Marital/post-nuptial "QDROs"

[Adi]

I've recently come across a new type of order purporting to be a QDRO.  Colloquially termed "marital" or "post-nuptial" QDROs, these are court orders that transfer property rights to a current spouse but no divorce or legal separation is anticipated; the sole purposes of the court action is to get the court's sign-off on the order.  They're entered pursuant to state domestic relations law (for example, some states that permit them have laws governing post-nuptial agreements, similar to prenup laws). Since these are court-signed orders awarding marital property rights to a spouse pursuant to domestic relations law, they technically satisfy 206(d) and would seem to require approval by a plan. Of course, they appear contrary to the spirit and intent of the law. 

These orders are gaining traction and several law firms are promoting them as a means to get a distribution when a participant is not otherwise eligible under plan terms. There's negligible case law on them. I reached out to the DOL and was told it's not yet an issue on their radar, nor have they opined on it.  All of this is reminiscent of the sham divorce issue about a decade ago, where the court told the administrator to take an order at face value and not dig into the motivations. 

Have any of you come across this yet? Thoughts?

[Peter Gulia]

Must a domestic-relations order relate to a domestic-relations proceeding?

At least one court found that because neither of two spouses had asked the court for a divorce, annulment, separation, or other domestic-relations relief, there was no matter that could call for an order a plan might treat as a QDRO.

“[A] QDRO is a procedural right derivative of or adjunct to a domestic relations matter, but outside the context of a domestic relations matter, a QDRO is not a distinct, discrete legal claim.  . . . .  [W]e hold that absent a divorce or other domestic relations matter pending between spouses, they cannot obtain a QDRO for the sole purpose of moving funds in the participant/spouse’s [retirement] plan out of the plan to the non-participating spouse[‘s IRA].”

Jago v. Jago, 2019 Pa. Super. 246, 217 A.3d 289, 297 (Pa. Super. Ct. Aug. 19, 2019) https://casetext.com/case/jago-v-jago?sort=relevance&resultsNav=false&q=.

The opinion reflects the trial and appeals courts’ reasoning because only one attorney appeared, and he presented the argument for allowing the domestic-relations order.

At least one bit of the US Labor department’s nonrule guidance states somewhat different reasoning, but finds a similar conclusion. “[I]t is the view of the Department of Labor that Congress intended the QDRO provisions to encompass state community property laws only insofar as such laws would ordinarily be recognized by courts in determining alimony, property settlement and similar orders issued in domestic relations proceedings. We find no indication Congress contemplated that the QDRO provisions would serve as a mechanism in which a non-participant spouse’s interest derived only from state property law could be enforced against a pension plan.”

ERISA Advisory Opinion 90-46A (Dec. 4, 1990), https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/advisory-opinions/1990-46a.pdf

But an agency’s document that is not a rule or regulation (and usually is made with less process than a notice-and-comment rulemaking) is an interpretation a court need not defer to; instead, it gets only “respect” and only if the interpretation is persuasive. For example, Christensen v. Harris County, 529 U.S. 576 (May 1, 2000) (rejecting an argument that the Court should give Chevron deference to a Labor department opinion letter); Bussian v. RJR Nabisco Inc., 223 F.3d 286, 25 Empl. Benefits Cas. (BL) 1120, 1127-1128 (5th Cir. Aug. 14, 2000) (rejecting the Secretary of Labor’s argument that the court should give Chevron deference to a Labor department interpretive bulletin).

A retirement plan’s administrator or a reviewing court might construe or interpret the statute differently than either of the two interpretations mentioned above.

Beyond the merits of whether the court’s order is or isn’t a DRO, a plan’s administrator might want its lawyers’ advice about whether the plan’s governing documents provide deference to an administrator’s decision about whether a court’s order is a QDRO or even a DRO. Further, a plan’s administrator might want its lawyer’s advice about the extent to which a court should or would defer to the administrator’s plausible interpretations of the plan’s governing documents (including interpretations of ERISA sections 3, 205, 206, 404, and 514) and discretionary findings.

