• The company is requested to calculate a participant’s accrued benefit. The written response indicates that no benefit is available because the participant has only been employed for four years. He has not yet satisfied the plan’s vesting requirement. However, the participant has already worked there for four years and has started to accrue a pension, half of which may be marital. They don’t tell you that he needs only one more year of service to become 100 percent vested in his accrued pension benefit. It is also well-settled law nowadays that a nonvested pension benefit does have value at divorce and should be considered when equitably dividing the marital portion of the pension benefits.
4. Your Rights under the Federal Pension Law Called ERISA
The Employee Retirement Income Security Act of 1974 (ERISA) entitles plan participants and beneficiaries to receive the following information regarding their plan benefits. Remember, once your QDRO is drafted, you, as alternate payee, have the same rights as a plan beneficiary to receive information from the plan. You are entitled to do the following:
(a) Review plan documents. All plan participants and beneficiaries can examine, without charge and during regular working hours, all plan documents, including plan contracts and copies of all documents filed with the us Department of Labor, such as detailed annual reports and plan descriptions.
(b) Obtain a copy of plan documents. All plan participants and beneficiaries can obtain a copy of all plan documents and other plan information by writing to the plan administrator’s office. The administrator may make a reasonable charge for copies (usually not more than 25 cents per page).
(c) Receive a copy of the plan’s annual financial report. The plan administrator is required by law to provide all plan participants with a copy of the summary annual report.
(d) Receive an accrued benefit statement. Upon written request, a plan administrator must furnish participants or plan beneficiaries with a statement regarding their rights to receive a benefit under the plan, and the amount of such benefits. The administrator must provide this accrued benefit calculation free of charge but is not required to recalculate it more frequently than once per year.
(e) Receive a summary plan description. One of the major obligations of a plan administrator is to furnish plan summaries (called summary plan descriptions, or spds) to all plan participants and beneficiaries. The purpose of the spd is to provide a description of the key features of the plan in an easy-to-understand manner. It might be a good idea to request an spd once your QDRO is approved. The spd contains some information that may be of interest to you, such as early commencement reduction factors if you decide to start your benefits before your ex-husband’s normal retirement age. It also includes all of the payment options from which you may elect to receive your benefits.
5. Administrative Fees for Processing QDROs
One gray area in the administration of QDROs by a plan administrator deals with fees charged to participants or alternate payees. Many companies today still charge an alternate payee for processing a QDRO in accordance with the requirements of ERISA and Section 414(p) of the Internal Revenue Code. Some Fortune 500 companies request advance payment of $200 to $300 to accompany a QDRO before they will determine whether it qualifies.
The economics of dealing with QDROs can cause companies to increase expenditures to their attorneys, actuaries, and consultants for the review and processing of QDROs. But you might wonder whether administrative fees are fair, considering that plan administrators are required by statute to make qualifying determinations regarding QDROs. What can you do when the company’s written administrative procedures dictate that a certain amount, a “QDRO processing fee,” will automatically be deducted from their distribution? You will probably have as much success fighting city hall over a parking ticket.
Some clarification on this issue finally occurred several years ago in an official opinion letter from the Pension, Welfare and Benefits Administration (PWBA). The letter was prompted by a request from a plan administrator to permit the modification of the terms of its profit-sharing plan by allowing it to charge the account of a plan participant for any QDRO processing that affected this participant. In its opinion, the PWBA stated that an administrator of a retirement plan covered under Title 1 of ERISA may not charge an individual participant or an alternate payee any fees for processing a QDRO to determine whether it satisfies federal requirements for QDROs.
The rights of alternate payees under QDROs are guaranteed to them under ERISA and the Internal Revenue Code. To allow a plan administrator to charge for something it is required by law to provide flies in the face of equity. The PWBA did state that ERISA allows plans themselves to incur reasonable charges to cover certain costs and that plans may properly pay for reasonable administrative costs in processing QDROs. It distinguished between an alternate payee’s rights to a portion of a participant’s benefits as guaranteed by statute and an optional right that is permitted, but not required, under ERISA.
Occasionally, charges may be assessed to the participant or alternate payee. For example, a plan administrator may legitimately charge a participant for reasonable expenses incurred in exercising a plan option to allow employee-directed investments or loan processing fees for participants.
Despite the PWBA’s opinion letter, some plan administrators are still charging participants and alternate payees QDRO processing fees. For example, if your QDRO used the separate interest approach, in which your benefits are actuarially adjusted to your own life expectancy, rather than remaining based on the life expectancy of the plan participant, it appears that the administrator may properly charge the participant or alternate payee for the necessary expenses incurred for hiring an actuary to perform this calculation.
At least one plan administrator circumvented this fee prohibition by charging only to review draft QDROs (those not yet signed by the judge). Attorneys were required to pay $250 for the review of a nonexecuted QDRO. The administrator failed to inform the attorneys that the fee would be waived if they submitted a QDRO already signed by the judge.
6. Constructive Notice of a QDRO
If your attorney is pursuing a QDRO on your behalf, he or she should send an immediate notice to the plan administrator (or even a first-draft, nonexecuted QDRO) to put it on notice of a pending QDRO. A nonexecuted QDRO is one that is not yet signed by the judge — it’s still in draft form. Even if the draft QDRO is deemed not to be qualified, the plan administrator may still withhold the called-for portion to be payable to you pending the submission of a certified order. If your ex-husband is still actively employed, the company may flag his pension file to prevent him from making a sudden, premature distribution, loan, or withdrawal that would be detrimental to you. However, to really help secure your future rights to a share of the benefits, it is usually better to send a certified copy of the QDRO rather than a draft copy. A certified copy is one that is already executed by the court and shows the judge’s signature. If a certified copy is sent, the plan administrator will be required to suspend or withhold the alternate payee’s called-for portion of the benefits, even if the QDRO is otherwise deficient. This is especially important if your ex-husband is already retired or thinking about retiring in the near future.
7. The Company’s Own Model QDRO Language
Many large employers have model QDRO language that they like to use to speed up the approval process. Generally, they are pleased to send you this information. Use this language wisely, however. Although it may expedite the approval process, their model language may not have your best interests in mind. Experience shows that it may be a good idea to have your attorney draft his or her own comprehensive QDRO language on the substantive and important issues and then to incorporate some or all of the company’s