Jump to content
Sign in to follow this  
Newbie

Surviving Spouse?

Recommended Posts

I am on a committee that is the plan administrator for a defined benefit plan.  A decree of divorce was entered ending the marriage between Employee X and spouse.  The next day, Employee X committed suicide.  Weeks later, spouse applied for and obtained a QDRO for 1/2 of X's benefits.  For the plan, the committee denied the QDRO.  Our denial was based on the advice of our ERISA attorney and actuary.  They explained that the entire benefit "died with X" because he died single and before the plan received or even knew of any QDRO might be coming.

The spouse has applied to the divorce judge who decided to vacate the decree of divorce, restoring X and the ex-spouse to married status, due to the "unique and compelling circumstances", including that the Decree had not even been delivered to either X or the spouse by the time of X's suicide.  Of course, it's obvious that the motivation for the divorce judge vacating the decree of divorce and pronouncing them married at the time of X'd death is to obtain for spouse a part of the benefits.

Our ERISA attorney and actuary both have never heard of an attempt by a divorce court to manipulate a pension benefit in this way, or whether it would be effective to do so.  What say you? 

Share this post


Link to post
Share on other sites

I think the plan might have accepted the QDRO and then provided 1/2 of the benefits due.  0.5 times zero.

Share this post


Link to post
Share on other sites

A QDRO can establish an ex-spouse to be treated the same as a spouse for purposes of the QPSA.  Of course, other factors might be relevant; for example, whether the participant was vested.  IMHO, the plan/plan administrator/sponsor should not take sides.

Share this post


Link to post
Share on other sites
12 hours ago, david rigby said:

A QDRO can establish an ex-spouse to be treated the same as a spouse for purposes of the QPSA.  Of course, other factors might be relevant; for example, whether the participant was vested.  IMHO, the plan/plan administrator/sponsor should not take sides.

The participant was vested.  Unless the participant was married at death for which there would be a survivor annuity, the plan provides no death benefit.  The participant's estate is not claiming anything.  There is no side to take.  The question is simply whether a state divorce judge can recreate benefits that no longer exist because when the participant died, he was single due to the divorce decree entered the day before.

Share this post


Link to post
Share on other sites

This is a fact-specific question and requires knowledge of state family law but VERY GENERALLY SPEAKING a judge has the authority to modify or vacate a divorce decree after the decree is final.  On what basis is the plan questioning the judge's decision to vacate the divorce decree?  The plan probably needs the services of an attorney who is familiar with your state's family law.

Share this post


Link to post
Share on other sites

I guess the question is to what lengths does the PA need to go to investigate/challenge the Judge's actions to comply with its fiduciary obligations to the plan under ERISA.  I think it should at least hire an expert family law attorney to render some sort of opinion or at least provide advice - not on the ERISA fiduciary responsibility issue but the validity of the Judge's actions under state law.  Unless the opinion or advice is that the Judge's action is 100% valid, the PA may then need to consult with ERISA counsel.    

Share this post


Link to post
Share on other sites

I clearly see an issue here.  Fact is that when the participant died, he was not married. The plan provisions (in  this instance) provide zero death benefits.  Now, a judge is trying to ex-post facto increase the liability of the plan. 

To me, that is a clear ERISA issue (that is, a FEDERAL issue).  Can a state judge do this?  The plan needs to hire an atty who will challenge this in federal court.  I don't know if the judge has the authority to increase the liability of the retirement plan; but it sure will be interesting to follow this case.

And Mike, ,I don't see how the plan could have paid out anything under the QDRO since the benefits under the plan after his death and being unmarried was zero.  Seems to me they didn't have the option to pay out anything.

Share this post


Link to post
Share on other sites

There may be established case law supporting the judge's action in vacating the divorce nunc pro tunc.  (Precedent may have been created, for example, in will contests.)  I don't have a clue, but assuming that is the case that easily resolves this matter to the detriment of the plan.  That ERISA is federal law doesn't seem relevant to me because marital status is determined under state law.        

Share this post


Link to post
Share on other sites

IMHO, the PA has no authority to pick and choose which order of the judge it prefers (the order of dissolution or the order vacating the dissolution).  Each order IS an order.  Due to the rapid timing, the PA can't claim hardship or any other excuse to allow its refusal to honor the court's second determination.  And what party will challenge the determination that the participant was married?  No participants will suffer or benefit either way (since their benefits are defined); the Plan Administrator should take care that the decisions it makes meet the fiduciary standard EXCLUSIVE benefit of the PARTICIPANTS (not the Sponsor).

Share this post


Link to post
Share on other sites
2 hours ago, Larry Starr said:

And Mike, ,I don't see how the plan could have paid out anything under the QDRO since the benefits under the plan after his death and being unmarried was zero.  Seems to me they didn't have the option to pay out anything.

What part of 0.5 times zero implies differently?

