QDRO Fees

[EHE]

The TPA charges 700 to review and approve QDROs submitted by plan participants.  Can this fee be charged to the plan and allocated to all participants or must it be either paid by the client or split between the plan participant and alternate payee?  Most concerned about if it can be paid by the plan.  Thanks!

[RatherBeGolfing]

Can a fee for QDRO review be paid with plan assets?  YES

Can the fee be paid as general expense (all Ps share)? YES

However, any fees paid using plan assets have to be reasonable and necessary.

I would have a very hard time justifying a flat $700 fee for a TPA to do a QDRO review.  Others may disagree.

[ETA Consulting LLC]

17 minutes ago, RatherBeGolfing said:

I would have a very hard time justifying a flat $700 fee for a TPA to do a QDRO review.  Others may disagree.

I agree, totally.  It seems as if TPAs sometimes get carried away.  You shouldn't be looking at any more than an hour of review.

Good Luck!

[EHE]

Should have clarified... the 700 is for qualification of the DRO leading to QDRO status.  Letters to all parties, review, etc. Sometimes this process takes months, but normally several weeks.

[RatherBeGolfing]

1 minute ago, EHE said:

Should have clarified... the 700 is for qualification of the DRO leading to QDRO status.  Letters to all parties, review, etc. Sometimes this process takes months, but normally several weeks.

Those are the same steps we all have to take when we receive a DRO.  Except for very rare cases, it is a fairly simple process and I'm sure your TPA has form letters they use with the DRO/QDROs.  

I still take issue with a flat fee of $700.  Heck, the attorney who drafted the DRO probably charged less.  If you want to pay $700 as the plan sponsor, have at it.  I don't think a flat fee of $700 will ever pass the smell test when it comes from plan assets.

[My 2 cents]

Give it a look-over.  Mark down everything that looks amiss.  If it appears to meet the requirements for a QDRO and appears to be capable of being administered, say it appears to be suitable (and, if you have the authority, qualify it).  If not, say what is objectionable and send it back.  The responsibility for coming up with a suitable DRO that can be qualified does not belong to the plan, the plan administrator, or those who provide guidance to the plan administrator.  Put it back on the court and the lawyers!

$700?  Sounds awfully high for fulfilling the limited responsibilities belonging to the plan.  If it won't do, a quick sketch of why it won't should be sent off to the parties.  "Sorry, we cannot treat this as a qualified DRO because A, B and C", and let them try again.  How many QDROs a year have to be dealt with per 1,000 participants?

[david rigby]

On ‎2‎/‎22‎/‎2017 at 5:08 PM, RatherBeGolfing said:

...$700.  Heck, the attorney who drafted the DRO probably charged less.

I doubt that.  Don't forget that "reasonable" has a "market" component to it.  Sure, it sounds like a lot, but it may be comparable to others.  What would the plan's legal counsel charge? 

BTW, is the $700 an average cost, covering both DB and DC plans?  Since the average DC DRO is simpler than the average DB DRO, using an average cost will effectively mean the DC plan is subsidizing the DB plan.

[RatherBeGolfing]

8 minutes ago, david rigby said:

I doubt that.  Don't forget that "reasonable" has a "market" component to it.  Sure, it sounds like a lot, but it may be comparable to others.  What would the plan's legal counsel charge? 

BTW, is the $700 an average cost, covering both DB and DC plans?  Since the average DC DRO is simpler than the average DB DRO, you don't want one plan to subsidize the other.

Ok the $700 attorney fee was a stretch.  

I am assuming the OP is talking about DC plans since the original question asked if could be payed by the plan and whether the fee had to be allocated to certain participants.  

Even in the more expensive markets like NY and CA, I doubt  $700 as a flat fee would be reasonable.  There could be individual cases where it is reasonable, but not as a standard fee.

Your mileage may vary.

[My 2 cents]

14 hours ago, RatherBeGolfing said:

Ok the $700 attorney fee was a stretch.  

I am assuming the OP is talking about DC plans since the original question asked if could be payed by the plan and whether the fee had to be allocated to certain participants.  

Even in the more expensive markets like NY and CA, I doubt  $700 as a flat fee would be reasonable.  There could be individual cases where it is reasonable, but not as a standard fee.

Your mileage may vary.

I, too, automatically assumed that the discussion was about a defined contribution plan.  Defined benefit plans cannot pass along the extra administrative costs of processing a QDRO to the individual participant.

[K2retire]

Sometimes TPAs set fees high to discourage clients from asking for things they don't really want to do.

As for an attorney drafting one for $700, I would love to find one that charges less than $1,000.

[RatherBeGolfing]

33 minutes ago, K2retire said:

Sometimes TPAs set fees high to discourage clients from asking for things they don't really want to do.

Yep.  I see it all the time with self directed brokerage account plans.  It is one of those "yes we can do it but it won't be cheap" features.

I don't really care what a provider charges as long as the plan isn't paying for it.  If the sponsor wants to pay $700 a pop for QDRO reviews, that is their business.  When participants pay for it, not so much...  If a plan wants to spend that kind of money on a fairly common service, they should spend the money to get an independent fee benchmarking first.

[John Feldt ERPA CPC QPA]

What "service" do you benchmark?

One where the $700 includes the TPA providing direct written correspondence to the participant, the alternate payee, and each of their attorneys regarding the status of the review, including an option for all of those parties to access the TPA for their questions (instead of bothering the Plan Administrator)? Okay, the fee discussed might still be high even with all of that. But being the direct contact option for calls and emails and other correspondence will add time, not an insignificant amount I am sure, on average (it only takes one messy issue to drive up the average time). Perhaps the PA prefers that service, especially if it frees up their time and also if the fees get charged to the participant account anyway.

[MoJo]

Just to get back to the OP's query and the very correct commentary concerning the reasonableness of the fee.  We currently charge either a flat fee of $250 or an hourly rate of $150 (depending on our service agreement with the plan) for complete QDRO outsourcing service (the "Q" determination, letters, etc., everything up to an alternate payee requesting a distribution - which is handled as a regular distribution).  I think that is low.  Average time to complete is about 5 hour - with half of that being "professional" time, and half being more clerical/systems related.  Factor in risk, and the price could, and possibly should, be $700 - but market forces being what they are, I think that wouldn't fly.

[Doghouse]

I should mention that the standard QDRO determination fee for one of the very large 401k providers starting with a "V" charges $800. Sorry to get it away from the OP's issue again.