News & Views
DEPARTMENT OF LABOR REVERSES POSITION
ON ALLOCATION OF QDRO EXPENSES
The Department of Labor ("DOL") recently
issued a Field Assistance Bulletin ("FAB") in which
it addressed the allocation of certain expenses in defined contribution
plans. Significantly, the DOL changed its longstanding position
concerning the allocation of QDRO expenses. These expenses now
may be charged to an individual participant's account.
FAB 2003-3 provides that if a methodology for allocating
plan expenses is expressly stated in the plan document, the plan's
fiduciary must follow the applicable provisions. However, if the
document does not contain express provisions, ERISA will require
the fiduciary to take into account ERISA's basic fiduciary duty
requirements. A pro rata allocation method may be appropriate
for certain expenses such as investment management fees, while
a per capita basis may be more appropriate for fixed administrative
expenses, such as recordkeeping, legal, auditing, annual reporting
and claims processing. The fiduciary must make these decisions
taking into account the prudent man rule as well as the requirements
that the plan be operated "solely in the interest" of
the participants and their beneficiaries.
For many years, it has been the DOL's position
that expenses related to the review of a QDRO could not be charged
to the account of the participant to whom the QDRO applied or
to the alternate payee. This often proved to be a burden to employers
that were forced to absorb costs over which it had little control.
Now the costs of processing a QDRO may be allocated specifically
to the account of the applicable participant.
The DOL provided examples of other administrative
expenses that can be charged to an individual's account, including
the reasonable expenses associated with hardship distributions,
the costs of calculating benefits payable under optional forms
of payment, the cost of making benefit distributions, the reasonable
costs of maintaining accounts for vested separated participants
and expenses related to qualified medical child support order
determination.
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