How do you define receipt of a DRO?

[RatherBeGolfing]

How do you define receipt of a DRO?

I have seen some interesting questions here and on other sites lately, which caused me to take a closer look at my firm’s QDRO procedures. One thing that I am a little stuck on and that I’m hoping for some good input from the benefitslink community on, is at what point do you consider the Plan Administrator being in receipt of a DRO for a QDRO determination? And more specifically, what triggers the Plan Administrator’s duty to segregate and separately account for the assets subject to the QDRO.

Our current QDRO procedures states:

“Upon receipt of a written notice of a domestic relations order, the Plan Administrator will…”

If I (the Plan Administrator) get a request from an alternate payee’s attorney asking for certain information to assist them in drafting a DRO, am I in receipt of a DRO that would require me to not process distribution requests from the participant? Technically, I would say no, I’m not yet in receipt of a DRO. However, processing a participant’s distribution request after you know that a DRO is in the process of being drafted seems to go against the spirit of the law.

I have not seen any advisory opinions or other guidance on what is considered receipt of a DRO. Would anyone here argue that there is such a thing as constructive receipt of a DRO?

Thanks in advance for any input and (hopefully) spirited discussion

J

[ETA Consulting LLC]

I think I understand your question. What exactly is a written "notice" of a DRO? Either you have a DRO or you do not. Based on debates and discussions I've had over the past 15 years (of my 20+ years in the industry), I've evolved to just that; "a receipt of a DRO from the court".

In many instances, the time frame between such "notice" and the actual DRO should be relatively small, but you cannot always account for someone else's red tape. When you consider that with respect to protecting the participant's rights under the terms of the plan, then you could easily say that the 18 month determination clock starts at the time you receive the actual court order. This approach would put the onus of getting a DRO drafted, signed by the court, and submitted to you squarely where it belongs; on the attorneys and the court.

When you look at it, it basically boils down to where you draw the line. I've evolved on this (through a series of lost debates I've had over time) that the line is drawn on when you receive the actual court order. Outside of that, what other authority would you have to deny a participant any right under the written terms of the plan?

[This is merely where I am on the issue. I would easily respect any differences of opinion; it's just this approach seems the most consistent to me.]

Good Luck!

[RatherBeGolfing]

For what it is worth, I agree with you. It absolutely comes down to where you draw the line, and I want as little discretion as possible for the PA to stay consistent. Luckily, 99% of the DRO's that hit my desk are relatively simple because the parties just want it over with at that point. There is always that one percent though.

the line is drawn on when you receive the actual court order. Outside of that, what other authority would you have to deny a participant any right under the written terms of the plan?

That pretty much sums up my position as well. However, I have heard the argument from other practitioners that once the plan has been put on notice that a DRO is forthcoming, a hold on distributions is justified for a reasonable period of time.

Thanks,

J

[MoJo]

This is a matter of "where you draw the line" but I disagree (I think) with ETA. 99% of the time we (as a bundled service provider who provides QDRO services) receive DRAFT orders from an attorney for review PRIOR to getting the court to actually issue the order. The policy "sample" we provide indicates "If the Plan Administrator is on notice (verbal or written) regarding a Participant's pending domestic relations action..." then a "90 day" hold *may* be placed on the participant's account to protect the rights of the potential AP. If after 90 days something more substantial isn't forthcoming (a draft DRO or something else sufficient to cause the PA to protect the rights of the AP) then the hold is released.

Sorry, but I don't think this is an area where "hard and fast" rules (eliminating discretion) are necessarily appropriate. Good judgment is a must.

[david rigby]

How do you (or someone) decide whether "may" applies?

[GMK]

Receipt of a DRO is easy. It's when you get the document signed by the judge.

Receipt of "notice" of a coming DRO is the grey area.

Best is to have procedures for both cases in your plan's QDRO Procedures.

Until you get the signed DRO from the court, you are not required to do anything for the eventual AP. As you say, however, there is the spirit of the law factor. So, our procedure has a 90 hold after receipt of notice if the Participant is eligible to receive a distribution (if there's no possibility of a distribution, there's nothing to hold). There's no judgement call (no "may"), so it applies uniformly. We understand that this hold is not justified by the law and regulations, but only by the spirit of the law.