  • Like 1
  • Haha 2

Share this post


Link to post
Share on other sites
1 hour ago, QP_Guy said:

And what party will challenge the determination that the participant was married?  No participants will suffer or benefit either way (since their benefits are defined); the Plan Administrator should take care that the decisions it makes meet the fiduciary standard EXCLUSIVE benefit of the PARTICIPANTS (not the Sponsor).

The plan.  As to the rest, it is so wrong that all I can do is smh.

Share this post


Link to post
Share on other sites

The other participants do suffer if this benefit is paid. It is the fiduciary’s duty to act in the best interest of the plan participants. Paying benefits out when none is owed would violate that. The plan committee should fight this. 

That said, they’ll lose because the feds have no choice but to defer to state courts in determining who is married (see gay marriage decisions) 

kind os between a rock and a hard place on this one. 

Share this post


Link to post
Share on other sites

I don't know.  Let's say after the plan consults with counsel it is determined that the judge was completely off his rocker and there was no basis under state law for what he did.  When the "spouse" files a claim for benefits and the plan denies it and they end up in court, either federal or state, I don't think that court would be bound by a crazy decision of the court in the divorce action.  However, not being a trial attorney I am just guessing.

Share this post


Link to post
Share on other sites

This situation suggests two key law issues, first under State law and then under Federal law:

 

(1)   If yesterday a court had ended Pat’s marriage to Sam, can a court tomorrow order that Pat and Sam were married yesterday?

 

(2)   If a State court’s order says Pat and Sam were married yesterday (and the order is a domestic-relations order within the meaning of ERISA § 206(d)(3)(B)(ii)), would following that order “require [the] plan to provide any type or form of benefit, or any option, not otherwise provided under the plan [or] require the plan to provide increased benefits (determined on the basis of actuarial value)[.]”  ERISA § 206(d)(3)(D).

 

It’s hard to do much about question 1.  But employee-benefits practitioners might help some judges learn the legal, economic, and practical effects of question 2.

 

A related point:  The situation the originating post describes illustrates some usefulness of venue provisions in an employee-benefit plan’s governing document.  If the plan’s administrator decides the revised order is not a QDRO and the would-be surviving spouse challenges that decision, would the plan’s employer/sponsor/administrator prefer that the challenger be compelled to proceed in Federal (rather than State) court and in the district the plan’s sponsor chose?

 

Newbie’s committee has a lawyer and we don’t presume to advise either of them.  As we use this thread for academic interest or professional development, among many court decisions about the issues raised one might read these:

 

(1)   Padgett v. Little, 172 Cal. App. 4th 830, 91 Cal. Rptr. 3d 475, 47 Empl. Benefits Cas. (BNA) 1050, 1061 (Cal. Ct. App. 2009) (A trial court exceeded its authority by using the ruse of a nunc pro tunc [now for then] order in its attempt to create an interest.).

 

(2)   Garcia-Tatupu v. Bert Bell/Peter Rozelle NFL Player Retirement Plan, 249 F. Supp. 3d 570 (D. Mass. 2017) (whether a nunc pro tunc order entitled a participant’s former spouse to a benefit turned on whether the former spouse’s interest had been established before the participant’s death so that the order did not create a new benefit not otherwise payable).

  • Like 1
  • Thanks 1

Share this post


Link to post
Share on other sites
On 8/7/2018 at 11:35 PM, Mike Preston said:

What part of 0.5 times zero implies differently?

Hey!  I'm floating in the north Atlantic so I'm allowed duhs!  I never check your math anyway so didn't see that you were being cheeky!

Share this post


Link to post
Share on other sites
On 8/7/2018 at 10:00 PM, QP_Guy said:

IMHO, the PA has no authority to pick and choose which order of the judge it prefers (the order of dissolution or the order vacating the dissolution).  Each order IS an order.  Due to the rapid timing, the PA can't claim hardship or any other excuse to allow its refusal to honor the court's second determination.  And what party will challenge the determination that the participant was married?  No participants will suffer or benefit either way (since their benefits are defined); the Plan Administrator should take care that the decisions it makes meet the fiduciary standard EXCLUSIVE benefit of the PARTICIPANTS (not the Sponsor).

You seem to not understand how a DB plan works. Do you only deal with DC plans?  If the plan pays out a benefit that someone isn't entitled to, don't you think SOMEONE has to be a loser? in this case, it is the plan itself (and the employer by proxy).  Also, the plan is not subject to a local judge's order except as it applies under a QDRO since the plan is subject only to FEDERAL LAW (and the QDRO is a specifically provided exception).  Any order provided to a plan to do something that is not in compliance with ERISA should be appealed to FEDERAL court and quashed.  And I fear you completely miss the proper application of fiduciary status; the plan (or the PA) MUST follow the terms of the plan, not decide what is BETTER for participant (or ex-spouse) that violates the terms of the plan.  Your response is simply significantly out of line with the way the law works. Sorry.