[david rigby]

And additional discussion here:

 

[Peter Gulia]

Some retirement-plans practitioners have seen that spouses seeking a QDRO without seeking an annulment, divorce, or separation is “a thing”.

For example, In Marriage QDRO https://tmsearch.uspto.gov/bin/gate.exe?f=doc&state=4804:deq3j3.2.7

Now, let’s ask ourselves how plans’ administrators should respond to these.

Imagine a court’s order otherwise meets all QDRO conditions, and the only questions are whether the order is a domestic-relations order or “relates to the provision of . . . alimony payments, or marital property rights to a spouse . . . of a participant[.]”

Imagine that, from the face of the order alone, the administrator knows neither the participant nor the proposed alternate payee asked for an annulment, divorce, or separation.

Imagine the order recites that the order “is made pursuant to [the State’s] domestic relations law” but states no support for that statement.

To simplify the issues, imagine the State is not a community-property State, and the order has no mention of, or reference to, community property.

Should a plan’s administrator reject the order? If so, should the administrator explain its finding that the order is not a DRO?

Or, even if the circumstances strongly suggest the still-married and unseparated spouses’ purpose is to get a distribution the participant could not get, should a plan’s administrator accept the order as a QDRO?

What would you advise, and why?

[fmsinc]

While it is not the job of a Plan Administrator to look behind the QDRO presented to them, read the two Advisory Opinions attached.   In 1999-13A the author begins as follows: 

     "This is in response to your request on behalf of the UAL Corporation (UAL) and United Air Lines, Inc. (United) for an advisory opinion. Specifically, you ask how a plan administrator should treat domestic relations orders the plan administrator has reason to believe are "sham" or "questionable in nature."

Later on the Opinion continues:

      "You have asked for an advisory opinion as to whether, and if so when, a plan administrator may investigate or question a domestic relations order submitted for review to determine whether it is a valid “domestic relations order” under State law for purposes of section 206(d)(3)(B) of ERISA." 

 The response was as follows inter alia:

     "When a pension plan receives an order requiring that all or a part of the benefits payable with respect to a participant be paid to an alternate payee, the plan administrator must determine that the judgment, decree or order is a “domestic relations order” within the meaning of section 206(d)(3)(B)(ii) of ERISA — i.e., that it relates to the provision of child support, alimony payments, or marital property rights to a spouse, former spouse, child or other dependent of the participant and that it is made pursuant to State domestic relations law by a State authority with jurisdiction over such matters. Additionally, the plan administrator must determine that the order is qualified under the requirements of section 206(d)(3) of ERISA. It is the view of the Department that the plan administrator is not required by section 206(d)(3) or any other provision of Title I to review the correctness of a determination by a competent State authority pursuant to State domestic relations law that the parties are entitled to a judgment of divorce. See Advisory Opinion 92-17A (Aug. 21, 1992). Nevertheless, a plan administrator who has received a document purporting to be a domestic relations order must carry out his or her responsibilities under section 206(d)(3) in a manner consistent with the general fiduciary duties in part 4 of title I of ERISA."

     "For example, if the plan administrator has received evidence calling into question the validity of an order relating to marital property rights under State domestic relations law, the plan administrator is not free to ignore that information. Information indicating that an order was fraudulently obtained calls into question whether the order was issued pursuant to State domestic relations law, and therefore whether the order is a “domestic relations order” under section 206(d)(3)(C). When made aware of such evidence, the administrator must take reasonable steps to determine its credibility. If the administrator determines that the evidence is credible, the administrator must decide how best to resolve the question of the validity of the order without inappropriately spending plan assets or inappropriately involving the plan in the State domestic relations proceeding. The appropriate course of action will depend on the actual facts and circumstances of the particular case and may vary depending on the fiduciary’s exercise of discretion. However, in these circumstances, we note that appropriate action could include relaying the evidence of invalidity to the State court or agency that issued the order and informing the court or agency that its resolution of the matter may affect the administrator’s determination of whether the order is a QDRO under ERISA.5(5) The plan administrator’s ultimate treatment of the order could then be guided by the State court or agency’s response as to the validity of the order under State law. If, however, the administrator is unable to obtain a response from the court or agency within a reasonable time, the administrator may not independently determine that the order is not valid under State law and therefore is not a “domestic relations order” under section 206(d)(3)(C), but should rather proceed with the determination of whether the order is a QDRO." 

