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Hello.

I have a terminated participant that we sent distribution instructions.  Back in June he called with questions.  During the phone call he indicated that he was divorced and his former spouse was entitled to part of his 401(k) account.  He stated the former spouse was supposedly having her attorney prepare the QDRO.

As of today we have not received a QDRO.  However the terminated participant has requested his distribution (on-line).  The plan does not require spousal consent.

Do we hold off on processing the distribution since the participant did indicate his former spouse was entitled to a benefit?  or do we process the distribution?

Appreicate any advise.  Thanks!

 

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What does the plan document say?

Does the plan have a QDRO procedure?  If so, what does it say?

If none of the above questions take you directly to the answer to your question what is the legal justification to say no to a person who is otherwise legally entitled to a distribution? 

I know I am answering a question with questions but this is the process you need to go through to get to the answer in my mind.    If the plan has a document that tells you what to do or if it doesn't I really don't see a legal way to stop the payment.

I know there are people who come around this board who disagree with this kind of position.  If you search this board you can find many threads were this question is debated. 

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To fill out the logic path ESOP Guy suggests:

In one’s reading of the plan’s governing documents and plan-administration procedures, consider as possibly relevant not only texts that particularly refer to domestic-relations orders but also texts that provide the plan’s administrator’s or a claims administrator’s powers.

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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The plan documents may not require notice to and/or consent by the former spouse, but does the law underlying your plan have such a requirement?  

The problem is that you now have actual notice that there is an Alternate Payee who is entitled to a share of your Participant's 401(k) Plan and that the Participant plans to appropriate those funds to himself.  As the Plan Administrator you have a fiduciary obligation to both parties.  Would you be fulfilling those duties if you paid out the full amount to the Participant?  Most Plan Administrators who have received such actual knowledge refuse to make any distributions until the matter is resolved by the parties in court.  OPM takes the position that if they know about a divorce and that's all, not if a COAP was entered or if a share of the Employee's FERS retirement annuity was to pass to the Former Spouse, the put a freeze on everything.  How do they find out?  Usually to Employee removes the Former Spouse from FEHB insurance and the reason is "divorce".  That's all it takes.     

One of the questions you need to consider is whether or not you have a duty to investigate the information you have have in hand.  Read the two DoL Advisory Opinions attached.  I think you turn a blind eye to the situation at your peril.   

David 

 

Advisory Opinion 1992-17A - duty of Plan Admin.pdf Advisory Opinion 1999-13A _ U.S - Sham Divorces.pdf

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1 hour ago, fmsinc said:

The plan documents may not require notice to and/or consent by the former spouse, but does the law underlying your plan have such a requirement?  

The problem is that you now have actual notice that there is an Alternate Payee who is entitled to a share of your Participant's 401(k) Plan and that the Participant plans to appropriate those funds to himself.  As the Plan Administrator you have a fiduciary obligation to both parties.  Would you be fulfilling those duties if you paid out the full amount to the Participant?  Most Plan Administrators who have received such actual knowledge refuse to make any distributions until the matter is resolved by the parties in court.  OPM takes the position that if they know about a divorce and that's all, not if a COAP was entered or if a share of the Employee's FERS retirement annuity was to pass to the Former Spouse, the put a freeze on everything.  How do they find out?  Usually to Employee removes the Former Spouse from FEHB insurance and the reason is "divorce".  That's all it takes.     

One of the questions you need to consider is whether or not you have a duty to investigate the information you have have in hand.  Read the two DoL Advisory Opinions attached.  I think you turn a blind eye to the situation at your peril.   

David 

 

Advisory Opinion 1992-17A - duty of Plan Admin.pdf 239.35 kB · 1 download Advisory Opinion 1999-13A _ U.S - Sham Divorces.pdf 267.22 kB · 1 download

Those opinions are at the heart of the debate.   I am NOT saying ignore them but here are some of the debates.  I will allow the lawyer debate how much authority an advisory opinion has vs the law which seems clear that no action is needed until you have a DRO.  Which is the problem.   You seem to have a conflict here. 

 

It can be noted that these two threads clearly say no one knows of a DRO you facts seem to say they do know.

Although this does beg the question of how long to you put thing on hold?  I have seen DRO's take years to finally make it to a plan.  

To me this is where a good QDRO procedure helps.  It makes it clear if or when to freeze and tends to say how long if it happens. 

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The plan documents may not require notice to and/or consent by the former spouse, but does the law underlying your plan have such a requirement?  

