"Can a Plan Administrator or TPA refuse to process a rollover request from a plan participant where the participant is a party to a pending divorce and an automatic standing order is in place?
Background:
1. The participant wife is in a pending divorce that has been going on for some time. As is the case for all divorces in this jurisdiction, a standard form “Automatic Domestic Standing Order” went into effect when the divorce was filed. The Standing Order, by its terms, is binding only on the parties to the divorce. The Standing Order is not a QDRO, does not direct the plan fiduciaries to do or refrain from doing any act, and does not specifically mention the Plan. The closest thing that the Standing Order addresses regarding the 401(k) Plan is that it prohibits certain transfers or trading of property located in the county if such
transactions are not in the ordinary course of business.
2. Husband and wife were previously employed by the same family business and are participants in 401(k) Plan. Husband is trustee of the Plan and sole owner of the Company that is the Plan administrator. Wife previously rolled over a portion of assets in Plan from prior employer and is 100% vested in her 401(k) account. As wife is no longer employed by Company, she filled out the proper forms with the TPA to initiate a direct rollover of 100% of her account to another 401(k) account set up at another institution. The TPA notified (but did not formally forward the rollover request to) the husband/trustee/administrator who objected.
3. The TPA stated that the distribution request cannot be honored citing the following:
a. If the Plan Administrator is on notice (verbal or written) regarding a pending domestic
relations action (e.g., a divorce) and has a reasonable belief that the participant’s account may become subject to a QDRO, the Plan Administrator may suspend processing the participant’s distribution or loan requests pending resolution.
b. The Standing Order puts The Retirement Plan Company (TRPC) on notice that a divorce is pending and prevents both parties from trading any of the assets, which arguably is what would be done in a rollover distribution from the Plan.
c. It appears the retirement assets of both parties are marital assets subject to equitable division by an adjudicating judge in a divorce proceeding. It is quite possible that either parties’ retirement assets could become subject to a QDRO. As such, no distributions should be made to either party until there is a modification to the standing order, or other such direction by the relevant
court (e.g., a QDRO), which should specifically address allowing distributions and rollovers from the retirement plan accounts.
Is the TPA taking on a fiduciary role in refusing to forward the rollover request to the Plan Administrator?"