Jump to content

Church plan claims survivor benefit reduction under a QDRO


Recommended Posts

While I have written thousands of QDROs, I have never run into this issue before, so anyone who might wade in here is welcome. DB church plan participant elected a 100% J&S. This elderly couple then divorced years after benefit commencement. My client is the former spouse joint annuitant for the benefit currently in pay status.

Submitted a QDRO to the plan assigning my client (the AP) 50% of the benefit in pay status and confirming her 100% SB benefit already in place. The plan refused to qualify the order because they claim that per the plan document, as an AP, my client is only entitled to a 50% survivor annuity, notwithstanding the fact she is already a 100% joint annuitant.

The language in the plan document does not directly address an in pay status survivor benefit for a former spouse who is already a joint annuitant. If the plan's interpretation of its document stands, the plan would benefit by divesting a current joint annuitant of their property as already paid for by the participant.

Any thoughts?

Link to comment
Share on other sites

The plan is off track, but I would be curious about how you expressed the award of the 50 percent of the current  stream of payments while the participant is alive.  Maybe you could make it easier for them.  Taking a “split  the payment” approach is usually easy to understand if it is expressed simply and completely.  But then, some (?) QDRO administrators wear blinders and don’t know it.  
 

This may be a situation that calls for submitting a claim under the plan’s claims procedures (you did not state if this is an electing plan).  If not, submit your objection, with explanation, anyway and threaten litigation to force a closer look by the plan. 

 

Link to comment
Share on other sites

Thank you for responding QDROphile. This church plan did not elect ERISA application. The relevant portion of the QDRO (defined terms are in CamelCase) assigning a portion of the current stream of payments is:
 

Quote

"Member Benefit" means the Member's total vested accrued Plan primary retirement benefit as of the Accounting Date;
"Alternate Payee's Share" means that part of the Member Benefit assigned to the Alternate Payee by this Order, and does not include a proportional share of any future benefit adjustment.
. . .
The Alternate Payee's Share shall equal Fifty Percent (50%) of the Member Benefit as of the Accounting Date as a shared interest, payable for the Member's lifetime.

The plan defines the primary retirement benefit as without adjustments such as COLAs.

---

Edited to add that I have asked the plan to confirm that without a QDRO my client is the 100% joint annuitant, but that with a QDRO, the plan will reduce her SB to 50%. I have not receive\d a response.

Link to comment
Share on other sites

The sections of the order addressing form of payment and commencement are as follows:

The Alternate Payee's shared interest benefit shall be paid to the Alternate Payee in such form as elected by the Member at the Member's benefit commencement, and the Alternate Payee may not elect any other form of benefit payment....

The Alternate Payee shall commence shared benefit receipt with the next benefit payment made following qualification of this Order....

Link to comment
Share on other sites

How about this:

Effective (a) starting as soon as practicable after this [Order] is determined to be a "qualified domestic relations order", Alternate Payee shall be paid directly by the Plan an amount equal to 50% of the amount of each benefit payment scheduled to be paid to Participant, and the amount of each of Participant's actual benefit payments shall be reduced by the amount paid to Alternate Payee, until (b) the earlier of the death of either Participant or Alternate Payee.  If Participant dies before Alternate Payee, Alternate Payee shall continue to be entitled to Alternate Payee's 100 percent survivor benefit, starting payment after the death of Participant. 

I did not try to exclude any future increase in a benefit payment amount.  Why would you, unless the participant returns to service and accrues additional benefits, which would be the participant's issue to bring up?

The term "shared interest" does not have an established meaning in the statute or the regulations even though it is bandied about in common parlance.  

Link to comment
Share on other sites

All good phraseology, QDROphile, but the issue isn't the shared benefit percentage payment, which they didn't argue with, it is the plan insisting on reducing the existing survivor benefit by half if the benefit is divided by QDRO. This is the chief reason for my throwing this out here for comments and ideas.

(While I agree with your approach with respect to future increases, this plan forbids assignment of more than a portion of the "primary benefit" and will not qualify an order that does not limit, in explicit language, even incidental future benefit increases, which is the reason that language is there, as I would not have included it otherwise).

The primary issue of preventing the plan from divesting my client of her existing SB remains. You said the plan is off track, and while I couldn't agree more, threatening litigation appears to be my only leverage here, though litigation is something my elderly client can ill afford. The result the plan wants is so inequitable, however, that I may sue them for her pro bono. While I have written many church plan QDROs without incident, this one stand alone among all in the last 25 years for a plan's breathtaking level of self-dealing. I have a feeling I may get more mileage by pointing to that self-dealing as indicative of a lack of ethical religious charity as professed by the synod and questioning their faith, though I don't share their brand of it.

