Alternate Payee Benefit Fee

[jim241]

An alternate payee would like an application prepared so that they can start receiving their benefit. Plan Sponsor is ok with this as long as the alternate payee pays for the application to be prepared…is this allowed? Document does not provide much help. 

[Effen]

I assume this is a DB question since you posted on the DB board - in which case I believe the answer it "no".  This is just like any other benefit calculation or plan related service.  You cannot charge DB participants directly for services related to the determination of their benefit.  All of the assets support all of the liabilities.  The Plan can pay the expense, but they can't charge the participant directly.

I am also glad to hear the Plan Sponsor is "ok" with following the terms of the plan and the court order.  

[Calavera]

1 hour ago, Effen said:

I am also glad to hear the Plan Sponsor is "ok" with following the terms of the plan and the court order.

Love it.

[david rigby]

Implied in the original question is a policy of charging a fee for any participant, not just the AP, who applies for a benefit.  If so, Effen's answer provides the correct advice.

[Larry Starr]

5 hours ago, jim241 said:

An alternate payee would like an application prepared so that they can start receiving their benefit. Plan Sponsor is ok with this as long as the alternate payee pays for the application to be prepared…is this allowed? Document does not provide much help. 

While I agree with Effen's comment, I'm not clear on the question.  What "application" would be prepared that would require a fee?  Are we talking about a plan fee for handling a distribution (that's not an application)? What is the fee actually for? The application for the benefit by the alternate payee is basically "pay me my benefit now".  What else is being contemplated?  

[jim241]

19 hours ago, Larry Starr said:

While I agree with Effen's comment, I'm not clear on the question.  What "application" would be prepared that would require a fee?  Are we talking about a plan fee for handling a distribution (that's not an application)? What is the fee actually for? The application for the benefit by the alternate payee is basically "pay me my benefit now".  What else is being contemplated?  

The fee is based on determining and processing the alternate payee's QDRO benefit distribution. However, isn't this an exception to the exclusive benefit rule, particularly expenses relating to the determination of whether a domestic relations order is a QDRO may be charged to the participant or beneficiary (including the alternate payee) seeking the determination?

[Effen]

I am not aware of any such exemption for defined benefit plans.

[jim241]

44 minutes ago, Effen said:

I am not aware of any such exemption for defined benefit plans.

From ERISA outline book: 

5.c.1)d) QDROs. Expenses relating to the determination of whether a domestic relations order is a QDRO may be charged to the participant or beneficiary (including the alternate payee) seeking the determination. In this regard, Advisory Opinion 94-32A is expressly overruled.

[Slider]

I don't have the EOB, but I think that section is based on Field Assistance Bulletin No. 2003-03, which explicitly overruled Advisory Opinion 94-32A. The FAB says it is specifically answering questions only about DC plans.

[jim241]

34 minutes ago, Slider said:

I don't have the EOB, but I think that section is based on Field Assistance Bulletin No. 2003-03, which explicitly overruled Advisory Opinion 94-32A. The FAB says it is specifically answering questions only about DC plans.

I think you're right. My question then remains, can the plan/employer require that the alternate payee cover the expenses of a QDRO application? 

[david rigby]

7 minutes ago, jim241 said:

… can the plan/employer require that the alternate payee cover the expenses of a QDRO application? 

Assuming such a fee requirement and assuming a DB plan, what would the plan administrator do if the participant and/or the AP refuse to pay the fee?  

[jim241]

9 minutes ago, david rigby said:

Assuming such a fee requirement and assuming a DB plan, what would the plan administrator do if the participant and/or the AP refuse to pay the fee?  

I don't think it could refuse. 

[Larry Starr]

15 hours ago, jim241 said:

I think you're right. My question then remains, can the plan/employer require that the alternate payee cover the expenses of a QDRO application? 

No. There is no "account" in a DB plan from which such a fee can be taken and the benefit reduced. The exception noted is for a DC plan, in which there is no agreement necessary since the account is just debited for the fee.

[jim241]

1 hour ago, Larry Starr said:

No. There is no "account" in a DB plan from which such a fee can be taken and the benefit reduced. The exception noted is for a DC plan, in which there is no agreement necessary since the account is just debited for the fee.

Correct. I under this. However, my question was can a DB plan use plan assets to cover a QDRO application for an alternate payee or can the plan as the alternate payee to cover the costs?

[Pension Dork]

Quote

An alternate payee would like an application prepared so that they can start receiving their benefit.

If it was an employee making this request, you'd send her a retirement election package.  Depending on the QDRO's provisions, you might need to edit an election form and send with DD, tax forms, etc.  You wouldn't charge an employee/former employee for this -- why would you charge an AP? 

[Effen]

4 hours ago, jim241 said:

Correct. I under this. However, my question was can a DB plan use plan assets to cover a QDRO application for an alternate payee or can the plan as the alternate payee to cover the costs?

Can a DB plan use plan assets to cover a QDRO application for an alternate payee - Yes

Can the plan {charge] the alternate payee to cover the costs? - No

[Larry Starr]

5 hours ago, jim241 said:

Correct. I under this. However, my question was can a DB plan use plan assets to cover a QDRO application for an alternate payee or can the plan as the alternate payee to cover the costs?

YOU still haven't answered my original questions because I do not know what a QDRO  Application is.  Who is charging the fee to whom for what service?  If this is something involving processing a distribution that is charged to the plan by a third party provider, then the answer is YES, it is a normal fee expense of the DB plan.  Did I hit it?

[jim241]

On 8/3/2018 at 3:38 PM, Larry Starr said:

YOU still haven't answered my original questions because I do not know what a QDRO  Application is.  Who is charging the fee to whom for what service?  If this is something involving processing a distribution that is charged to the plan by a third party provider, then the answer is YES, it is a normal fee expense of the DB plan.  Did I hit it?

Sorry if I wasn't clear. The alternate payee is requesting that the QDRO application be verified by the plan and paid out. The plan will do this but would like to know if they can pass the costs along to the alternate payee. I was pretty sure that the plan would have to pay for the costs but thought the exclusive benefit rule may have some impact. 

[Larry Starr]

Once again, I asked you to define what a QDRO application is and you did NOT!  What the heck is a QDRO application??????  Are you talking about a proposed QDRO from a lawyer?  If the plan is being asked to review a proposed QDRO, the plan should do it and provide guidance to the lawyer. And that is something the DB plan will have to pay for; the alternative is to refuse to review the draft, wait for the signed order, and then review it and reject it if it is bad and everyone will be upset and you will still have to pay for the review and maybe several times until they get it right!

Again, there is no QDRO application; and until the DR'O is signed by the judge and approved by the plan, there can be no payout under the QDRO.  Are you being provided a signed order by the judge or not?????