Jump to content

Bad, Sloppy QDRO


Recommended Posts

I have been asked to review a DRO, and have found a number of issues.  While I have done this hundreds of times, this one is a problem.

The first issue is the amount is defined as a flat dollar value without adjustment for interest.  While this is fine, they fail to even define when the payment needs to be made!  Basically, whenever the Plan Adminisitrator feels making payment is appropriate.  Not disqualifying, but clearly sloppy drafting.  

Second problem is the the DRO makes the form of payment election for the beneficiary.  The Plan does state that with a QDRO the Alternate Payee is to be provided with all elections that would be available to the participant.  In addition, going by the DRO there would be no 402(f) Notice to the recipient.  I believe these 2 conditions would be a violation, making the DRO not qualified.

The language of the DRO states that if the Plan Administrator determines the Order is not qualified then the parties will cooperate with making those changes for the DRO to be qualified as defined by the Administrator.

With that finally point in mind, I called the attorney who drew up the DRO and had it submitted to the court for signature.  She proved to be the attorney that one article on QDROs identified.  Totally adversarial, and disrespect of all points made because I am only an ERPA.  Perhaps she is right, but I do have 32 years experience and her paralegal told me they have very little.  In fact, they wanted me to draw up the QDRO for them initially.  I said no as my job is to review, not create the QDRO.  Of course, my declining the honor of writing the QDRO for them is deemed as a reason that I have no right to bring up problems.

I feel I am stuck since I do not believe the DRO is qualified.  If I am in error on that, please correct me. Assuming I am right, what should the next step be since the attorney clearly has no intention of working to resolve these issues.  Any and all advice is greatly appreciated.

Having braved the blizzard, I take a moment to contemplate the meaning of life. Should I really be riding in such cold? Why are my goggles covered with a thin layer of ice? Will this effect coverage testing?

QPA, QKA

Link to comment
Share on other sites

It is the responsibility of the plan administrator to review domestic relations orders to determine whether they are qualified domestic relations orders.  A domestic relations order is a qualified domestic relations order if and only if the plan administrator accepts it as qualified, provided the order, if rejected, is rejected for a legitimate reason.

Next step?  Specifying one or more reasons for the decision, reject the order.  It would help if you were able to supply written procedures governing your review of proposed domestic relations orders.  Otherwise, it is not the responsibility of the plan administrator to fix the order.

Always check with your actuary first!

Link to comment
Share on other sites

I have, in the past, when rejecting a QDRO, gave specific suggestions on how to change the language so that it conformed to the document and the plan's QDRO procedures.  It should be easy enough to do w/r/t to distribution options and the date of the split.  That's not to say it's your responsibility to do so.

Link to comment
Share on other sites

Thanks for the advice.  I did call the attorney who is responsible for the DRO.  She seemed clear that there would be no changes!  I even offered to provide language to address the problems.  Apparently, it is too much work to fix the DRO for her.

 

Having braved the blizzard, I take a moment to contemplate the meaning of life. Should I really be riding in such cold? Why are my goggles covered with a thin layer of ice? Will this effect coverage testing?

QPA, QKA

Link to comment
Share on other sites

Did you make it clear that if you documented that it failed to meet the requirements for a valid QDRO under that plan, then not even the issuing court can make you follow it?  The plan will honor a valid DRO but the plan administrator has the unilateral authority to reject one that it considers invalid or unworkable.

Always check with your actuary first!

Link to comment
Share on other sites

No, that discussion was not able to progress to that level.  It was not amicable.  The discussion had a part, very early on, where my credentials were questioned in a less than positive manner.  Let's just say that everything I had to say had to include a reason why I should be able to say anything at all!  Me not be a lawyer and all.

 

 

Having braved the blizzard, I take a moment to contemplate the meaning of life. Should I really be riding in such cold? Why are my goggles covered with a thin layer of ice? Will this effect coverage testing?

QPA, QKA

Link to comment
Share on other sites

I don't understand why anybody thinks the DRO as drafted is a problem.  What provision of 414(p) does it fail?  Just because you and I would argue for an earnings component doesn't mean that there must be one.  And restricting the otherwise available options doesn't violate the rule that precludes authorizing a benefit that is otherwise not payable, does it?

Link to comment
Share on other sites

Her: What, you don't have at least one lawyer on staff!  I see no reason to discuss this with you..

Me:  The Client has asked me to review for qualification of the DRO.  I see problems which I hope to discuss with you.

Her:  Since you don't understand how the bar in "State" works, you clearly have no business dealing with this?

Me:  I have been doing this for well over 30 years.  I do not write DRO's.  I review them as a courtesy to the Client.

As you can see, it was not very productive.

