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Designation of AP as Surviving Spouse


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I tend to take a fairly paternalistic approach to DROs that do not specify whether or not the alternate payee is designated as the surviving spouse with regard to a plan's QPSA provisions. Although I do not use it as a criteron to qualify the DRO, I usually point out that a failure to designate the alternate payee as the surviving spouse may leave the alternate payee without a benefit if the participant dies before benefit commencement. What is everyone else doing out there?

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As an actuary, I review DROs that pertain to DB plans. If possible, I request the DRO specifically address all four of the permutations; what happens if:

- the EE dies first before commencment,

- if the AP dies first before commencment,

- the EE dies first after commencement,

- the AP dies first after commencement.

Frankly, it is difficult to get an order to be that specific.

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.

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Your approach is reasonable and it is what I do. I do not raise the issue in the review if the provision for AP benefits upon death of the participant is absent. But that means if the participant dies before the AP starts benefits, the AP gets nothing (in most DB plans). The notice that the order is qualified points out that the alternate payee will get nothing under those circumstances.

I don't quite see how that approach is paternalistic. It is prudent from the perspective of the plan because it puts the plan in the best position some years later when the unfortunate circumstances make the point real and nothing can be done for the AP, except to get an incorrect judicial decision under the magic "nunc pro tunc" incantation. Court cases are starting get in line with the correct position that it is too late for the AP at that time.

It is not effectively paternalistic toward the AP. Although I have seen orders amended after that warning was issued in the notice of determination, amendment is rare. One reason is that the statement is probably overlooked or not understood by the AP. The other reason is that at the end of a divorce proceeding, everyone is exhausted and broke, so going back for another order is too much. The altenate payee is willing to gamble with the angel of death under those conditions. Finally, in my dark view of the world, even if the AP's lawyer reads the notice closely and gets it (two heroic assumptions), the lawyer is probably not going to get paid for the amendment, and will not volunteer. Among other things, it is embarrassing to the lawyer to overlook a fundamental point and ther are many ostriches out there.

That brings me to how you ARE being paternalistic. You are saving the lawyers from malpractice claims. It is malpractice for the order to fail to protect the AP in the event of untimely death of the participant, unless for some reason that point was actually negotiated (the participant was looking out for the mistress, soon to be new wife). I doubt that many failures to provide for death are the result of negotiation. They are the result of oversight or failure of the lawyer to understand DB plans. More likely, the lawyer just got his or her hands on the wrong form the first time and perpetuated the omission. By having an express warning in the order that everyone blows off, the lawyer can argue that everyone expected the outcome from the beginning or could see the result and took no remedial action if they did not originally think about it, so how could the omission be malpractice?

I am having a bit of fun with the lawyer malpractice statements. I think you are striking the best balance between the correct fiduciary posture of not interfering with or influencing the private division of assets and yet at the same time protecting the plan from later trouble when the awful truth would otherwise first visit the AP.

In a perfect world, we would insist on the template that pax suggested. But often we don't get an opportunity to insist in a neutral way that all items be expressly addressed. A plan cannot disqualify an order because of the omission -- the outcome is certain when the provision is not there. I am also uncomfortable with the fiduciary interfering with the negotiations by commenting on an otherwise acceptable draft to the effect of, "Hey, alternate payee, you had better negotiate for death benefits!"

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Actually, I don't mention a failure to name the AP for QPSA purposes until the order is all but qualified (i.e., qualified except for the applicable signatures). When I get a DRO that is "tentatively qualified," I usually state that it will be qualified upon signature and then describe how the QDRO will be implemented..including the QPSA provisions (or lack thereof) . This usually raises the issue with the AP and the AP's lawyer. Then we go back and forth about how this provision should be drafted (i.e., to what portion of the participant's accrued benefit it relates). I get numerous phone calls from both sides when this happens...and I have to respond that I am impartial and I cannot tell them how to draft the order...that they need to communicate with each other and that I'm only there to determine the order's qualified status. It is amazing to me that the lawyers really don't understand how the QPSA works....when you find this is the case, do you point them to appropriate guidance or explain how it works? I don't feel comfortable explaining it to them (just costs the clients more money and gives the lawyers free advice on how to draft the order) and nicely tell them to look it up or go on BenefitsLink!

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When the discussion comes up, I simply tell them that the only benefit that the plan pays if the participant dies is the surviving spouse benefit and that unless the order awards some or all of that benefit to the alternate payee, the alternate payee will receive nothing. I remind them that they may obtain a copy of the SPD, plan document (although they might have to pay for a copy) and the QDRO Procedures. As far as their own legal education and research goes, the plan does not owe them any guidance. If they don't know theri business, they should engage assistance or stay away from it. Various bar association ethics opinions have made that clear expressly in the context of QDROs.

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Guest Kevin A. Wiggins

This is a very good, and very tough, question and raises ethical concerns. I'm guessing my response will generate some controversy, but here it is anyway.

If you are reviewing the DRO to determine whether it is qualified, then you are the plan administrator (or its agent or counsel) and a fiduciary (or its agent or counsel). It is my opinion that the PA/fiduciary should remain neutral and not inform either side about his or her rights under state law. Advising the parties of the AP death benefit is like receiving a DRO that you know does not divide the benefits properly under State law and then advising the potentially injured party of his or her rights under State law. The fiduciary has a conflict. Although your approach is better than going back and saying to the AP, "Did you know you could get some death benefits too?," I think even your approach could raise some eyebrows. Even you admit that you know that your approach is going to result, effectively, in a rendering legal advice to the AP. It seems to me that instead the party's attorney (or non-attorney advisor) should be doing the advising. There could be an argument by one party that you breached your fiduciary duties to that party by advising the other party of its rights under the law. Short answer, I advise the neutrality route and say nothing.

If you want to address the problem, put it in your QDRO procedures. I see nothing wrong with that. Although some could argue that is still legal advice, it is not being provided in the context of a specific instance where you know the advice is needed. Good QDRO procedures will always help the AP by giving the AP advice about how to get a QDRO, and Congress mandated the QDRO procedures. Adding language in your procedures that discus death benefits is, to me, no different than adding language about distribution options. In contrast, I would not recommend to the fiduciary to give the AP specific advice about distribution options that the fiduciary knows the AP missed due to a mistake of law; the same reasoning goes for death benefits.

I'm not sure you said this, but to the extent you say you try to interpret a DRO broadly to name the the AP as the surviving spouse, there is a case in the 5th Circuit (I don't have a cite off the top of my head) that says if the QDRO is silent, then the AP will not be a surviving spouse.

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If the QDRO is silent, then I take the position that no death benefits are intended...I do, however, describe in my qualification letter exactly how benefits will be administered, including what happens if the participant dies before or after benefit commencement (and what happens if the AP dies before or after commencement). I do this mostly for the client, so that they will know exactly how things will shake out when distribution actually happens, which may be may years away. This is usually when the AP and the APs counsel start to pay attention and the death benefit issue comes up.

Some of my clients take the position that a separate interest is established at qualification, and the AP will not lose his/her portion of an accrued benefit if the participant dies before benefit commencement. I fully describe all death benefit permutations in this case as well.

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