While it is possible under the law of some states to issue a QDRO without a divorce, in other states that is not the law.  In my home state of Maryland for example, the applicable statute only grants the court authority to transfer pension and retirement benefits in connection with annulment or absolute divorce.   If that does not happen and a transfer is made to the Alternate Payee in the absence of a divorce, the Participant is going to hear from the IRS and will be looking at being solely liable for income taxes on the taxable distribution (to the Alternate Payee), and excess distribution and early withdrawal penalties as well.

The opposite is the case with FERS and CSRS and other Federal pensions administered by OPM.  [But see below.]

5 CFR § 838.101 provides, inter alia: 

     "In executing court orders under this part, OPM must honor the clear instructions of the court.  Instructions must be specific and unambiguous.  OPM will not supply missing provisions, interpret ambiguous language, or clarify the court's intent by researching individual State laws.   In carrying out the court's  instructions, OPM performs purely ministerial actions in accordance with these regulations. Disagreement between the parties concerning the validity or the provisions of any court order must be resolved by the court."

And in Rosato v. OPM, 165 F.3d 1377 (U.S.C.A. Federal Circuit 1999), in holding that: 

        “Federal law thus provides the method whereby divorcing spouses may divide their entitlements to federal employee benefits. The statute and rules are clear: OPM will not look behind a state court divorce decree or property settlement order to ascertain the intent of the parties. So long as the decree or order complies with the specificity requirements of the regulations, which implement the statutory requirement that the decree or order "expressly" direct payment to another than the employee, OPM will follow its prescriptions. An order lacking the requisite specificity will be rejected by OPM, with an opportunity for the applicant to cure any indicated error.”  (Emphasis provided.)

And in Hayward v. OPM, 578 F.3d 1337 (U.S.F.C 2009), where the issue was whether or not the parties intended to include survivor annuity benefits for the former spouse:

         “We recognize that "OPM is neither qualified nor obligated to resolve disputes about the import of state divorce decrees ... OPM's task is 'purely ministerial' with respect to court ordered property settlements." Perry v. Office of Pers. Mgmt., 243 F.3d 1337, 1341 (Fed. Cir. 2001) (quoting Snyder, 136 F.3d at 1477); see also 5 C.F.R. § 838.101(a)(2). We also recognize that "neither we nor the Board is permitted by the terms of 5 U.S.C. § 8341(h) to rewrite or equitably reform state court divorce decrees or settlement agreements that do not unambiguously provide for a CSRS annuity." Fox, 100 F.3d at 145. Thus, the intent to award a CSRS survivor annuity must be clear.”

So there are any number of parties involved: (i) the parties themselves who are attempted to transfer retirement benefits in a situation, such as the entry of a final divorce, where they might otherwise have to wait; (ii) the trial judge who will likely sign anything put in front of him/her if it is by "Consent" of the parties; (iii) the attorneys for the parties who may have intentionally deceived the judge and may have the face the state Grievance Commission; (iv) the IRS who is likely to impose taxes on the Participant and not on the Alternate Payee; and, (v) the Plan Administrator who needs to decide how far to dig into the underlying state law in trying to determine is the DRO is qualified.   

Notwithstanding the CFR section and cases cited above, OPM requires that a court certified copy of the Court Order Acceptable for Processing be submitted with a court certified copy of the Judgment of Absolute Divorce, a copy of the signed Marital Settlement Agreement (if there is one), and a statement by the former spouse or by the former spouse's representative that, ". . . . the annexed COAP is currently in full force and effect and has not been  amended, superceded or set aside by the Court."  See Subpart B -Procedures for Processing Court Orders Affecting Employee Annuities, Sections 838.221, 838.224, 838.421, 838.425, 838.721, and 838.424.   OPM, it seems, chooses to ignore the CFR Sections cited above.    

