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Debt collection practices
  • A debt collector’s communication with a consumer is regulated by an act passed by the U.S. Congress.
  • A QDRO establishes the right of an “alternate payee” to all or part of an employee’s retirement plan benefit.

Sometimes employees get into debt that they cannot immediately pay off, and they may receive collection calls at work. The U.S. Congress anticipated this situation and created the Debt Collection Practices Act. In particular, 1692c, Communication in connection with debt collection, includes the following provision:

(a) Communication with the consumer generally

Without prior consent of the consumer given directly to the debt collector or express permission of a court of competent jurisdiction, a debt collector may not communicate with a consumer in connection with the collection of any debt:

  1. At any unusual time or place or a time or place known or which should be known to be inconvenient to the consumer. In the absence of knowledge of circumstances to the contrary, a debt collector shall assume that the convenient time for communicating with a consumer is after 8:00 a.m. and before 9:00 p.m. local time at the consumer’s location;
  2. If the debt collector knows the consumer is represented by an attorney with respect to such debt and has knowledge of, or can readily ascertain, such attorney’s name and address, unless the attorney fails to respond within a reasonable period of time to a communication from the debt collector or unless the attorney consents to direct communication with the consumer; or
  3. At the consumer’s place of employment if the debt collector knows or has reason to know that the consumer’s employer prohibits the consumer from receiving such communication.

In other words, if an employee is getting harassing calls from a debt collection agency, and the employee informs the agency that company policy prohibits the employee from taking such calls at work, the agency is required by law to stop calling the person at work.

Note, however, that the act applies primarily to third-party collection agencies, not organizations attempting to collect their own debts. For example, the law does not apply to a property manager attempting to collect a tenant’s overdue rent or to a utility attempting to collect an overdue electric bill. See the definition of “debt collector” in 1692a, paragraph (6).

Qualified Domestic Relations Order

Often as a result of a divorce settlement, all or a portion of a participant’s retirement plan benefit — whether from a defined contribution plan or defined benefit plan — is determined to be split and paid to the former spouse or “alternate payee.” An alternate payee may be a spouse, former spouse, child, or other dependent of a participant. A court order that creates the existence of an alternate payee’s right to receive all or a portion of benefits payable with respect to a participant under a qualified retirement plan is referred to as a Qualified Domestic Relations Order (QDRO).

  • Components
    Just the fact that a property settlement in a divorce situation is agreed to and signed by the parties does not necessarily cause the agreement to become a QDRO. It must be issued by a state authority, generally a court, before it qualifies. Basic information must be included in a QDRO such as name, mailing addresses of both parties, name of the plan, dollar amount or percentage to be paid to the alternate payee, and the number of payments or time period to which the order applies.

    Every pension plan is required to establish written procedures for determining whether a domestic relations order is a QDRO and for administering distributions under it. An employer can process each QDRO in-house or pay an attorney, recordkeeper, or actuary to process it.
  • How to process
    For those processing the court orders in-house, there are certain things to keep in mind:
    • Plan administrators may develop a “model” QDRO form with acceptable language to assist attorneys in preparation of a QDRO.
    • Upon receipt of a “draft” copy of the QDRO, the plan administrator should make sure all the information is complete and accurate. The proposed QDRO cannot require a benefit or form of benefit not otherwise provided under the plan.
    • The plan administrator must promptly notify the participant and each alternate payee of the draft copy, as well as provide a copy of the plan’s procedures to them.
    • Once the plan administrator has determined the draft to be “qualified”, the approval should be sent to the attorney for final revisions and submission to the court.
    • Upon receipt of the final court order, the plan administrator is required to notify participants and each alternate payee promptly.
  • Timeframe
    Processing of the retirement plan benefit per the stipulations of the QDRO should be done within a reasonable time period upon receipt of final court documentation. These are mandatory orders that a plan sponsor must abide by and should be conscientiously followed.