Guidance for Plan Administrators on QDROs
If you are an employee benefits administrator, you will likely face situations when an employee in the process of getting a divorce informs you a court will be issuing a Qualified Domestic Relations Order (QDRO). Prepare yourself for this eventuality.
A QDRO primarily establishes a spouse’s or ex-spouse’s legal right to receive a designated percentage of a retirement account balance, or certain retirement benefit payments. Because it is a court order, you must make sure you follow it to the letter. Not only do you have an obligation to discharge your obligations under the QDRO, but you also have a fiduciary responsibility under the Employee Retirement Income Security Act (ERISA). Here are eight important steps to take.
1. Provide the Alternate Payee (ex-spouse) information on the retirement plan.
Allow access to plan and participant benefit information sufficient to prepare a QDRO. Such information might include the summary plan description, relevant plan documents, and a statement of the participant’s benefit entitlements. You may condition disclosure of such information on a prospective alternate payee’s providing information sufficient to reasonably establish the disclosure request is being made in connection with a domestic relations proceeding. Affording prospective alternate payees access to plan and participant information in a timely manner will help drafters avoid making obvious errors in preparing orders and, thereby, facilitate plan administration.
2. After receiving the proposed QDRO, notify those involved.Promptly notify the affected participant and each alternate payee named in the order and provide a copy of the plan’s procedures for determining whether a domestic relations order is a QDRO. Notification should be sent to the address included in the domestic relations order.
3. Establish procedures to determine if the order is a QDRO.
Establish written procedures for determining whether domestic relations orders are QDROs and for administering distributions under QDROs.
4. Outline the proper procedures.
The QDRO procedures must:
- Be in writing;
- Be reasonable;
- Provide that each person specified in a domestic relations order received by the plan as entitled to payment of benefits under the plan will be notified (at the address specified in the domestic relations order) of the plan’s procedures for making QDRO determinations upon receipt of a domestic relations order, and
- Permit an alternate payee to designate a representative for receipt of copies of notices and plan information sent to the alternate payee with respect to a domestic relations order.
5. Keep track of expenses.
An administrator may assess reasonable expenses attributable to a QDRO determination against the individual account of the participant who is a party to the domestic relations order. The documents of the plan should be reviewed to determine how plan expenses are allocated.
6. Make a determination in a reasonable period of time.
You must determine whether a domestic relations order is a QDRO within a reasonable period of time after receiving the order. What is “reasonable” will depend on the specific circumstances. For example, a domestic relations order which is clear and complete when submitted should require less time to review than an order that is incomplete or unclear.
7. Separately account for the amounts payable to the alternate payee.
During any period in which the issue of whether a domestic relations order is a QDRO is being determined, ERISA requires the plan administrator to separately account for the amounts which would be payable to an alternate payee under the terms of the order during such period if the order had been determined to be qualified. You must take steps to ensure amounts which would have been payable to the alternate payee, if the order were a QDRO, are not distributed to the participant or any other person.
The plan administrator’s duty to separately account for and to preserve the segregated amounts is limited in time. ERISA requires the plan administrator to preserve the segregated amounts for not longer than the end of an “18-month period.”
8. Provide notice of your determination.
The plan administrator must notify the participant and each alternate payee of the administrator’s determination as to whether the order constitutes a QDRO. This notice should be in writing and furnished promptly following a determination.
In the case of a determination that an order is not qualified, the notice should include the reasons for the rejection. The notice of the plan administrator’s determination should be written in a manner which can be understood by the parties. Multiple submissions and unnecessary expenses may be avoided by clearly communicating in the rejection notice:
- The reasons why the order is not a QDRO;
- References to the plan provisions on which the plan administrator’s determination is based;
- An explanation of any time limits which apply to rights available to the parties under the plan (such as the duration of any protective actions the plan administrator will take); and
- A description of any additional material, information, or modifications necessary for the order to be a QDRO and an explanation of why such material, information, or modifications are necessary.
These are only some of the steps a benefits administrator must take in this situation. Contact your employees benefits consultant or your attorney to ensure you are fully complying with the proper procedures relating to a QDRO.