The case mentioned above, Jago v. Jago, 2019 PA Super 246, 217 A.3d. 289 (2019) involved a situation where a happily married parties filed a petition for the entry of a QDRO transferring $400,000 from the husband’s ERISA qualified plan to the wife’s IRA.  No divorce action was pending and they admitted had they had no intentions of divorcing.  The court analyzed ERISA and the REA and some of the major Federal court decisions and concluded that:

        “Here, Husband is a participant in an ERISA-governed plan. The parties initiated this case by filing a joint petition for entry of a QDRO for the sole purpose of transferring to Wife's IRA an amount of the Plan benefits, because Wife has a marital property interest in the Plan. See Brown v. Brown, 669 A.2d 969, 972 (Pa.Super. 1995), aff'd, 544 Pa. 360, 690 A.2d 700 (1997) (providing retirement pension benefits, vested and non-vested, are marital property rights subject to equitable distribution upon divorce). But see Boggs, supra. Without the entry of a valid QDRO, the parties' proposed transfer violates ERISA's anti-alienation prohibition. See id.; 29 U.S.C.A. § 1056(d)(1), (3)(A). In their joint petitions and throughout the life of this case, however, Husband and Wife have expressly acknowledged they are married with no pending divorce or other family law matter between them; the parties at no time stated or implied they intended to initiate a support action. Instead, the parties stated in their petitions they wished the Plan benefits to remain marital property upon entry of the proposed QDRO. Thus, the record makes clear there is no current, foreseeable, or desired divorce or domestic relations matter of any kind between Husband and Wife, which is required for the entry of a QDRO under ERISA. See Boggs, supra; Mackey, supra. Under these circumstances, the parties' joint petitions are attempts to circumvent ERISA's anti-alienation proscription. See Boggs, supra; Mackey, supra.  The cited persuasive authority leads us to conclude a QDRO is a procedural right derivative of or adjunct to a domestic relations matter, but outside the context of a domestic relations matter, a QDRO is not a distinct, discrete legal claim.  See Dorko, supra; Johnston, supra; Ryan, supra; Denaro, supra; Jordan, supra. Accordingly, Wife's claim that a domestic relations action is not a prerequisite to entry of a QDRO fails.

        “Based upon the foregoing, we hold that absent a divorce or other domestic relations matter pending between spouses, they cannot obtain a QDRO for the sole purpose of moving funds in the participant/spouse's ERISA plan out of the plan to the non-participating spouse.”  (Emphasis supplied.)

You can find the well written Jago opinion at - https://scholar.google.com/scholar_case?case=7016202236632377044&q=jago+v.+jago&hl=en&as_sdt=4,39

See DoL Advisory Opinion 90-46A, attached, that provides in pertinent part: 

        “With respect to ERISA section 206(d)(3)(B)(ii)(II), it is the view of the Department of Labor that Congress intended the QDRO provisions to encompass state community property laws only insofar as such laws would ordinarily be recognized by courts in determining alimony, property settlement and similar orders issued in domestic relations proceedings. We find no indication Congress contemplated that the QDRO provisions would serve as a mechanism in which a non-participant spouse's interest derived only from state property law could be enforced against a pension plan.”  

Game, set, match.  

Add one more factor - the Maryland case of Rohrbeck v. Rohrbeck, 318 Md. 28, 566 A.2d 767 (1989) holds that a QDRO is an enforcement tool only, like  a garnishment or an attachment, and is NOT the underlying source of the obligation to transfer retirement benefits set forth in the QDRO.  The source of the obligation is the Marital Settlement Agreement incorporated into the Judgment of Absolute Divorce, or, in the absence of a Marital Settlement Agreement, the Judgment of Absolute Divorce itself.  This view is held my most states where I have researched the issue.  So it become obvious again that without a divorce and a Judgment of Absolute Divorce, you cannot have a valid  and enforceable QDRO.

To quote Dirty Harry.   

