Post Death QDRO

[RTK]

Participant and spouse divorce in 2002. It is a bifurcated divorce where the equitable distribution of marital property follows the divorce. Under the divorce decree, the court retained jurisdiction of any claims raised by the divorce action for which a final order had not yet been entered.

An equitable distribution trial is held after the divorce. Participant dies before equitable distribution order is issued.

After the participant's death, the court issues equitable distribution order awarding ex-spouse 65% (or 100%) of the Participant's profit sharing plan account. The participant was not married at death, and his designated beneficiary was his mother. The ex-spouse is now seeking a QDRO for distribution of the participant's account.

Question: Would this be a valid QDRO?

I have read a number of the nunc pro tunc and posthumous QDRO cases. There seems to be some basic trends. A pre-death equitable award and/or pre-death notice to plan will often result in a valid QDRO holding. A second spouse with statutory mandated death benefit often will result in an invalid QDRO holding. A QDRO requiring increased benefits for defined benefit plans will generally be invalid.

None of these clearly applies in my instance. So I go back to the statute. A QDRO is an order which creates or recognizes an alternate payee' right to, or assigns to an alternate payee the right to, receive all or part of benefits payable with respect to a participant under a plan.

The basic question then I think is whether there are benefits payable with respect to a participant under the plan once the participant dies, from the perspective that as provided by the plan terms, upon death, the participant's account became payable to the designated beneficiary. Thus, after death, there would be no benefit payable with respect to the participant to assign, and I do not think that the QDRO should be able to divest the beneficiary of the death benefit to create the benefit to be assigned. But, as usual, I am not sure.

Any thoughts? And, would it make any difference if the court retains jurisdiction over economic issues?

[Kirk Maldonado]

When did the participant designate his mother as his beneficiary?

[RTK]

Participant designated mother as beneficiary on March 9, 2002 (five days after the divorce). Spouse was the prior designated beneficiary.

Attorney for ex-spouse claims that this designation violated an earlier July 21, 2000 family court order that prohibited participant from removing spouse as "beneficiary of any life insurance owned by him or by any entity on his behalf." On this basis then, attorney is seeking 100% of account for ex-spouse under QDRO, instead of the 65% awarded as part of the equitable distribution.

The Plan was not provided with a copy of the July 21, 2000 order, which I believe would not bind the Plan under ERISA in any case.

[QDROphile]

This addresses only a small portion of your questions, but I think that death benefits are still "with respect to" a participant. The benefits would not be paid to the beneficiary if the benefit was not accrued by and payable through the account of the participant. And in this case tha participant also designated the beneficiary. "With respect to the participant" has to be broader than "of the participant." Hopkins vs. AT&T is to the contrary, but I think that case is just wrong.

You did not specify if the pan is a defined contribution plan or a defined benefit plan, but it sounds like a defined contribution plan. That can make a big difference.

I think it matters what circuit you are in because of some of the court decisions, but I also think that the right answer depends on if the benefits were adequately divided before the death. I think the Tise case in the 9th Circuit is correct. If a pre-death court adjudication got the basic division down, the details can be resolved for qualification of an order after death. As long as the plan gets a domestic relations order before it distributes the assets, the alternate payee has a reasonable time to satisfy the qualification requirements. Plus, it will be interesting to see what address is given for the deceased. I suppose they will have to resort to the "last known" address.

If the division of benefits was not adjudicatd before death, it gets more dicey. In that situation "nunc pro tunc" translates to "nobody knows what to do and the situation is unfortunate so let's try some Latin."

The issue about consequences of designation of the mother in violation of the order, by itself, is not for the plan to worry about. It is a state law issue, and the designation cannot be affected if the designation passed under propoer plan provisions. I hope that the state court does try to change its ruling on the division of the benefits. That sort of post death division would be extremely problematic for the plan. It would be a lovely set of facts for guidance from the DOL or IRS.

[RTK]

QDROphile, thank you for considered response.

The Plan at issue is a defined contribution plan. And the equitable distribution order assigning the ex-spouse the account was handed down after the participant's death. If done before death, I would be a little more comfortable in qualifying the QDRO based on a Tise type argument (even though I am in the 3rd circuit).

The ex-spouse's attorney's argument seems to be that the familly law court retained jurisdiction over the economic issues after the divorce, and the court should still be able to address the marital assets after death. My concern is the question that, once participant dies, is there a benefit payable with respect to a participant to assign because the plan terms provide for payment of the plan account to the beneficiary upon a participant's death. Or viewed another way, did the death benefit vest in the beneficiary (ala Hopkins even though Hopkins addressed a spouse's statutory benefits). In this regard, the proposed QDRO attempts a current assignment, and not a nunc pro tunc assignment.

This whole mess could end up in federal court once the state court actions are done. (And I did not even mention the battle over the welfare plan death benefits.)

By the way, the participant's "current and last known address" is the executor of the estate at the attorney's office address.

[QDROphile]

I was hoping for insight on the zip code for St. Peter, or maybe Mephistopheles.

Since you obviously know your stuff, here is a useless policy thought. I would like the rule for DC plans to be that the plan does not care how the order came about. As long as the plan has the assets to divide (the order did not arrive after distribution to the beneficiary), the plan simply follows the terms of the order and the qualification rules. The plan administrator has only two concerns. Don't disqualify the plan by inappropriate distributions and don't create a fight that will drag the plan into court, especially into state court. The plan does not care who gets the money; let the interested parties fight it out in state court. And maybe that IS the answer in most jurisdictions.

