A QDRO fee of $500 to $1,000 is reasonable, said Stephen McCaffrey, chairman of the legal and legislative committee for the Plan Sponsor Council of America. He cites the administrative complexities of QDROs, which fall under the Employee Retirement Income Security Act of 1974. In a 2015 survey by Aon Hewitt of 367 plan sponsors, the percentage saying participants were directly charged a QDRO transaction fee was 55 percent in 2015, up from 25 percent in 2009.
McCaffrey said divorce lawyers "rail against this because they don't have a clue about what needs to be done and the time it takes to do it. I suspect it's not a profit center for the big record keepers."
Most attorneys aren't even aware of the fee, McBurney said. "When clients are hit with an unexpected $1,000 fee from, say, Schwab, without warning—when they often already owe the attorney thousands of dollars from the divorce—they get mad," she said. If fees go up after a QDRO is rejected because the lawyer didn't handle it right, it makes the lawyer look bad—or, "more accurately, worse," she said.
Bill Burns of Lexington Pension Consultants, a longtime QDRO and pension valuation expert, said most companies he works with don't charge plan participants a QDRO fee. "It's primarily the bigger third-party administrators, and they charge more than we do in the first place," he said. "That's how they make their money."
Lexington acts as a middleman between lawyers and plan administrators. These days, more employers are signing contracts for QDROs with companies such as Fidelity, a trend that can cut into Lexington's business, said Burns.
Fidelity hasn't changed its fees in a long time—15 years. That's in contrast to many other plan investment fees and expenses, which have declined over the years amid complaints and lawsuits from consumers and lawyers.
If a participant uses Fidelity's model form and all goes smoothly, it charges $300. For orders not generated on its site and for a Fidelity-generated order that "is altered or does not contain the unique Tracking Number as originally printed on the Order," as its QDRO site puts it, it's $1,200. If an order isn't generated on Fidelity's site and involves multiple retirement accounts with the same company, it's $1,800.
Fidelity said it doesn't have data on competitive fees and has not heard "negative feedback from the consulting community" when it pitches new business that includes information on QDRO fees.
Vanguard charges around $700, and Schwab typically charges between $750 and $1,000. The 2015 Aon Hewitt found an average charge (including plans with no QDRO charge) of $398, with a median of $350.That's about what Buddy Horner, director of retirement plan consulting for Bronfman E.L. Rothschild, which works with smaller retirement plans, said his firm charges—a flat $350 and an additional hourly rate if it takes longer than two or three hours. Scott Trout, managing partner at Cordell & Cordell, which specializes in family law, said "lawyers do the heavy lifting in drafting the QDRO," something that typically costs $500 to $700 at his firm.
Fidelity is singled out the most as a source of frustration in conversations with industry players. That may simply be because it's the biggest player in the 401(k) world. Defined-contribution plans Fidelity administers cover more than 18 million participants.