Prior Recordkeeper Not Providing Data for Old QDRO

[cwallace]

Our Retirement Plan transitioned recordkeepers at the beginning of 2016. We don't have that many, but from time to time we will get QDROs in that require data and/or earnings calculations from prior to 2016 and we'll have to request that from the prior recordkeeper.  For a while they were really good about providing the information relatively quickly.  Now it is taking upwards of 6 months to get anything out of them.  We have 3 QDROs currently pending that we are waiting for data from the prior recordkeeper that have been outstanding for more than 3 months.  Is there any recourse against this recordkeeper (other than what would have been stated in the original contract with the recordkeeper)? Obligations as a holder of data that is governed by ERISA?  I generally recommend new QDROs from incorporating provisions that need data from prior to 1/1/2016 to avoid this, but from time to time we'll get stale QDROs in (one participant waited 10 years to submit the QDRO to us). 

[Lou S.]

Were they designated ERISA Plan Administrator, or just the party you hired to perform administrative functions?

It is on the the Plan Administrator to maintain plan records not the the third party to house your offsite storage and retrieval systems.

If they do still have the data it may be in storage and could have a retrieval cost, or some of the data you are looking for may be beyond the scope of their records retention. Are you asking them to dig through old files for data at not cost?

 

[QDROphile]

What is the contract regarding record retention and production after the termination of regular services??  It is unlikely that the record keeper is a fiduciary, so its contract defines its duties.

If the plan is stuck with inadequate records before a certain date, it needs to be advised about its duties with respect to domestic relations orders that have terms that "require" data or calculations that are beyond the resources or capability of the plan.  Depending on what the plan's responsibilities are, the fiduciary may need advice about its liability for not adequately administering the plan in a manner that allows the plan to discharge its duties.

[Larry Starr]

I question why old information about prior plan years is necessary for a current QDRO (we'll talk about the late provided ones later).  I draft most QDROs for our client plans; there is nothing in prior years that should impact a current division of a participant's account.  And if a QDRO is written by someone else that would require that we go back years and reconstruct accounts, we reject it (actually, the client rejects it with our advice :-) ).  I wonder if you are accepting BAD QDROs.

Can you tell us why you need old info and what info you need and how it impacts a currently drafted QDRO?

[MoJo]

5 minutes ago, Larry Starr said:

I question why old information about prior plan years is necessary for a current QDRO (we'll talk about the late provided ones later).  I draft most QDROs for our client plans; there is nothing in prior years that should impact a current division of a participant's account.  And if a QDRO is written by someone else that would require that we go back years and reconstruct accounts, we reject it (actually, the client rejects it with our advice :-) ).  I wonder if you are accepting BAD QDROs.

Can you tell us why you need old info and what info you need and how it impacts a currently drafted QDRO?

The reason from my perspective is often attorneys draft DROs that say "half of all benefits accrued between the date of marriage and the date of the split/divorce" (adjusted for earnings) - instead of just giving us a number.  Just saw one of those that went back to the 1970's (profit sharing) through a date in 2016.  

We "reject" and defer to the plan sponsor for direction.

[ESOP Guy]

What Mojo said is why I see the need for old data. 

In fact I learned a very important lesson early in the career about these kinds of QDROs.  I had been tasked to go through our firm's QDRO check list to see if we would recommend if the DRO was qualified.  I went through the check list and said "yup the plan should accept this as a QDRO" because it met all the requirements to be a QDRO.  It was the type of QDRO that said you had to give the AP 50% of the benefits earned between two sets of dates.  I didn't check to see if we had the data becasue that isn't part of the legal question.   It turned out the data no longer existed and we didn't find that out until after the judge had made the QDRO official.  The firm I worked for ended up agreeing to pay the legal costs to get a new QDRO approved with a number the husband and wife could agree upon.  It was one of our larger clients and no one was willing to upset them over this issue.

I now check to see if the data exists before we make a recommendation about the QDRO. 

[John Feldt ERPA CPC QPA]

Yes, that should be a standard part of the process. To be a QDRO, you have to be able to determine the amount. I agree with Larry. It's okay to reject the DRO if the data is not available to determine that amount.

[QDROphile]

If the plan has a record date cut-off or some standard that limits what the plan will accept (à la ESOP  Guy's points), then it behooves the plan to have appropriate provisions in the written QDRO Procedures to set forth those standards.  We all know that drafters of the orders first review the QDRO Procedures to understand the bounds so they can draft good orders. But really, it makes disqualifying the orders more comfortable when the orders do not follow what is stated in the Procedures.