* Edited to add that the full SB is $126/mo for a client in her late eighties.

I very much appreciate your comments and welcome others.

Link to comment
Share on other sites

I ran into a similar issue with a union plan.  Everything in their Plan Documents confirmed the availability of a "100% QJSA".  It turns out that what they meant is the that the Plan would pay a survivor annuity equal to 100% of the maximum survivor annuity that Plan permitted, and that was only 50% of the retirement annuity.

This is not unlike FERS where the maximum survivor annuity is 50% of the self only retirement annuity.  Or CSRS or the Military where the maximum survivor annuity is 55%.  We always use "maximum" if that's what  we intend.  

So what may be happening in your case s that they are using "100%" instead of "maximum" survivor annuity. 

I had another union case where they argued that 100% QJSA meant that 100%  QJSA meant that the Alternate Payee must receive 100% of both the retirement annuity and 100% of the survivor annuity.   

Let us know what happens. 

      

Link to comment
Share on other sites

Hi fms and thanks for your thoughts. When the participant in this case retired (some 8 years ago, long before the divorce) and the plan provided him with an initial benefit statement, that statement showed the dollar amount of the 100% J&S spousal benefit was equal to the participant's monthly benefit, just as a 100% J&S should be, and of course the premium for that SB was duly deducted from his benefit. The plan document also describes a J&S similarly, but does not address how SBs are paid to former spouses or the effect of QDROs on existing J&S elections.

So initially the plan did not appear to misrepresent the SB amount like the union plan you describe. Instead, they now want to divest my client of that SB, for the benefit in pay status -- if a QDRO will divide the benefit. Their claims re the language in the plan document (which doesn't address death benefits re former spouses beyond what I've quoted below) don't withstand even casual scrutiny.

It doesn't take a math whiz (which I'm certainly not) to realize that the 50% they want to claw back, if a QDRO will affect the benefit, is money that will go straight into the plan's pocket. This even though the SB is highly likely under the plan's threshold for cashing out the benefit, and the parties are in their 80's.

The relevant language in the plan document on payment of SBs to spouses is:

Quote

On the death of a Retired Participant for whom the payment of the Primary Benefit has commenced, the benefit payable to the deceased Retired Participant’s surviving Spouse, if any, shall be determined pursuant to the method of payment in effect with respect to the Participant’s benefit, e.g., one hundred percent (100%) of the Participant’s benefit if payable in the form of a joint-and-100%-survivor annuity, and no benefit if payable as a life-only annuity. Notwithstanding anything herein to the contrary, the Participant’s Spouse as of the commencement of a joint-and-survivor form annuity for any Plan benefit is the sole person who may receive a Plan benefit as a joint annuitant of the Participant.

...

[The automatic revocation of beneficiary on divorce] shall not be applicable in the case of a joint and survivor form of annuity where the payments have commenced.

The plan is organized as a trust under Missouri law, both the participant and alternate payee are Washington residents, and the plan document's provisions for inalienability cite 414(p) as the plan's guidepost for QDROs.

Link to comment
Share on other sites

You conclude that the plan is fundamentally 🤐 wrong in its understanding of a 100% J&S.  I was trying to avoid any confusion introduced by the DRO language: "The Alternate Payee's Share shall equal Fifty Percent (50%) of the Member Benefit as of the Accounting Date as a shared interest, payable for the Member's lifetime."  It seemed to me that an uninformed administrator might misapply that 50% language to the survivor benefit to get the 50% survivor annuity you describe.  I don't see where they get the idea that division of the benefit automatically reduces the survivor annuity to 50%.  Actually, I do have an idea.  The resulting incorrect 50% survivor annuity is 100% of what the participant's benefit is after the participant's current payments are reduced by 50%, therefore is still a 100% survivor annuity to the ignorant view.. I hoped my language, which focuses only on the stream of payments during the participant's life, and not "THE BENEFIT", would avoid misapplication of the division language to the entire benefit.

You are just going to have to educate them, which one hopes could be done informally rather than through litigation. Are they totally self-administered? Do they have any independent advisors, such as an actuary, that one can appeal to informally?  There are lots of cases about how a spouse at the pension commencement date is "vested" in the survivor benefit at that point and cannot be divested by a QDRO (slightly different facts).  But if they are so stuck on the wrong concept, they may be unmoved by authority that does not have exactly the same facts. 

