Participant with 75% J&S benefit in pay status and then participant and spouse divorce

[Steamboat]

Participant elected 75% J&S and started receiving pension benefit. Then she and her spouse divorce.  Divorce decree says the ex-spouse is not entitled to any pension benefit the  participant may have. 

Despite divorce decree, isn't ex-spouse still entitled to the benefit if the participant dies before the ex-spouse? 

[CuseFan]

If the benefit is a J&S where the beneficiary must be a surviving spouse, then I think not, as the ex is no longer the spouse. In this case, I think there would need to be a QDRO stating the ex is still to be treated as the spouse if survivor benefits for the ex are to be preserved.

If the form of benefit as defined by the plan simply allows contingent annuitants (spouse or non-spouse) then I think the ex may be locked in and entitled to survivor annuity.

Regardless, I don't think the participant can change the form of payment or the beneficiary of the survivor benefit - so that possibly could have been leveraged in the settlement.

[QDROphile]

I think the U.S. Court of Appeals for the Fifth Circuit would say that the survivor annuity interest “vests” in the spouse at the time the benefit starts.  Where to go from there, or not, is not answered because the circumstances were different. A former spouse of the participant was trying to capture all or a part of the “vested” interest.

IRC section 414(p) refers to assigning some or all of the participant’s interest to an alternate payee, not assigning some of a vested spouse interest to the participant or another alternate payee.  If the Fifth Circuit meant what it said (c.f. Ninth Circuit’s take on J&S interests vs QDROs), then the now former spouse cannot be divested or deprived in any measure.  But the former spouse can be denied any interest in the participant’s stream of payments (effectively the participant’s life annuity). 

[david rigby]

On 5/5/2022 at 11:34 AM, Steamboat said:

Divorce decree says the ex-spouse is not entitled to any pension benefit the participant may have. 

IMHO, this phrasing does not touch the survivor benefit, and the ex-spouse remains entitled to the 75% survivor portion if the spouse survives the participant.  Therefore, pay attention to the actual wording in the divorce decree. Better still, actual wording in anything that attempts to be a DRO.

[EPCRSGuru]

19 hours ago, QDROphile said:

I think the U.S. Court of Appeals for the Fifth Circuit would say that the survivor annuity interest “vests” in the spouse at the time the benefit starts.

QDROphile, can I please have the cite for the case referred to above?  It is relevant to something I am working on.  Thanks!

[DisplayName]

Also check 26 C.F.R. § 1.401(a)-20, Q&A-25(b)(3) ("If a participant dies after the annuity starting date, the spouse to whom the participant was married on the annuity starting date is entitled to the QJSA protection under the plan. The spouse is entitled to this protection . . . even if the participant and spouse are not married on the date of the participant's death, except as provided in a QDRO.").

[rocknrolls2]

I tend to agree with Cuse Fan to the extent he says that the spouse at the annuity starting date is locked in regardless of what happens afterwards and david rigby when he points out the importance of the divorce decree.  According to IRS Reg. Section 1.401(a)-20, Q&A-25(b)(3), "If the participant was married on the annuity starting date, the spouse to whom the participant was married on the annuity starting date is entitled to the QJSA protection under the plan. The spouse is entitled to this protection (unless waived and consented to by such spouse) even if the participant and spouse are not married on the date of the participant's death, except as provided in a QDRO." I wanted to point out two things in response to the cited regulation: (1) I have not seen a single court case that did not hold that the benefit could be paid to anyone other than the spouse as of the annuity starting date, even if there is a QDRO providing to the contrary; and (2) most defined benefit plans I have seen lock in the spouse at the time of the annuity starting date as the designated survivor annuitant and do not allow for it to be changed in any respect.

[fmsinc]

If a Participant in an ERISA qualified Plan retires and elect a survivor annuity for his then wife, that election is locked in by Federal law and cannot be modified a State Court pronouncement to the contrary.  Federal law preempts State law.  The Plan will continue to pay.

  Vanderkam v. Vanderkam, 776 F.3d 883, 892 (D.C. Cir. 2015).  The holding in that case confirmed that when a Participant in an ERISA qualified plan retires, his then wife will immediately become irrevocably vested in her entitlement to a QJSA.  The only way the Alternate Payee can lose this entitlement is via a waiver previously executed by her within 180 days prior to the commencement date of the Participant's retirement annuity.   See 1055 §§(c)(1)(A)(I) and (c)(7)(A).   During that 180 day period, the Alternate Payee may also revoke such waiver.  See 29 U.S.C.  §1055(c)(1)(A)(iii).  A waiver executed prior to the applicable election period is void. 

Read the underlying District Court decision -   Vanderkam v. PBGC, 943 F.Supp.2d 130 (USDC - DC Cir. 2014).   

 Read also the well written opinion of the United States District Court for the District of South Carolina in Setzer v. Michelin Retirement Plan  - C.A. No. 3:13-cv-00192-MGL. https://scholar.google.com/scholar_case?case=4368934987489954107&q=Setzer+v.+Michelin+Retirement+Plan&hl=en&scisbd=2&as_sdt=3,110,125
In this case the parties were married when the husband retired and was required by ERISA to elect a joint and survivor benefit for his wife.  The only way for him to make another election would have been with the consent of his wife.  Five years later, after their divorce, Mr. Setzer asked the Plan to permit him to change the survivor annuity election and to name his new wife as the beneficiary. Said the Court:
 

     “In his benefit claim, Setzer requests that in light of his divorce, 1) he be permitted to change the Joint and Survivor annuity (50%) form of pension benefit which he elected at the time he was married to Jessica and prior to his retirement and Annuity Commencement Date; 2) Jessica receive no Surviving Spouse Benefits if she survives him; and 3) he be allowed to name a new spouse beneficiary of his pension benefit should he remarry. (AR 19, 38.) As discussed fully below, ERISA and interpreting Fourth Circuit case law preclude Setzer's request.

        * * * * 
        “In Hopkins v. AT&T Global Information Solutions Co., 105 F.3d 153 (4th Cir. 1997), the Fourth Circuit directly addressed the question of when a surviving spouse benefit vests in a participant's spouse. The Fourth Circuit concluded that under ERISA, "the Surviving Spouse Benefits vest in the spouse married to the participant on the date of retirement." Id. at 156. The Court went on to conclude that "[u]nless the form of benefit is properly changed prior to retirement, the participant is locked into the joint and survivor annuity upon retirement . . . [and] cannot change the form of benefit, even with the current spouse's consent." Id. at 157. Here, the vesting of the Surviving Spouse Benefits occurred on December 1, 2004, the date of Setzer's retirement and commencement of benefits. Consequently, as a matter of law, Setzer cannot change the Joint and Survivor form of benefit, even though Jessica purported to waive any claim or interest she might have in Setzer's pension benefits.”

[fmsinc]

If you find that 5th Circuit Case please post it.  Thanks.

[QDROphile]

EPCRSGuru and fmsinc: My mistake. I was thinking of Hopkins v AT&T Global  (4th Cir.) which is the seminal case  I think the Fifth Circuit followed suit later under similar facts, but added nothing to the analysis.  The Director’s Guild/Tise case, 243 F3d 415 (9th Cir. 2000) provides a satisfactory analysis, which Hopkins does not.

[QDROphile]

Rivers v. Central and South West Corp., 186 F.3d 681 (5th Cir. 1999)

[CuseFan]

Thanks everyone for the valuable information. It's stuff like this that makes this such a great forum.