[QDROphile]

 By the way, you have to take the position that available data or the ability to compute as required by terms of the order IS part of the legal criteria because only legal criteria allow disqualification of the order and the legal basis is that an order is not qualified if it requires the plan to do something that the plan is not designed to do (subsection of section 414(p) paraphrased).

[Peter Gulia]

Following QDROphile's observation:

If one is working with an IRS-preapproved document, is it feasible to add text to support the idea that it is proper for the plan's administrator to not keep records of past periods' accounts?

And what language in the Revenue Procedures does one rely on to support a tax position that such a change does not interfere with reliance on the IRS preapproval?

 

[ESOP Guy]

To Fiduciary's point can you disqualify the QDRO for lack of data?  Doesn't the plan have an obligation to keep the data? 

The few times it has come up since my hard lesson the way I frame the conversation with people isn't the DRO isn't qualified by the data seeming not to exist but the cost of the split is going to be huge if you make us track down the data from prior TPAs.  They are going to charge to get data from storage plus their time.  This doesn't include the time it could take. 

That simply convinces the husband and wife to go back and come up with an amount/method we can compute quickly and affordably. 

[cwallace]

This is all very good information.  Thank you all. 

This is for a divorce that happened in 2008 but the participant just now had the QDRO drafted and it references an award based on the split in 2008. 

The problem is that the data does exist it is just much more difficult to get and complete the proper calculations the farther we have to go back in time. The Plan itself certainly has record of all the contributions made to the account and the hours earned, but the 401k recordkeeper maintains the accounts and invests the money and therefore we have to lean on them for the daily account balance numbers and the earnings/losses calculations.  I will definitely get more involved with the drafting side by advising of the difficulty in getting old data and denying based on not being able to determine the amount of the award.  I am just having a very difficult time getting the prior recordkeeper to cooperate with me. 

[CJ Allen]

The QDRO's need to be written in a manner consistent with record retention requirements.  Each Plan Sponsor/Plan Administrator is to retain account records for the period of record retention.  This may not be copies of all statements, but it should be at least an annual accounting of participant balances from the beginning of the plan year to the end of the plan year -- if even just to support the 5500 filing of financial information.  Any QDRO drafted outside of record retention required dates, the QDRO would need to be sent back for clarification on how to split the account. 

If a prior recordkeeper doesn't provide data, or isn't able to provide data, it may be a "cost" issue.  Some providers will charge $X/hr to obtain data -- available on the system or in storage/backup.  If, due to system conversion or buyout, the information is not available -- you could petition the QDRO drafter to align the order with what's available.

The biggest risk of a proper QDRO is non-compliance due to record retention failures which could expose the Plan Sponsor / Plan Administrator to regulatory compliance issues.  Sometimes, it may take a Subpeona to obtain the necessary records from the prior recordkeeper that should have been retained originally.

[Larry Starr]

On 2/22/2018 at 5:45 PM, ESOP Guy said:

What Mojo said is why I see the need for old data. 

In fact I learned a very important lesson early in the career about these kinds of QDROs.  I had been tasked to go through our firm's QDRO check list to see if we would recommend if the DRO was qualified.  I went through the check list and said "yup the plan should accept this as a QDRO" because it met all the requirements to be a QDRO.  It was the type of QDRO that said you had to give the AP 50% of the benefits earned between two sets of dates.  I didn't check to see if we had the data becasue that isn't part of the legal question.   It turned out the data no longer existed and we didn't find that out until after the judge had made the QDRO official.  The firm I worked for ended up agreeing to pay the legal costs to get a new QDRO approved with a number the husband and wife could agree upon.  It was one of our larger clients and no one was willing to upset them over this issue.

I now check to see if the data exists before we make a recommendation about the QDRO. 

Again, we would just reject that order; doesn't matter if we have the data or not, the PLAN is not going to do the calculation (because it is imprecise and open to arguments between the parties anyway).    Now, if they hired me to produce the order and I have the information, they can pay me to go through that trouble (at my hourly rate) or,  I can calculate the coverture percentage without reference to the specific benefits earned which is the more appropriate way to do so.  My preference is to be,  and I generally tend to be, part of the negotiations of what the settlement will provide. On the other hand,  if they REALLY are adamant about wanting something nonsensical like you say they want (BTW, I have never seen such a request, and we would reject it out of hand if it were part of a proposed QDRO), then THEY have to do the work by paying someone to do it outside of the plan; that someone could be me but I really think it is unnecessary. They might very well find that they can't find someone to do the work because the necessary information is not available, and hopefully  that will move them to something else like the typical coverture fraction calculation.

[Larry Starr]

On 2/23/2018 at 9:26 AM, cwallace said:

This is all very good information.  Thank you all. 

This is for a divorce that happened in 2008 but the participant just now had the QDRO drafted and it references an award based on the split in 2008. 