  

 

Advisory Opinion 1999-13A _ U.S - Sham Divorces.pdf Advisory Opinion 1992-17A - duty of Plan Admin.pdf DoL Advivory Opinon 1990-46a.pdf

[Peter Gulia]

fmsinc, we recognize that under some, perhaps many, States’ laws a State’s court ought not to issue a bare no-divorce order sought to be treated as a QDRO. But, as you observe, some judges might sign orders of that kind. There have been three or four BenefitsLink discussions in which a retirement-plans practitioner faces an order a plan’s administrator must accept or deny. And in this discussion Adi tells us: “These orders are gaining traction and several law firms are promoting them[.]”

Once a State court’s order has issued and someone has submitted it for treatment as a QDRO, the retirement plan’s administrator must decide whether to accept or deny.

I’m unaware of any Federal court decision that analyzes whether an order directed to a retirement plan but unrelated to seeking any annulment, divorce, separation, or child support is a QDRO, or even a DRO, within the meaning of ERISA § 206(d)(3) or an ERISA-governed plan’s provision following it.

At least for an ERISA-governed plan, that’s a question for which Federal law preempts State law. (That’s so even if one accepts an interpretation that an ERISA-governed plan’s administrator need not, and perhaps ought not, evaluate the State-law effect of a State court’s order.) A decision of even a State’s highest court is not a precedent that binds a Federal court about whether an order is a QDRO, or even a DRO, within the meaning of ERISA § 206(d)(3) or an ERISA-governed plan’s provision following it.

BenefitsLink neighbors, what say you: Would you advise an ERISA-governed plan’s administrator to accept an in-marriage order as a QDRO?

[Luke Bailey]

If you honor it as a QDRO make sure to get a hold harmless from the participant.

[Peter Gulia]

Facing a need to decide whether a State court’s order is a DRO and a QDRO, a plan’s administrator with its lawyer’s advice might consider these points (with others):

A fiduciary acting with the exclusive-purpose loyalty, prudence, and impartiality ERISA requires may, and perhaps ordinarily should, decide questions using the fiduciary’s best interpretation of the plan (including interpreting ERISA as needed to interpret the plan).

A fiduciary might want its lawyer’s advice, not only for help in evaluating the best interpretation but also to show the fiduciary’s procedural prudence.

A fiduciary might balance seeking the best interpretation with incurring no more than “reasonable expenses of administering the plan[.]”

If the plan’s trust does not regularly maintain a reserve for plan-administration expenses, a fiduciary would consider how it would allocate the expense among individuals’ accounts.

If an administrator denies QDRO treatment, it might not have much to fear from the would-be alternate payee’s potential challenge. Or if an administrator approves QDRO treatment, it might not have much to fear from the participant’s potential challenge.

(If an administrator denies QDRO treatment, it is the would-be alternate payee who has constitutional standing to challenge the administrator’s decision. If an administrator approves QDRO treatment, it is the participant who might have constitutional standing to challenge the administrator’s decision. I say might because in the State court’s proceeding the spouses might both have sought an order with an intent that the plan treat it as a QDRO, so an administrator’s grant of QDRO treatment might have provided the participant what he or she asked for.)

A lawyer who advised about pursuing an in-marriage domestic-relations order might not be available to litigate the administrator’s to-be-challenged decision. (Some of the lawyers pursuing an in-marriage domestic-relations order are primarily estate-planning or financial-planning lawyers who do not routinely, or ever, manage litigation. Or a lawyer might lack a plenary admission to practice before the court the plan provides as an exclusive forum [see below] (or any Federal court), and would need to work with another attorney.) Or, the could-be challenger might lack ready money to pay a litigator’s attorneys’ fees. (Even if a complaint would include in its prayers for relief that the court order the defendant to pay the plaintiff’s attorneys’ fees, many lawyers would require current payment, unwilling to risk advancing one’s time for an uncertain recovery.)

If a challenger sues the plan’s administrator in a State court that lacks personal jurisdiction of the administrator, it should succeed in getting a dismissal on that ground alone.

If a challenger sues the plan’s administrator in a State court that has personal jurisdiction, the administrator may (and often should) remove the case to a Federal court.

If the plan includes an exclusive-forum provision, the administrator might remove the case to the specified forum (for example, the sponsor/administrator’s preferred Federal district and division).

