you for your good observations.

My experience too is that those who have practical experience with recordkeeping operations spot issues that others miss.

I'm interested in what you think about my idea for an element in an employer's QDRO procedures:

Before sending an approval of a "live" order that the administrator believes is a QDRO, give the instruction to the recordkeeper. Next morning, check the system to see whether all the changes transacted. If all processed, put the QDRO-approval letters in that afternoon's mail. If anything didn't process, talk with the recordkeeper. It's likely that the recordkeeper's reason for not processing the administrator's instruction will reveal at least one reason for deciding that the order is not a QDRO.

What do you think?

[goldtpa]

No! A recordkeeper's QDRO-review service is not worthwhile. Recordkeepers can only tell you whether a DRO would qualify as a QDRO. However they cant tell you whether the DRO meets all of the requirements of the Plan's QDRO Procedures. Recordkeepers have their own QDRO Procedures which are never communicated to employees and may be different than the Plan's QDRO Procedures.