The problem is that you now have actual notice that there is an Alternate Payee who is entitled to a share of your Participant's 401(k) Plan.  The underlying obligation is not set forth in the COAP - viewed by most courts as an enforcement tool like an attachment or garnishment.  It's in the JAD or the MSA incorporated into the JAD. 

As the Plan Administrator you have a fiduciary obligation to both parties.  Would you be fulfilling those duties if you paid out the full amount to the Participant?  Most Plan Administrators who have received such actual knowledge refuse to make any distributions until the matter is resolved by the parties in court.   

One of the questions you need to consider is whether or not you have a duty to investigate the information you have have in hand.  Read the two DoL Advisory Opinions attached. 

David 

 

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The law unfortunately does not address this issue forthrightly. I suggest doing what the PBGC does. You can change your Admin Procedures to add something like the following:

WRITTEN NOTICE OF PENDING ORDER Anytime an interested party (including but not limited to the participant or alternate payee) notifies PBGC of a pending domestic relations order in writing (for example, in a letter or email, or on a pending benefit application), PBGC will delay the commencement of any benefits for a period of up to 120 days from the date PBGC was notified. For a participant who is in pay status, PBGC will not suspend any portion of the participant’s benefit based solely on such notice. Participants can notify PBGC of a pending order by fax or by logging into our secure online service (for both, see www.pbgc.gov), or by mail at the following address: PBGC QDRO Coordinator, P.O. Box 151750, Alexandria, VA 22315-1750.

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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As a former employer of a very large third party administrator, once we were given notice of a divorce/potential DRO we would put a freeze on the 401(k)/pension account for 18 months to allow the filing of the QDRO. If nothing was filed after 18 months, the freeze was lifted.

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3 hours ago, TheBoxMan said:

As a former employer of a very large third party administrator, once we were given notice of a divorce/potential DRO we would put a freeze on the 401(k)/pension account for 18 months to allow the filing of the QDRO. If nothing was filed after 18 months, the freeze was lifted.

Interesting. The 18-month period is specifically provided for in the law, but for review of a DRO to determine whether it is a QDRO, not as a period for suspension based on notice of a potential QDRO.

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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If anyone is wondering, ERISA§ 206(d)(3)(H)&(I) provides:

(H)

(i)    During any period in which the issue of whether a domestic relations order [defined in § 206(d)(3)(B)(ii)] is a qualified domestic relations order is being determined (by the plan administrator, by a court of competent jurisdiction, or otherwise), the plan administrator shall separately account for the amounts (hereinafter in this subparagraph referred to as the “segregated amounts”) which would have been payable to the alternate payee during such period if the order had been determined to be a qualified domestic relations order.

(ii)   If within the 18-month period described in clause (v) the order (or modification thereof) is determined to be a qualified domestic relations order, the plan administrator shall pay the segregated amounts (including any interest thereon) to the person or persons entitled thereto.

(iii)  If within the 18-month period described in clause (v)—

(I)      it is determined that the order is not a qualified domestic relations order, or

(II)    the issue as to whether such order is a qualified domestic relations order is not resolved,

then the plan administrator shall pay the segregated amounts (including any interest thereon) to the person or persons who would have been entitled to such amounts if there had been no order.

(iv)  Any determination that an order is a qualified domestic relations order which is made after the close of the 18-month period described in clause (v) shall be applied prospectively only.

(v)   For purposes of this subparagraph, the 18-month period described in this clause is the 18-month period beginning with the date on which the first payment would be required to be made under the domestic relations order.

(I)    If a plan fiduciary acts in accordance with [ERISA §§ 401-414] in—

(i)    treating a domestic relations order as being (or not being) a qualified domestic relations order, or

(ii)   taking action under subparagraph (H),

then the plan’s obligation to the participant and each alternate payee shall be discharged to the extent of any payment made pursuant to such [a]ct.

****** {We regret this display does not show the indents I wrote to show the arrangement of the subparagraphs, clauses, and subclauses.}

Receiving notice that someone who might become an alternate payee might pursue an order, which might be a DRO the proponent asks the plan’s administrator to treat as a QDRO, might not be the same thing as the beginning of “[a] period in which the issue of whether a domestic relations order is a qualified domestic relations order is being determined[.]”

Yet, as others in the discussion have observed, some plans’ administrators use procedures that impose a hold promptly after the administrator finds that someone might seek an order.

I express no view about whether such a procedure is wise or unwise, or prudent or imprudent.

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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