The problem is that the data does exist it is just much more difficult to get and complete the proper calculations the farther we have to go back in time. The Plan itself certainly has record of all the contributions made to the account and the hours earned, but the 401k recordkeeper maintains the accounts and invests the money and therefore we have to lean on them for the daily account balance numbers and the earnings/losses calculations.  I will definitely get more involved with the drafting side by advising of the difficulty in getting old data and denying based on not being able to determine the amount of the award.  I am just having a very difficult time getting the prior recordkeeper to cooperate with me. 

I wouldn't even try. The plan is NOT REQUIRED to do this work; they are required to do it and pay for it and if the data is not available, they  have to do something else (like using a coverture fraction).  It simply is NOT YOUR JOB and they should be told that.

[Larry Starr]

On 2/23/2018 at 9:04 AM, ESOP Guy said:

To Fiduciary's point can you disqualify the QDRO for lack of data?  Doesn't the plan have an obligation to keep the data? 

The few times it has come up since my hard lesson the way I frame the conversation with people isn't the DRO isn't qualified by the data seeming not to exist but the cost of the split is going to be huge if you make us track down the data from prior TPAs.  They are going to charge to get data from storage plus their time.  This doesn't include the time it could take. 

That simply convinces the husband and wife to go back and come up with an amount/method we can compute quickly and affordably. 

No, you can't disqualify the plan for lack of historical data that is not germane to their current benefit entitlement. And there is no requirement that the plan provide such data.  There are normal alternatives for calculating the benefit split, and a competent QDRO expert will understand those alternatives and, if hired, can explain all that to the parties and get agreement as to the methodology that will be used.

 

[QDROphile]

A plan will probably get away with Larry Starr's position, but I think CJ Allen's position deserves a lot of consideration. However, any petition to the drafter to come up with a practical workaround the formal requirement should be informal.

[QDROphile]

The timing and complexity of Larry Star's posts cause me to retract my reference to them.  I still think CJ Allen's post about what data the plan should have to provide deserves a lot of consideration, but I agree with Larry Starr that the plan has no obligation to perform extraordinary data manipulation and calculation to determine an alternate payee's benefit in accordance with a formula in the order.  The plan should perform simple math on data the plan has or should have in accordance with the order.  Example: The plan should compute 50 percent of the December 31, 2015 participant balance if instructed by the order, but  does not have to compute 50 percent of the balance as of November 3, 2014 and the earnings thereon through January 15, 2018.

[Larry Starr]

4 minutes ago, QDROphile said:

The timing and complexity of Larry Star's posts cause me to retract my reference to them.  I still think CJ Allen's post about what data the plan should have to provide deserves a lot of consideration, but I agree with Larry Starr that the plan has no obligation to perform extraordinary data manipulation and calculation to determine an alternate payee's benefit in accordance with a formula in the order.  The plan should perform simple math on data the plan has or should have in accordance with the order.  Example: The plan should compute 50 percent of the December 2015 participant balance if instructed by the order, but  does not have to compute 50 percent of the balance as of November 3, 2014 and the earnings thereon through January 15, 2018.

I resemble that! :-)

[ESOP Guy]

4 hours ago, Larry Starr said:

  if they REALLY are adamant about wanting something nonsensical like you say they want (BTW, I have never seen such a request, and we would reject it out of hand if it were part of a proposed QDRO), then THEY have to do the work by paying someone to do it outside of the plan; that someone could be me but I really think it is unnecessary.

Oddly, I just got a QDRO today that says the Alt Payee is due 50% of the  marital share.  It defines marital share as the 12/31/2016 ESOP balance less the 12/31/2008 balance. 

Since we were the TPA since the ESOP's inception I have the data.   I however find it interesting (funny maybe) on the very day you say you have never seen one I just got another one across my desk. 

For what it is worth I wish you were writing the QDRO's that come across my desk it sounds like they would be more thought out. 

[Larry Starr]

Thanks; I would actually reject that QDRO on behalf of the plan, and have them write the amount the person is entitled to as of 12/31/16. If I had those numbers, I would be happy to give them to the parties. But, it is again a nonsensical mathematical approach since you are deducting 2008 dollars from 2016 dollars; I am going to bet the attorneys figured that they were married from 2008 to 2016 so that's a fair way of doing it.  It isn't.  

[ESOP Guy]

17 minutes ago, Larry Starr said:

 I am going to bet the attorneys figured that they were married from 2008 to 2016 so that's a fair way of doing it.  It isn't.  

Yes, that is my understanding of the thinking behind such a provision in a DRO.  However since it isn't relevant to me I don't always ask so I can't say if that is always true.