 

Having braved the blizzard, I take a moment to contemplate the meaning of life. Should I really be riding in such cold? Why are my goggles covered with a thin layer of ice? Will this effect coverage testing?

QPA, QKA

Link to comment
Share on other sites

"I may not be a lawyer but I am assisting the Plan Administrator in this matter.  If I advise the Plan Administrator to reject the DRO then, at the least, you will most likely need to file a formal claim for reconsideration.  Hence, it is in your client's best interest for you to ratchet down the rhetoric and help me help your client."

Link to comment
Share on other sites

As stated in my OP Mike, I found that sloppy, but not disqualifying.  Sorry if that was not clear.  My fault.  My problem is that the Plan specifically say that the AP must be provided with the same elections and option that would be given to the Participant.  The DRO eliminated that by defining the person's election.  When I brought up that we would be sending out an election package, I was told this would be a violation.

Having braved the blizzard, I take a moment to contemplate the meaning of life. Should I really be riding in such cold? Why are my goggles covered with a thin layer of ice? Will this effect coverage testing?

QPA, QKA

Link to comment
Share on other sites

Not a lawyer and all, if you don't consider the DRO to be valid or able to be administered (something that cannot be administered can't be a QDRO, can it?), reject it.  If summoned to court, stand tall and (with a lawyer at your side) assert that under the law, only the plan administrator can qualify a domestic relations order and that you have determined that as it stands it is not acceptable.

Not being familiar with the plan or the actual language of the DRO, I cannot actually judge whether it is something that can be treated as qualified.  My comments have been predicated on the assumption that the DRO has fatal flaws and that the grounds for rejection would be acceptable to a knowledgeable judge or legal expert.

Always check with your actuary first!

Link to comment
Share on other sites

My belief is that a message board like this is not what you should rely upon for a final decision.  It is just one of several references that can be consulted.  I almost always find it helpful in moving to the next step, either confirming the logic path I am on, or helping me see an alternative.  No one can give definitive conclusions hearing only one side, which in this case is biased to me.  So "My 2 Cents" I would say I value what you say, but be assured that I see your comments as a valuable aid, but not the conclusion.  Hopefully I have stated this correctly.

 

Having braved the blizzard, I take a moment to contemplate the meaning of life. Should I really be riding in such cold? Why are my goggles covered with a thin layer of ice? Will this effect coverage testing?

QPA, QKA

Link to comment
Share on other sites

1 minute ago, Below Ground said:

As stated in my OP Mike, I found that sloppy, but not disqualifying.  Sorry if that was not clear.  My fault.  My problem is that the Plan specifically say that the AP must be provided with the same elections and option that would be given to the Participant.  The DRO eliminated that by defining the person's election.  When I brought up that we would be sending out an election package, I was told this would be a violation.

What is the actual wording in the plan document?  Depending on how it is written, you could reasonably interpret that as the PLAN cannot refuse to honor an election by the AP that would have been available to the participant (or honor one that is not available to the participant)

It is not uncommon to see a QDRO where the manner of distribution has already been "determined".

 

 

 

Link to comment
Share on other sites

Rather be Golfing:  It specifically say "on a form as provided by the Plan Administrator".  The DRO does not meet that standard.  In addition, what about 402(f) Notice.  Since the attorney does not want anything sent to, or required from, the AP I can't see how the DRO can be viewed as meeting that standard.

 

Having braved the blizzard, I take a moment to contemplate the meaning of life. Should I really be riding in such cold? Why are my goggles covered with a thin layer of ice? Will this effect coverage testing?

QPA, QKA

Link to comment
Share on other sites

As I stated earlier, I greatly appreciate ALL replies.  They all give me something to consider.

 

Having braved the blizzard, I take a moment to contemplate the meaning of life. Should I really be riding in such cold? Why are my goggles covered with a thin layer of ice? Will this effect coverage testing?

QPA, QKA

Link to comment
Share on other sites

... and the 90 degree temperatures have melted the ice on my googles....  Sorry just a little bad humor related to my picture and signature.

 

Having braved the blizzard, I take a moment to contemplate the meaning of life. Should I really be riding in such cold? Why are my goggles covered with a thin layer of ice? Will this effect coverage testing?

QPA, QKA

Link to comment
Share on other sites

26 minutes ago, Below Ground said:

Rather be Golfing:  It specifically say "on a form as provided by the Plan Administrator".  The DRO does not meet that standard.  In addition, what about 402(f) Notice.  Since the attorney does not want anything sent to, or required from, the AP I can't see how the DRO can be viewed as meeting that standard.