[MoJo]

Good, solid, fiduciary judgment - based on the risks of having to pay a benefit twice vs. the ire of a participant in a domestic relations "action" that wants to remove assets from the plan.

Fiduciaries do it all the time.

If you wait for a "DRO" actually signed and issued by a court, then it's probably "wrong." and will have to be redone (which is why we encourage drafts), so when do actually "freeze" the account? When you get a DRO that may or may not be a QDRO, or when you actually get a QDRO, or some other time.

I don't think you can avoid the decision....

[My 2 cents]

Is there any responsibility to protect against the participant essentially defrauding the potential alternate payee by clearing out the account?

Interesting item I saw over the weekend in an article saying what NOT to do if you win Powerball. In the section that may be relevant here, someone won $1 million in a California (I think) lottery then promptly filed for divorce without mentioning the lottery winnings. They came out during the divorce process and THE COURT GAVE ALL OF IT TO THE SPOUSE.

How well do you think it would work out if a participant is going through a divorce and the plan administrator is told about it but allows the participant to cash out of the plan? Any chance of the plan having to pay twice?

[StaceyHelton]

Any chance of the plan having to pay twice?

Doubtful, but courts will sometimes try to tell plans do things that are blatantly against ERISA. The plan should fight any such attempt, since they are not allowed to pay out higher benefits then what the participant is actually entitled to.

I know I have had to tell participants and APs that the plan can no longer do anything, they will have to fight it out in court separately.

Disclaimer: I am not a lawyer, etc.

[RatherBeGolfing]

If you wait for a "DRO" actually signed and issued by a court, then it's probably "wrong." and will have to be redone (which is why we encourage drafts), so when do actually "freeze" the account? When you get a DRO that may or may not be a QDRO, or when you actually get a QDRO, or some other time.

That part is addressed in §206(d)(3)(H)

During any period in which the issue of whether a domestic relations order is a qualified domestic relations order is being determined (by the plan administrator, by a court of competent jurisdiction, or otherwise), the plan administrator shall separately account for the amounts (hereinafter in this subparagraph referred to as the “segregated amounts”) which would have been payable to the alternate payee during such period if the order had been determined to be a qualified domestic relations order.

Basically, you freeze the account upon receipt of the DRO, qualified status doesn't matter at that point because what you have is an ORDER telling you that the alternate payee is entitled to the participants benefit. Whether you actually pay it out depends on the qualified status of the DRO.

I don't think your position is unreasonable, it may even be the most common approach. I'm just (personally) struggling with the legal justification of suspending a participants rights to a distribution absent an actual DRO.

[QDROphile]

This is the problem:

“Upon receipt of A WRITTEN NOTICE of a domestic relations order, the Plan Administrator will…”

That is not what the law requires and you are creating complexities and issues that need not cloud the processing of domestic relations order. Most of the discussion above is the result of venturing into the unnecessary to achieve uncertainty or worse.

[RatherBeGolfing]

This is the problem:

“Upon receipt of A WRITTEN NOTICE of a domestic relations order, the Plan Administrator will…”

That is not what the law requires and you are creating complexities and issues that need not cloud the processing of domestic relations order. Most of the discussion above is the result of venturing into the unnecessary to achieve uncertainty or worse.

I agree, and this is why I am examining my own firm's written procedures to see if they should be revised.

Would you agree then that law is pretty clear that the duty to segregate assets is not triggered until you have a DRO (not a draft or notice thereof, but an actual order, decree or judgment made pursuant to state law etc.)?

[Mike Preston]

It seems to me that there are two issues being confused. I agree that true segregation requires a QDRO. But a hold only requires a QDRO procedure authorizing same.

I thought there was case law on the issue. A very hazy memory tells me it was a Unisys case. Could be wrong.

[QDROphile]

Segregation of assets is not required until there is a distribution that could jeopardize the evaluation of the order and the implementation of an order that is determined to be qualified.