Share this post


Link to post
Share on other sites

Hopefully you are on a cruise and not stuck in an inner tube with only your laptop, with its failing batteries being utilized for this rather than calling for rescue. Enjoy!

Share this post


Link to post
Share on other sites
6 hours ago, Belgarath said:

Hopefully you are on a cruise and not stuck in an inner tube with only your laptop, with its failing batteries being utilized for this rather than calling for rescue. Enjoy!

 

6 hours ago, Belgarath said:

Hopefully you are on a cruise and not stuck in an inner tube with only your laptop, with its failing batteries being utilized for this rather than calling for rescue. Enjoy!

ON the Holland American Line Koningsdam for a two week cruise.  Leaving Scotland now and heading toward Iceland and then Norway.and then back to Amsterdam where we started.  We are on a VIP Art Cruise with the Park West Galleries (the folks who run all the on-ship art auctions) with 130 other VIPs (their largest ever) and over $35 MILLION of amazing art!  These "free cruises" tend to be very expensive!  No such thing as a free lunch (or two week open bar!) is very true!

Share this post


Link to post
Share on other sites
47 minutes ago, Pension Dork said:

Well, try not to drift near the outer side of Cape Cod if you're on that inner tube!  Unless you have a big can of Shark-B-Gone! 

Thanks for the advice, but you might want to check how close Cape Cod is to the North Atlantic! :-)

Share this post


Link to post
Share on other sites

I think the plan's position is incorrect and the judge made the decision to try to correct the situation.  The DOL QDRO regs clearly provide for posthumous QDROs.  So if an order is issued it could still be a QDRO and then the Alternate Payee and the Plan might litigate over the plan's interpretation that there was no benefit to which the order could be applied.  This could be problematic because there is language in the statute itself that points to benefits after the death of the participant and before the participant's retirement. ERISA 206(d)(3)(E)(i) provides "A domestic relations order shall not be treated as failing to meet the requirements of clause (i) of subparagraph (D) solely because such order requires that payment of benefits be made to an alternate payee -- (I) in the case of any payment before a participant has separated from service, on or after the date on which the participant attains (or would have attained) the earliest retirement age,"

The "or would have attained" language very clearly contemplates payment of benefits to the alternate payee of a participant who died before his/her retirement and before the AP.  In my experience of many years with DB plans, these plans do provide a benefit to APs in the circumstances discussed at least since the issuance of the 2010 Final DOL regulations.

So my reaction is that the judge was reacting to the narrow interpretation of the plan that deprived the AP of a benefit and responded to correct that problem.  Perhaps not an elegant fix but certainly a just one in  my view.

 

Share this post


Link to post
Share on other sites

It does not appear that this was intended to be a DRO, much less a QDRO.  Perhaps the judge could have modified the prior DRO to treat the ex-spouse as the surviving spouse, in which case we would only be dealing with the issue of whether that done posthumously was valid, but that's not what the judge did.  The PA needs to be concerned about its fiduciary duties here, and whereas fiduciaries usually only have to review facts in this case it is incumbent upon the PA to consider the law.  

  • Like 1

Share this post


Link to post
Share on other sites

Day 1 the participant and spouse reach a property settlement.  Day 2 the divorce decree is issued.  Day 3 the participant dies.  Day 4 the DRO is executed.  I do not agree that death on Day 3 defeats the property settlement.  The marital property existed as of the date of divorce.  DROs are often issued weeks and months after the property settlement and divorce decree.  The Plan is taking the position that a final decree of divorce cannot be issued before the QDRO is in place.  The Plan has 18 months to make up its mind whether a DRO is a QDRO.  Dear participant, we will let you know within 18 months when you can finalize that divorce.

Share this post


Link to post
Share on other sites
8 hours ago, FormsRstillmylife said:

Day 1 the participant and spouse reach a property settlement.  Day 2 the divorce decree is issued.  Day 3 the participant dies.  Day 4 the DRO is executed.  I do not agree that death on Day 3 defeats the property settlement.  The marital property existed as of the date of divorce.  DROs are often issued weeks and months after the property settlement and divorce decree.  The Plan is taking the position that a final decree of divorce cannot be issued before the QDRO is in place.  The Plan has 18 months to make up its mind whether a DRO is a QDRO.  Dear participant, we will let you know within 18 months when you can finalize that divorce.

That is just not the issue.  The participant died when he was not married and there was no DRO in existence.  The PLAN benefit for the dead participant on that date is ZERO.  The judge can do whatever he wants to divide up that amount, but (as Mike noted in his actuarial math!), any percentage of zero is ZERO.  In your example, to make it clear, on Day 3 when the participant died, the value of the benefit was zero.

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
Sign in to follow this  

×
×
  • Create New...