 

Well I limited my response to the distribution options as I'm not convinced that it is a DRO qualification issue.  That said, even with a QDRO, they  can't refuse to submit the plans required paperwork for a distribution.  The QDRO is how we get around the anti-alienation clause, by "creating" a right to receive a distribution of a participants benefits in a plan.  So you could have a valid QDRO, but still have whatever forms, notices, and procedures you require for the actual distribution.  

Edit: I agree that the attorney can't demand that nothing is sent to or required from the AP, but I also don't see that as a DRO qualification issue unless they included in the actual DRO (which seems unlikely)

 

 

Link to comment
Share on other sites

Agreed as to RBG.  I can't imagine not being required to provide a 402(f).  You haven't specified what form is being mandated, but if it is taxable then, at the very least, the 402(f) identifies the ability to roll over within 60 days.  And even if not taxable, if over $5,000 then the plan has to extend the right to allow the monies to remain in the plan (even if the flat dollar pay out would seem to be a steep price to pay).  

Link to comment
Share on other sites

  • 2 weeks later...

I do not understand the question "what form is mandated".  My post was about the lawyer who did the DRO says that we can't send anything to the AP, including election forms and the 402(f) notice.  The format of the form is not relevant since the lawyers is saying NOTHING can be sent.

The only action permitted (per the lawyer) is to issue the check (almost verbatim to my phone conversation).  So with respect to your statement (Mike Preston) about "can't imagine not being required to provide a 402(f)", I don't have to imagine.  That is what this lawyer is saying; hence my concern toward qualification of the DRO since the author is saying we can't provide that notice; thereby making administration impossible in my opinion.

I appreciate very much your comment on the steep price of a flat dollar payout.  The amount is well over $5,000 so that action would be a poor choice indeed (unless if we go into a total economic collapse).  Of course, people often seem determined to shoot themselves in the foot.

Again, thanks for all comments.  I make no claims of expertise on this topic.  I know a little, but more would be better.

 

Having braved the blizzard, I take a moment to contemplate the meaning of life. Should I really be riding in such cold? Why are my goggles covered with a thin layer of ice? Will this effect coverage testing?

QPA, QKA

Link to comment
Share on other sites

Sorry, should have been less cryptic.  We don't know what form of distribution is being mandated (I assume it is a lump sum rollover).  But it could be a taxable lump sum (taxable distribution).  Actually, from what has been said it could be something else or exotic, like a 5 year installment distribution!  I wasn't (at that time) talking about the pieces of paper that a plan might require in order to effect a distribution.

Link to comment
Share on other sites

Ahhhhhh.  Form of benefit, not form as in election form.  I missed that totally.  The Plan is lump sum only, but a person could take as taxable, rollover, or a combination under plan terms.  The DRO says rollover, but doesn't even say to where!  So you would think, send an election form for that information, right?  Lawyer says no, just issue check.  Right.  Payable to whom?  This is why I question the qualification, since the way it is presented is not "serviceable".

I am leaning toward just sending out election forms, and being done with the issue.  Recommending that the DRO be deemed not qualified looks like it will be Pandora's Box.

Having braved the blizzard, I take a moment to contemplate the meaning of life. Should I really be riding in such cold? Why are my goggles covered with a thin layer of ice? Will this effect coverage testing?

QPA, QKA

Link to comment
Share on other sites

10 minutes ago, Below Ground said:

Ahhhhhh.  Form of benefit, not form as in election form.  I missed that totally.  The Plan is lump sum only, but a person could take as taxable, rollover, or a combination under plan terms.  The DRO says rollover, but doesn't even say to where!  So you would think, send an election form for that information, right?  Lawyer says no, just issue check.  Right.  Payable to whom?  This is why I question the qualification, since the way it is presented is not "serviceable".

I am leaning toward just sending out election forms, and being done with the issue.  Recommending that the DRO be deemed not qualified looks like it will be Pandora's Box.

Just to be clear,  does the DRO actually have language in it to prohibit you from sending an election form?  Or is this what the attorney is telling you in addition to the DRO.  If it is in the DRO, I wouldn't have a problem saying it is not a QDRO.  If it is just what the attorney is telling you, you probably have a QDRO but with a PITA attorney who does not know how this works. In which case I would just stand my ground and not pay it out until they go through the elections, notices, etc.

 

 

Link to comment
Share on other sites

No, the DRO simple says the benefit will be rolled over to avoid current taxes.  It is the attorney making that statement.  What does "PITA" mean?

Having braved the blizzard, I take a moment to contemplate the meaning of life. Should I really be riding in such cold? Why are my goggles covered with a thin layer of ice? Will this effect coverage testing?

QPA, QKA

Link to comment
Share on other sites

Pain in the ass.

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.

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
×
×
  • Create New...