Leaderboard

If it is about using a domestic-relations order to defeat a retirement plan’s distribution restriction, a fiduciary’s duties might be unclear. According to the Employee Benefits Security Administration, when faced with circumstances that strongly suggest what a plan’s administrator believes might be a “sham” to defeat the plan’s distribution restriction, an administrator may inquire about a court order to evaluate whether it is a domestic-relations order under State law; but it’s unclear whether a plan administrator must do so. ERISA Adv. Op. 99-13A (Sept. 29, 1999). And an administrator “may inquire” only if, in the circumstances, doing so is prudent and does not burden the plan with an expense beyond a reasonable expense of administering the plan. In a somewhat similar situation, trial and appeals courts held that, even assuming a 100% allocation to the nonparticipant, continued cohabitation of the former spouses, not informing family or friends about the divorce, other facts inconsistent with the “break-up” of a marriage, and remarriage promptly after the plan’s QDRO distribution, a plan’s administrator may not consider the participant’s and alternate payee’s motive for, or good faith in, obtaining a divorce. Brown v. Continental Airlines, Inc., 647 F.3d 221 (5th Cir. 2011). The 1999 Advisory Opinion is somewhat inconsistent with an earlier interpretation that an administrator need not (and, at least in some circumstances, should not) inquire into the correctness of an order under state law. ERISA Adv. Op. 92-17A (Aug. 21, 1992). Perhaps EBSA’s dividing line was that a fiduciary should not “sit idly by” in the face of what seems an obvious falsehood that does not require significant legal reasoning. But a fiduciary persuaded by the court’s reasoning in the Continental Airlines opinion might find that it need not, and perhaps should not, consider the participant’s and alternate payee’s motive for, or good faith in, obtaining a divorce. Further, because a court often may end a marriage with no showing of any grounds beyond either party’s assertion that the marriage is broken, a litigant might obtain a court’s order making no false statement of fact. If so, a plan’s administrator might not have “nformation indicating that an order was fraudulently obtained[.]” The information (not advice) above is about a plan administrator’s need to get its lawyer’s advice about circumstances of the kind described. I don’t condone using a divorce or separation to defeat a retirement plan’s distribution restriction if the litigants otherwise would not seek or assent to the divorce or separation. And I don’t condone sales practices built on such a method.

However, I don't get the "additional legislation" stuff and the whole marketing approach stinks.

How has the the sham divorce QDRO been shot down? Last I saw, the courts have said that the plan does not have to (and may not) look behind a state law proceeding as to the bona fides of the intent of the parties. Facts in cases included admitted remarriage after distribution from the plan. This is what plans would want, except for the airline DB plan that had unfortunate distribution alternatives that allowed the scam to seriously game the plan from an actuarial perspective.

Larry and BG5150, I agree with you, which is why I prefaced my remark with, "If the plan document really defines compensation for plan purposes as only w-2 employee wages...." Should have added, "big if."

To the extent the organization is subject to the requirement, there should be no objection to using a 403(b) to meet it. The requirement is just that you need to put a certain amount of money into benefits, and there is a lot of flexibility in what benefits to provide.

Hey Austin - don't know if this will help - I just skimmed a couple of questions, but I did note that a SCHOOL may have to pay Davis-Bacon wages in some circumstances. There is tons more information here, but I didn't take any time to look. https://energy.gov/sites/prod/files/2014/10/f18/DBA FAQs for Posting.pdf P.S. - here's one of the q & a's: Q: Are non-profit corporations subject to DBA? A: For purposes of DBA, non-profit corporations are treated the same as for-profit corporations. Therefore, when performing work on government-funded projects, the non-profit must pay its employees the DBA prevailing wages.