Egelhoff Rides Again

[Guest erisafried]

I have run into yet another "problem child" QDRO and am seeking some input.

We have a participant in a K plan (standard terms; no funky provisions) who designated his then-wife as his sole beneficiary. Mr. Participant and the wife then had a falling out and got divorced. The QDRO apportioned his benefits and indicated that the ex waived her rights to any further money/property of any sort from Mr. Participant. Naturally, Mr. Participant neglected to revoke the prior beneficiary designation and then departed this life.

My initial reaction (before I knew about the terms of the QDRO) was that Egelhoff v. Egelhoff pretty well resolved this issue. After reviewing the QDRO and discussing with Mr. Participant's executor, the question became whether the ex's waiver in the QDRO trumps the otherwise-valid beneficiary designation.

I can see both sides of this issue. If you rely on the beneficiary designation and Egelhoff, you pay the ex who has arguably waived her right to anything further from Mr. Participant. If you pay Mr. Participant's estate, you risk getting sued by the ex, although you can always argue that the waiver precludes her suit (although if the waiver does not preclude her suit, the argument for paying the estate goes down in flames). Note that the ex is NOT making noises about getting paid: she is (so far as we know) unaware of any of this.

What would you do here? Pay the estate or the ex?

[mal]

I think the answer to this question varies from

Circuit to Circuit. My recollection is that some

Circuits (such as the 6th) refuse to look any farther

than the beneficiary designation on file. Others

will allow the QDRO to trump the card, but only

if it clearly mentions the name of the plan

and the type of benefit being waived.

Good luck.

[mbozek]

I dont understand your facts. Why isn't the spouse's right to the participant's benefits covered under the QDRO even after death since the rights were apportioned as of date of divorce? If the plan admin accepted the QDRO then the spouses's right to the benefits are to be apportioned under the QDRO regardless of who is the beneficiary under the terms of the plan. Otherwise the terms of the divorce decree must be reviewed by counsel to determine whether the spouse wavied all rights to retirement benefits of the participant.

[R. Butler]

I tend to agree with mbozek. A close examination of the QDRO will probably shed light on the former spouse's rights. You should seek counsel.

If it isn't clear from the QDRO, this is the situation where an Interpleader action is appropriate.

[Guest erisafried]

The QDRO was processed and the ex received her payment BEFORE Mr. Participant's demise. The QDRO says absolutely nothing about the prior designation of beneficiary.

The QDRO is something of a red-herring here. As I looked at the issue more closely, I discovered that the estate is referencing the divorce decree (rather than the QDRO) as the basis for the ex's waiver of rights which is (IMHO) a non-starter.

Does that shed any additional light on things?

One additional thought that occurs to me: the fact that a QDRO resolves the ex's rights as an "alternate payee" does not mean that it resolves her rights in some other capacity. In other words, unless the QDRO specifically addresses the issue of her right to receive something as a designated beneficiary of the participant, my view is that she is not precluded from receiving whatever the plan provided for. Notwithstanding a property settlement between the parties, Mr. Participant can always turn around and name the ex as his beneficiary.

PS: I realize interpleader is a possibility but would prefer to avoid that if possible.

[mbozek]

If the spouse received benefits under the QDRO then she would wave her rights to any other benefits under the plan as part of the divorce decree. Otherwise she would be paid twice for the same rights once under the QDRO and second as the beneficiary which frankly does not make sense because then the ex-spouse would receive the entire benefit which was not provided under the QDRO.

[R. Butler]

I'd look at the entire dicorce decree. I don't agree that if the spouse received benefits under the QDRO that she is automatically precluded from receiving death benefits. That may be the result, but its not a definite. There have been cases, including the Egelhoff case cited in the initial post, where the Court decided that the ex-spouse was the proper beney.

I did a quick search in the ERISA outline book. You may want to review the

following cases:

Hill v AT&T Corp., 125 F.3d 646; Lyman Co. v Hill 877 F.2d 692; Manning v Hayes, 24 EBC 2042 (former spouse still proper beney);

Estate of Altobelli v IBM, 77 F.3d 78; Brandon v Travelers Insurance Co., 115 S.Ct. 732; Clift v Clift, 24 EBC 2110; Fox Valley & Vicinity Construction Workers Pension Fund v Brown, 897 F.2d 275 (former spouse not the proper beney)

[Guest erisafried]

Thanks for those cites. Naturally enough, there is a conflict between the views taken by the circuit courts on this point (and none of them have yet addressed the effects Egelhoff has on their analysis), but it all boils down to whether a waiver in a divorce decree is sufficiently specific to affect a pre-divorce beneficiary designation. Obviously, if the QDRO specifically addresses this point, the question is resolved. If it doesn't the divorce decree might, depending on how it's worded. The problem with this is that the plan administrator may not receive a copy of the the divorce decree -- only the QDRO -- before paying out the benefits.

FWIW, the Sixth Circuit has indicated that the terms of the plan document controls no matter what (this is a minority position among the federal courts). The policy behind this appears to be to avoid requiring plan administrators to jump through flaming hoops in order to determine the proper payee for death benefits. Interestingly, this is the same rationale upon which Egelhoff is based, and presumably, Egelhoff (as a Supreme Court decision) would trump conflicting approaches in the lower federal courts.

[Harwood]

The IRS-approved GUST prototype I use has this:

" . . . if a Participant has designated the spouse as a Beneficiary, then a divorce decree or a legal separation that relates to such spouse shall revoke the Participant's designation of the spouse as a Beneficiary unless the decree or a qualified domestic relations order (within the meaning of Code Section 414(p)) provides otherwise or a subsequent Beneficiary designation is made."