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Disputed QDRO Part II


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I posted here about this matter earlier, but there have been more developments.

Here is the original post:  

 

In short, the Participant kept disputing the Order, but was unable to provide anything that would prevent the Order from being a QDRO and processed.  We had a valid, court-certified order and we began the procedures for processing it.

Now, the Participant has started a claim for benefits under the Claims Procedures of the 401(k) Plan.  Accordingly, we are putting on hold making any payments to the Alternate Payee.  Is this the appropriate move?  We are legally obligated to follow the Claims Procedures, but those take time.  The Order does not provide for any earnings/losses on the amount awarded to the Alternate Payee, so the delay is actually costing the AP money (although, maybe not, given the market).

Should we exhaust the Claims Procedures before we process the QDRO?

 

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Whether the DRO is a QDRO is a question for the administrator - provided it is entered into by a court (or other entity) with jurisdiction.  It, IMHO, is totally irrelevant what the participant thinks.  If the PA has made the appropriate determination, I see no reason to place a hold on the AP's claim for plan assets.  Pay the PA, and deal with what is left for the participant to lay claim to.  If the participant is unhappy - they need to go back to the issuer of the DRO....

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MoJo -

I completely agree that the Participant's opinion is not relevant and I'm entirely confident that his claim for benefits will be denied.  But, since he filed a claim under the Claims Procedures, aren't we still obligated to exhaust the Claims process in accordance with the Plan and the Law before making any distributions?

Thanks!

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I don't see the appeals process taking precedence over the AP's right to benefits under a QDRO.  Once the DRO is adjudged a QDRO, the amount payable under the QDRO is no longer a benefit payable to the participant, and that is *not* something that the plan's appeal's process has jurisdiction over.  As I said, if s/he has an issue with the DRO, the proper course of action is through the court/agency that issued the order.

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 You may find this helpful--footnote 39 of the preamble to the 2000 claims regulations states:

Quote

 Sections 206(d)(3) and 609(a)(5) of the Act mandate certain specific plan procedures for determining the qualified status of domestic relations orders and medical child support orders, respectively, and for administering qualified domestic relations orders (QDROs) and qualified medical child support orders (QMCSOs). It is the view of the Department that issues pertaining to such orders must be resolved pursuant to the procedures described in section 206(d)(3) or 609(a)(5) of the Act, as appropriate, and not the claims procedures governed by section 503 of the Act and the current regulation.

 

Additionally, Section 206(d)(3) provides that a plan shall establish reasonable procedures to determine the qualified status of an order. If the order is determined to be a QDRO, the administrator “shall pay” the segregated amounts to the AP.  If a plan fiduciary complies with their fiduciary duties in treating an order as a QDRO/paying benefits, then the plan’s obligation to P and AP are discharged to the extent of the payment made.

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If you have any doubts whatsoever regarding whether to honor the QDRO, based on whatever the participant is arguing (e.g., collusion of alternate payee's and his/her counsel constituting fraud), you should consider interpleading the benefit in court and let the court sort it out.

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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5 minutes ago, Luke Bailey said:

If you have any doubts whatsoever regarding whether to honor the QDRO, based on whatever the participant is arguing (e.g., collusion of alternate payee's and his/her counsel constituting fraud), you should consider interpleading the benefit in court and let the court sort it out.

I agree with Luke. Interpleader can be a good option to protect the plan when benefits haven't yet been paid and there's some uncertainty. Even letting the parties know about that possibility can result in them going back to the court on their own to get an order either confirming or modifying the QDRO. Alternatively, if there's no reasonable challenge to the order, you could give the participant X days to get an amendment to the order or show legal process that he's taking steps to do so. In any event, QDRO Procedures should address how to handle these sorts of situations (and if not, you may want to consider amending them to do so). 

 

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My skepticism of the DOL's views about QDRO law includes its position on use of the section 503 claims procedures to resolve challenges to the determination of qualification of a  domestic relations order.  I think a participant can make a claim for benefits asserting that the participant's benefit has been improperly reduced because the DRO is not qualified or that the QDRO fiduciary misinterpreted the terms of the order, such as getting the math wrong or failing to observe terms for awarding gains and losses.  The participant is very likely to lose, at least with respect to qualification itself.  The participant cannot contest under 503 the substance of the order as determined by the state court (i.e. the domestic relations proceeding or outcome was unfair, wrong, contrary to state law, etc.) and the QDRO fiduciary does not consider complaints about what happened in state court other than an assertion that the DRO presented to the plan is not a bona fide final domestic relations order.  The QDRO procedures under 206(d)(3) can (and should) refer to the plan's general claims procedures as the avenue for contesting the QDRO fiduciary's determination of qualification under 206(d)(3) and interpretation of the terms of the order.  Everyone makes mistakes and everyone needs due process.

I also think that the the proper initiation of interpleader by a QDRO fiduciary should be quite rare (and screw California procedure), and usually represents a failure on the part of the QDRO fiduciary to do its job properly.

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16 hours ago, QDROphile said:

I also think that the the proper initiation of interpleader by a QDRO fiduciary should be quite rare (and screw California procedure), and usually represents a failure on the part of the QDRO fiduciary to do its job properly.

Depends on costs and risks, right QDROphile? On the surface of it, it would seem contrary to ERISA and case law in other areas concerning the authority of the administrator that a plan could even interplead, arguably shirking its duty to make all determinations under the plan,  as I think your comment implies. But case law is consistent that plans can interplead (although I will admit my experience is in area of beneficiary designations, not QDROs), so if the risk is sufficient to justify the cost of hiring a lawyer to file the interpleader, why not? Just economics, I think.

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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16 hours ago, QDROphile said:

My skepticism of the DOL's views about QDRO law includes its position on use of the section 503 claims procedures to resolve challenges to the determination of qualification of a  domestic relations order.  I think a participant can make a claim for benefits asserting that the participant's benefit has been improperly reduced because the DRO is not qualified or that the QDRO fiduciary misinterpreted the terms of the order, such as getting the math wrong or failing to observe terms for awarding gains and losses.  The participant is very likely to lose, at least with respect to qualification itself.  The participant cannot contest under 503 the substance of the order as determined by the state court (i.e. the domestic relations proceeding or outcome was unfair, wrong, contrary to state law, etc.) and the QDRO fiduciary does not consider complaints about what happened in state court other than an assertion that the DRO presented to the plan is not a bona fide final domestic relations order.  The QDRO procedures under 206(d)(3) can (and should) refer to the plan's general claims procedures as the avenue for contesting the QDRO fiduciary's determination of qualification under 206(d)(3) and interpretation of the terms of the order.  Everyone makes mistakes and everyone needs due process.

I also think that the the proper initiation of interpleader by a QDRO fiduciary should be quite rare (and screw California procedure), and usually represents a failure on the part of the QDRO fiduciary to do its job properly.

I agree that the 503 claim procedures could come into play, though I think it may occur after the QDRO is processed/paid. If the order appears to be a valid QDRO on its face, the participant hasn't presented any reasonable challenge to the order, nor taken any steps to challenge it in court, then I think the fiduciary has a duty to process the order (but should do so in accordance with its QDRO procedures and any notification/right of appeal therein). At that point, I see an argument that the participant could make a claim for benefits, but I'd be wary of such claim holding up payment to the AP where there's no viable challenge, particularly now where COVID has extended claim deadlines.  As for interpleader, I agree it should be a rarely used tool, mainly limited to situations where a state court may need to make a factual determination (e.g., a participant challenging fraud, or in the beneficiary context, multiple individuals claiming to be married to a participant, etc.).

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