When an employer offers a 401(k) plan, along with that goes the long list of responsibilities and liability risks. This duty is often outsourced to a third-party plan administrator. As part of the division of assets in divorce, 401(k) plans often have to be divided between the spouses and that requires either a QDRO (a Qualified Domestic Relations Order) or, if the plan is not qualified under ERISA, a DRO (a Domestic Relations Order). The responsibilities of a plan administrator include reviewing QDROs or DROs and then distributing the funds to the non-plan participant spouse once they have approved the order.
Preparing a QDRO or DRO in a divorce adds cost to the divorce process and can be quite expensive if the document is not created from a form provided by the plan administrator. It’s important to find out during negotiations whether the plan administrator provides a form that that they either require to be used or which they offer for use. Using the form in most cases makes the process simple and less expensive and can help avoid errors. Some plan administrators charge for reviewing a QDRO or DRO, even if their form is used, so that needs to be researched as well. Often an account statement will provide the name and phone number of the plan administrator or the employee spouse can ask for a copy of the Summary Plan Description.
It’s also important to discuss these costs in mediation and spell out in the separation agreement who will be responsible for preparing the order, who will be responsible for submitting the order to the court and the plan administrator, and who will pay for the preparation of the order and the review by the plan administrator.
As an example, I have several clients whose employer’s 401(k) plan is administered by Fidelity Investments. Fidelity has created the Fidelity QDRO Center website which provides model QDROs and DROs for its client’s 401(k) type plans, as well as access to a Glossary of Terms, Frequently Asked Questions, and each plan's DRO Approval Guidelines and Procedures (“DRO Guidelines”). At the time this article was written, for one particular 401(k) plan, Fidelity is charging from $300 to $1800 to review a domestic relations order, depending on whether its form is used.
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