Whichever was the administrator’s challenged decision, a judge might be persuaded that the court should defer to the administrator’s plausible interpretation that, even if it might be incorrect, was a reasoned (and so not capricious) interpretation of the plan.

Even if the Federal court undoes the administrator’s decision, the relief might be little more than an order that the administrator administer the plan according to the court’s finding about whether the order is or is not a QDRO.

A challenger might be unable to show harm that resulted from the asserted breach of the administrator’s fiduciary responsibility.

Although a Federal court has discretion about attorneys’ fees, a judge might not award attorneys’ fees even to a winning plaintiff if the judge finds the administrator put in a sincere effort to interpret and apply the plan, and responded to a submission of the State court’s order, and any claimant’s requests for reviews, using sound procedure.

Even if one fears or abhors the potential challenges and other consequences, an ERISA-governed plan’s administrator has a fiduciary responsibility to decide the claims presented.

[Peter Gulia]

The underlining is not mine.

[QDROphile]

Supplement to the reference to interpretation of the plan document: The appropriate fiduciary (usually the plan administrator) will be in a stronger position if the plan’s written QDRO procedures specifically address the issue before the order is submitted. Not that purveyors of domestic relations advice or documents always read the plan documents, but plan provisions that pre-empt what the plan believes to be an inappropriate action (informed by ERISA principles) involving plan assets may also affect initiation of those actions.

[Adi]

Thank you all for your thoughts and citations.

Unfortunately, I do think the DOL's prior guidance in 90-46A remains grey--while these orders are akin to the community property division in that opinion, they also (arguably) derive from domestic relations law. And while the intent of ERISA may not have been permit QDROs in these matters (indeed, several courts speak of QDROs in terms of requiring a divorce or similar domestic relations matter), the plain language of the statute doesn't appear to exclude them.

On requiring a hold harmless, I agree that would be beneficial, but I question whether in practice it could be required given a plan's duty to comply with a valid QDRO.  Courts often dismiss attempts by plans to invalidate or not process a QDRO for failure to comply with a plan's extraneous requirements outside of 206. 

Peter, thank you for your analysis and also the citation to Jago v. Jago. While not a federal case, I do think its analysis is quite helpful. In particular, the court's point that a QDRO must derive from a domestic relations matter and cannot be a distinct legal claim.  I do wonder if the court might have taken a different position had the "QDRO" in that case been less egregious--that is, it attempted to divide benefits yet keep the character of the funds as community property (else the parties would donate the $$ back to the plan...somehow...), and so there was no other purpose for order except to be able to withdraw funds.  The orders I've seen have not done that (i.e., it would appear the benefits become the AP's separate property under these orders), and so do implicate marital property rights to a greater degree.  I also wonder how the court would have handled it had there been a PA law in play that does concern division of property during a marriage, as in some other states.  In any event, while I like the court's rationale, it's of course always a lot simpler for the court to interpret and opine on a law's intent than it is for a plan administrator. Side note: It's also interesting that the court initially approved the order. I've wondered if courts are rubber-stamping some of these "QDROs" without analyzing this particular issue.  

[QDROphile]

Have you thought about applicability of IRC section 414(p)(3) (A)?  No plan is designed to provide a distribution to a spouse of the participant except as a beneficiary or survivor. Let the proponent bear the burden of persuasion.

[Peter Gulia]

We’ve been discussing these “in-marriage QDRO” issues assuming the retirement plan’s administrator somehow knows that neither (or none) of the State court’s litigants asked for an annulment, divorce, separation, or child support.

But for many State courts that might issue an order for which a would-be alternate payee seeks a plan’s QDRO treatment, an order might recite that the order “is made pursuant to a State domestic relations law” and “relates to the provision of marital property rights to a spouse”, and might state nothing that would reveal to the retirement plan’s reader that no one had asked for an annulment, divorce, separation, or child support.

If an order like that (and no other information) is submitted to the plan’s administrator, is it proper for the administrator to treat the order as a DRO and, if it meets the plan’s further conditions, a QDRO?