Link to comment
Share on other sites

You are right about an uninformed administrator QDROphliIe, and that does happen with admins who don't read very well beyond their model orders, but the uninformed party in this instance isn't the plan admin, it's the plan's counsel. When I pointed out to plan counsel that the order divides the already-reduced benefit into 50% pieces and leaves the existing SB alone, they agreed they understood that, but then insist that the 100% SB, (the cost having already been deducted from the benefit) must be only 50%. They want a result in which the AP's 100% SB magically becomes 50% of the as-paid benefit. And they're not arguing that's what the QDRO provides, they're arguing instead that that's what the plan rules require.

I don't conclude the plan is wrong in its general understanding of a how a 100% J&SA works,  only that they defined it one way in the participant's benefit statement and in the plan document, but then attempt to claw it back if a QDRO divides the remaining benefit. The order's provisions define the SB separately from the "Member Benefit" (which I did not include in my cites of it above), so unless plan counsel is illiterate, they are deliberately ignoring it.

I think your synopsis of what you rightly term the ignorant view would be correct in a case in which it is clear a plan is misreading how a particular QDRO assigns a benefit. Here, however, it is clear from plan counsel's letters that they fully understand but are refusing to apply it, arguing that nonexistent plan provisions mandate the reduction of an existing 100% J&S if a QDRO assigns any other part of the benefit.

I know it's hard to wrap one's head around, primarily because it's complete hogwash, not to mention patently wrongful.  And I will always avoid litigating if there is a better solution, which is why I'm posting, but so far I'm at a loss. The plan document lists the trustees but I haven't discovered who may be an actuarial advisor, or I would have reached out to them already; and the plan is self-administered as far as I can tell.  No 5500, of course, which would help.

Sample of what should happen using imaginary numbers:

500 monthly annuity in pay status, already reduced to provide 100% SB
250 of that already-reduced annuity to AP via QDRO (only payable while the participant lives)
500 existing SB for AP if AP outlives participant (so not payable while the participant lives)

What result the plan wants:

500 monthly annuity in pay status, already reduced to provide 100% SB
250 of that already-reduced annuity to AP via QDRO
250 reduced SB for AP
250 of the participant's monthly benefit reverts to the plan

The plan just doesn't want to pay the full SB if there is QDRO affecting any other part of the benefit. One has to wonder why that might be, and none of the potential answers are pretty.

Link to comment
Share on other sites

I am so sorry that you are facing this.  The "small me" wishes you could find a way to make the plan pay painfully for its position, or choice of counsel, or whatever shortcoming is putting you through this. I am also biting my tongue to contain the many negative remarks that come to mind relating to the ethics and competence of churches. Last ditch attempt:  Is there any possibility of finding a decent ERISA lawyer in the community of the sinister/bumbling lawyer who would first have a local lawyer- to - local lawyer talk before having to play hardball?

Link to comment
Share on other sites

I have the same sentiment QDROphile. I believe that, whatever else, this plan is counting on the fact that the cost to force them to comply well exceeds my elderly client's resources.  However, if they don't do their duty, they can also count on pissing me off to the point I will sue them pro bono for their egregious self-dealing as it amounts to elder abuse.

The plan is organized under Missouri law and I don't have colleagues there. I'm licensed in two states, one in the 9th Circuit and one in the 4th (WA not CA). Given the extreme political positions being taken in MO courts and the Supremes' encouragement of christonationalists, I'm not sure I would find many takers there for having a hard talk with a church organization about their legal positions, but if you have any colleagues there who may be interested, please do let me know.

Thank you both for brainstorming. If anyone has further ideas, I'm listening, and I will return to post the outcome as well.

Link to comment
Share on other sites

This situation is similar to alimony.  Have you considered that approach?  (Note, remember to make sure there is no temporary status, such as "payments until X date".)

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

Link to comment
Share on other sites

Appreciate your chiming in David. I did indeed. Permanent, non-modifiable maintenance (WA version of alimony) must be addressed in the divorce decree in this jurisdiction, so substituting a support QDRO would require decree modification. However, after getting to that point in the impasse, the plan finally qualified the original order as written this week, within 36 hours of me telling them the situation was quickly escalating toward litigation. One is inclined to conclude that good faith was not in their primary toolbox.

Thank you all for the brainstorming, I am grateful.

 

Link to comment
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
×
×
  • Create New...