QDRO in California Court -- How to Avoid Joinder
Posted 01 June 2000 - 01:09 AM
Posted 01 June 2000 - 02:17 PM
Being an attorney in California, this issue has come up many times. I simply tell clients to ignore (meaning don't fight) the joinder, for the following reasons.
First, they doesn't have to comply with a court order that doesn't comply with the QDRO rules, and it would be a breach of fiduciary responsibility to ignore one that does comply. Thus, I don't think it matters whether you are joined or not. Accordingly, it isn't worth any effort.
However, I'd be very interested in the perspectives of others on this issue.
Posted 01 June 2000 - 02:45 PM
[This message has been edited by PJK (edited 06-01-2000).]
Posted 01 June 2000 - 03:09 PM
But, here are some follow up questions and comments. As I read Oddino (and granted I have not studied this case), the CA Sup. Ct. did not rule on whether the joinder statute in particular was preempted. It refused to rule on this issue because this issue was raised for the first time on appeal in an amicus brief by the DOL (see footnote 7).
I agree with both of your sentiments. I think it's a good idea to cooperate in terms of getting a good QDRO in place, and being involved up front saves time and headache down the road. But I am hesitant to allow the plan to be fully joined. For instance, In re Marriage of Tucker, out of the California Superior Court, found that the plan could be joined and thus was subject to state's fee-shifting statute!!!! Not surpisingly, in AT&T Management Pension Plan v. Tucker, a federal district court addressing the same issue found that ERISA preempted the fee-shifting statute.
So, that's my concern -- that there are other potential effects to not fighting the joinder.
Any other thoughts?
Posted 01 June 2000 - 03:55 PM
[This message has been edited by PJK (edited 06-01-2000).]
[This message has been edited by PJK (edited 06-01-2000).]
Posted 01 June 2000 - 05:41 PM
When the plan gets the QDRO, the plan makes a determination as to whether or not it qualifies. If it doesn't qualify, the plan tells the parties to fix it.
If it does qualify, then the plan complies with the order.
What's the need for participating in the court proceedings?
Posted 01 June 2000 - 05:52 PM
But I guess what I'm hearing both of you saying is that ordinarily it's business as usual, even though the plan technically is a party to the action. I suppose if the court tried to do anything weird like make the plan pay the attorneys' fees (like happened in Tucker) you could raise a preemption argument then.
Thanks for your thoughts on this.
Posted 01 June 2000 - 06:59 PM
Alas, however, the parties sometimes rush to have the court enter the order without understanding critical aspects of the plan and the plan has to reject the order for technical reasons. Now the parties face the expense of going back to court to modify the entered order or bringing a separate law suit to enjoin the plan's enforcement of it. The lawyers for the parties have a greater exposure to malpractice liability, the court may be embarrassed, and the plan may have to bear the expense of defending its position that the DRO is not a QDRO.
Compliance with the joinder rules helps to avoid this unpleasantness and expense, by giving the plan the opportunity to be extra vigilant about developments that impinge on the operation of the plan.
Posted 15 June 2000 - 12:03 PM
Posted 25 April 2003 - 05:43 PM
Posted 25 April 2003 - 07:52 PM
Fill out and send back the paperwork. Include a statement that the plan asserts that the court does not have jurisdiction, but that the plan will not distribute any amounts pending further orders of the court or other applicable process. By the way, this is what the DOL recommended. The DOL is still sort of looking for the right case to get a decision that the joinder is pre-empted, sou you can be their test case if you preserve all rights. I think they have really given up. California is a sovereign nation that will never admit that its laws are limited, and even the federal courts in California think this way.
The statement that the plan will not make distributions is what the joinder is really trying to accomplish, so probably no one will get excited about the other statement. By not making distributions (and perhaps not loans) the plan is not obeying the joinder because of California law (the plan is asserting no jurisdiction). Instead, the plan is obeying ERISA and 414(p) of the tax code because it has received a domestic relations order (the joinder). You and I both know that the joinder is not a QUALIFIED domestic relations order, but the plan administrator has a "reasonable" amount of time to decide qualification. Even if the plan disqualifies the order, the Tise case (9th Circuit) says that the would-be alternate payee has a reasonable time to cure qualification defects. What this all boils down to in most cases is that it is "reasonable" for the plan to sit on the joinder order, not make distributions, and wait for a "real" domestic relations order that it can process in the usual fashion.
It gets a littel sticky if the participant is eligible for a distribution and asks for a distribution or loan. That will trigger the 18 month periond, and you might have to start communication with the parties at some point if the divorce proceeding drags on.
I realize that this is artificial and a stretch, but it is my best effort to reconcile the applicable law with the inapplicable law and stay out of controversy. Maybe I am just lucky, but this has never been a problem over quite a few years and a large number of joinder orders. At one time I sent letters to at least one of the divorce lawyers so I could get the lawyer to buy in to the scheme, but I quit doing that years ago. They don't want extra trouble either.
The only problem has arisen when the divorce got completed and they decided not to divide the retirement benefits, so no QDRO. Then the poor participant asked for a distribution and we had to tell him tha the plan needed some appropriate evidence that the proceeding had resolved and that there would be no further orders concerning the plan benefits. That turned out to be tricky.
Posted 25 April 2003 - 08:05 PM
I think that saying that the court does not have jurisdiction may be a bit overbroad. It might be a bit more precise to say that the court does not have jurisdiction to order the distribution of plan assets other than pursuant to a Qualified Domestic Relations Order. I would be somewhat concerned about unnecessarily alienating the court.
Also, I can't get too excited about this issue. I don't think that allowing the plan to be joined as a party obligates the plan to comply with an order that does not satisfy all of the requisite conditions. I can't imagine the DOL challenging a plan because it didn't resist a joinder action. I think that the DOL has much better ways to expend its scarce resources.