The DOL has issued an opinon that the plan administrator does not have to be concerned that state domestic relations law has been followed. The plan administrator can take the order at face value. Unfortunately, the DOL is wrong on several QDRO issues, so I don't know what we make of the opinion if we try to stretch the "face value" comfort to cover these issues.

I don't see a big difference between a beneficiary getting a reduction because of an after death QDRO compared to a before death QDRO unless one believes that the beneficiary "vests" because of the death, as described in Hopkins. I think Hopkins is wrong becuase the statute allows a QDRO to award benefits "in respect of" the participant and death benefits are "in respect of the participant" even though they would be delivered to someone else. Also, given that the law prefers spouses, and QDROs are designed to get spouses whatever state law decides is their proper share after the end of the marriage, why should after the death make such a big difference? A spouse would not be thwarted by death. A former spouse should not be, either.

DB plans provide a greater challenge. Most DB plans want the participant to die and to pay less benefits (zero, in some cases). To the extent that benefits get assigned to an alternate payee, the death is not so rewarding for the plan. If the division is not adjudicated before death, the plan can get screwed. In the worst set of facts, the divorce occurs, the decree does not mention benefits except that they will be divided pursuant to a subsequent order, the particiant dies unexpectedly soon after, and then the former spouse attends to the QDRO. At that point, no one except the plan would object to an order that gives the former spouse 100% of the benefit. No one else would be getting anything because the plan pays benefits only to participants and spouses. The plan would rather pay nothing, but certainly wants to argue that if the participant had been around to negotiate and argue about the division of benefits, the former spouse would have received something like 50%, not 100%. We have cases that either say or strongly suggest that if the court did not decide the award based on pre-death considerations, the QDRO can't raise the benefits back from the dead.

If you drag this through court, try to see if you can get us a published opinion, preferably a correct one.

[Kirk Maldonado]

This may be overly simplisitc, but wouldn't the simple solution be for the plan to file an interpleader action (because this is a defined contribution plan)?

[RTK]

Sorry for the delay in posting a response - life got really busy for a while.

QDROphile, I do rely on the DOL advisory opinion letter and generally presume that qdros issued by the state court are made pursuant to state domestic relations law, relate to marital property rights, etc. The alternative of researching each qdro's compliance with state domestic relations law is ugly. I also generally do not care how a qdro comes about or the amount assigned, again relying on the presumption of compliance with state domestic relations law.

I also understand what you are saying "in respect of" and that death benefits are "in respect of the participant". For example then, for my few remaining db plans with a refund of contribution death benefit, I permit a QDRO to assign not only a participant's accrued benefit to an alternate payee, but also the related refund of contribution death benefit. This is in accord with the DOL's position in opinion letter 2000-09A.

However, if the assignment by qdro (or at least, the settlement or order that is to be enforced by a later property settlement) does not occur before a participant's death, I am not sure whether I can get over the hurdle that there is no benefit to assign where plan terms provide for payment to a beneficiary. I guess I view it this way:

1. Before death, "benefits payable with respect to participant" include more than the "benefit payable to the participant" so as to allow an assignment of a death benefit in addition to the accrued benefit.

2. Upon death, there is no longer "benefits payable with respect to a participant," but instead is now a "benefit payable with respect to a beneficiary."

My case is different than the nunc pro tunc cases. At least in a nunc pro tunc case, a state court determines that assignment relates back to a date before death. In that case, I could assume a valid state domestic relations order and give full faith and credit. Of course, even this not settled given the Samaroo case in the 3rd Circuit and the recent Patton v Denver Post case in the 10th Circuit. Also, that still leaves open the issue of whether a "vested" beneficiary or spouse can be divested by a qdro (nunc pro tunc or otherwise).

The DOL noted in footnote 5 of opinion letter 2000-09A that a domestic relations order could not be deemed to be qualified if it assigned benefits that have already been paid or validly waived. The courts seem to hint at the same. If so, I think this should be extended to death benefits payable, and not just paid. If beneficiaries can be divested, you set up a race between the beneficiary's application for benefits and the receipt of a qdro. In fact, in such case, any beneficiary of formerly married participant would want to apply for benefits as soon as possible.

Actually, as noted by Kirk, we are considering an interpleader action because of the parties involved, and I am going to explore this option with the litigation folks. I would not mind having the courts make the call on this one, since it is likely going to result in a litigation in any case. I can't promise a correct decision, whatever that might be.

[mbozek]

The plan administrator controls the resolution of the dispute because the funds can only be paid with his/her approval. Kirk has the right idea -use interpleader. The plan admin can tell the parties that they either agree to a voluntary settlement and execute waivers and releases against the plan or the the Plan will commence an action in interpleader in Fed ct. which will be very expensive to them. There is no reason for the PA to expend any time or funds researching what is the validity of a dro on a deceased participant's benefits. I have found that warring parties quickly come to a settlement over disputed benefits when faced with the alternative of paying for the cost of litigation to justify their right to the benefits. The only risk is the plan admin may have pay for the cost of commencing an action in interpelader.

[RTK]

Thanks mbozek. That is the course we will pursue. The parties are going to battle this to the end, and it is just as well to extract the plans at this point.