Posted 26 April 2003 - 11:07 AM
In the hyperbolic world of litigation, a response to a pleading that is overbroad is par for the course. Also, I do not think it is overbroad, because I do not think the plan can be joined as a party to a state court action and I think the state court has no power over the plan or the determination of qualification (contrary to the California Supreme Court's hilarious decision). The state court divides the benefit to determine the relative rights of the individuals under state law and that is the end of its authority. The order is presented to the plan and whether or not the plan gives it effect is a matter for the plan and federal law.
However, I agree 100% that even if a court has no powers, you don't want to get crosswise with the court to test the proposition. Although I think no one (least of all the court) reads the response to the joinders because they are essentially meaningless except as a device to preserve the retirement benefits for later division. The statement that the plan will not distribute should defuse any adverse reaction by anyone who actually reads the response. As a practical matter, one could just return the form without special response and forget about it and everything would proceed without problems.
There have been cases in California where the court has awarded attorneys fees against the plan because the plan had the audacity to tell the divorce lawyers that their orders did not qualifiy and needed some more work. The lawyers wanted attorneys fees to compensate them for having to fix the order. Faced with such a situation, I would prefer to have submitted a pleading that states that the court has no jurisdiction. It would give the plan more grounds for defense and the DOL might even jump in to help. Although the cases I know about finally got straighted out, it was a lot of work. At least a few California practioners remain apprehensive about the possibility.
Posted 29 April 2003 - 09:19 AM
Posted 29 April 2003 - 10:52 AM
QDROphile: Do you have any citations to court decisions where they have awarded fees? I've worked on dozens of attempted QDROs and nobody has dared to ask for attorneys' fees.
I can't imagine an attorney who obviously screwed up and drafted an order that didn't comply with Section 414(p) asking the court to order another party to pay the costs of fixing his or her malpractice, much less the court awarding it. That is truly incomprehensible.
Any plan that got such fees awarded against them should appeal it. Any court decision like that is so flagrantly bad as to be laughable.
Posted 29 April 2003 - 12:02 PM
An earlier published federal opinion allowed joinder and attorneys fees in a case where the plan seriously misbehaved, but I did no go back to find it. A more recent federal Central District decison supports your view, which is the correct one. AT&T Management Pension Plan v. Tucker, No. CV ABC 95-2263, 1995 WL 590256. After that decison was issued, I thought that the Califonia decisions were shaping up and I became less paranoid about attorney's fees. The confidence was undercut by an article published 2 to 3 years ago by lawyers who battled attorneys fees more recently. Although they won, it took a lot of effort and they claimed that the attorneys fees statute allowed the state judges to be a bit indiscriminate in awards. I regret that I could not find my copy to provide the publication reference. I have heard similar complaints informally from personal contacts. Until the state judges catch on, there is some risk that a plan will have to defend against a request for fees. The plan should win, but I still like the idea that the plan starts from the proposition that the state court has no jurisdiction over the plan. The Oddino decison is pretty scary, even though it, too, falls into your category of laughable.
Posted 29 April 2003 - 12:17 PM
Posted 01 May 2003 - 03:51 PM
Posted 01 May 2003 - 06:28 PM
Posted 26 April 2004 - 04:22 PM
Not to be contrary, and with great respect for the opinions made last year on this topic, but do the Joinder docs really constitute a domestic relations order? The Joinder docs are not a judgment, decree, or order "made pursuant to a State domestic relations law" are they? The docs are procedural documents relating to who shall ultimately be a party to the underlying action. If there's no domestic relations order, then there's no review necessary, is there (i.e., to determine if it's a QDRO)? If there's no DRO, there can never be a QDRO.
What does a plan do if the participant wants a distribution after the Joinder is received and the plan denies that request (even if it has responded that the court has no jurisdiction over the matter)? If the Joinder docs don't rise to the level of being a domestic relations order, and the plan denies the distribution, then hasn't the plan breached its fiduciary obligation to the participant by allowing a non-DRO to hold up a distribution to which the participant is otherwise entitled?
I'm frustrated trying to determine a practical, yet legally sound, way to deal with these documents. Any additional thoughts would be great.
Posted 27 April 2004 - 02:41 PM
My very simplistic view is that joinders are a formal, over-the-top way of meeting the requirements of California Family Code Section 755(b) - providing a written notice that someone is claiming to own part of the Participant's balance. The Sponsor and Trustee need to halt distributions from the Participant's balance until the matter is resolved via a QDRO.
We tell clients that a failure to file a Notice of Appearance within 30 days from receipt may subject the Plan to a default judgment and preclude objection to the terms of the order.
Code 755(b) link: http://www.leginfo.c...00&file=750-755
Posted 28 April 2004 - 10:37 AM
If it's not a domestic relations order, then what is the basis for retricting the participant's account if he or she wants a distribution?
Posted 28 April 2004 - 10:45 AM
"The plan may want to place a hold on a participant's right to direct investments when the plan receives a QDRO, or possibly when the plan is notified of a pending QDRO. The concern is when the participant's exercise of control over investments could negatively affect the value of the alternate payee's interest. In Schoonmaker v. Amoco Corp. Employee Savings Plan, 987 F.2d 410 (7th Cir. 1993)), the court held that a plan may not place such a hold unless the plan's written QDRO procedures provide for it."
Posted 09 November 2006 - 03:03 PM
Posted 16 November 2006 - 09:15 AM
I was wondering if you (or perhaps someone else) could post a form of notice of appearance and response. That seems to me to be the best approach. Maybe we could all review it and provide comments?