Model QDROs

[J. Bringhurst]

I'm not a big fan of model QDROs, but we have a client who has been using them for years and wants to continue to use them. We've been asked to review. In the course of discussing their procedures, we just found out that they categorically deny any DRO that is not drafted in the form of their model, whether or not the DRO otherwise meets the statutory qualification requirements. Is this permissible? Is there any rule that a plan administrator must accept any DRO that meets all of the technical requirements...? It doesn't seem right that a plan can deny a DRO as not qualified just because it doesn't like the form in which the DRO is prepared.

[J. Bringhurst]

"Plan administrators are required to honor any domestic relations order that satisfies the requirements to be a QDRO. In the view of the department, therefore, a plan may not condition its determinations of QDRO status on the use of any particular form."

This is from Question 2-7 from the following DOL site:

http://www.dol.gov/ebsa/publications/qdros.html#section4

[QDROphile]

Never mind what the DOL says. Fidelity has set us a better example. Its administraitve system does not provide for compliance with legitimate terms of QDROs and it will not make exceptions if directed or asked. So if Fidelity thumbs it nose at compliance, why should anyone else bother?

[J. Bringhurst]

HA! Seriously?

In our situation, we're employee benefits counsel and are charged with reviewing client's QDRO documentation, including the model QDRO that they're imposing on the parties...I have enough other problems with the model to suggest kicking it to the curb...just want to present them with all the facts and get them to fly as straight as possible.

Obviously, they can do whatever they want...but it would be against our advice.

[Guest mjb]

JB: the problem with your reliance on Q2-7 as authority for requiring acceptance of nonconforming DROS as QDROs is that the answer to Q2-7 is only a "view" of the dept of labor and does not cite any provision of ERISA or Dol ruling as authority. If you had reviewed the questions on the administration of QDROs in chapter 2 you would have discovered that the only other Q of the 19 in without a citation to authority was Q2-19 on QDRO rights for plans under the trusteeship of the PBGC which is within the jurisdiction of the PBGC, not DOL. The answers to the other 17 Q on administration of QDROs have citations of authority for the answers provided.

[QDROphile]

I am with J. Bringhurst. If an order meets qualification requirements, the plan administrator cannot reject it because the order does not use the administrator's preferred words. Unfortunately, the adminsitrator has the upper hand. I enjoy beating them back in the few times I am on the submitter side rather than the reviewer side. They usually cave when they get enough resistance. I think one would be able to get atoorneys' fees if it got as far as court, but the matters seldom do because it is not worth the fight.

I AM serious about Fidelity's arrogance and unwllingness to provide a system that allows it customers to comply with the law.

[Locust]

You've got the "correct" answer and the practical one. The plan administrator is supposed to comply with a QDRO, no matter how loony it may read. But if the plan administrator rejects a QDRO, saying that it is more likely to accept an order that uses its model, what are the alternate payee's choices: go back to the judge to ask for a contempt citation, or use the model? Any rational alternate payee is going to use the model. That's why anyone drafting an order ought to check with the plan administrator first to see if it has a model.

[QDROphile]

Please explain the statement about the contempt citation. The battle over whether or not the order is qualified does not have to go the court that issued it, but the court that issued the order would seem to be a good place to argue about it -- the plan would be saying that it won't give effect to the order. I am not overlooking the reality the the court itself has nothing to do with the form or details of the order nor that this is a battle that can be forced into federal court. California does not count.

[Guest zora]

The plan (and Fidelity) under law is required to accept it, but if they don't your only remedy is to go to court.

[Guest mjb]

Q - what would be the basis for to AP going to court? A suit for benefits can only be brought after all appeals for a denial of benefits have been exhausted which is not the case here. Also the court that issued the order will usually not have any jurisdiciton over the plan administrator because the plan is not a party to the divorce. Approving a DRO does not create a basis for court to have jurisdiction over a plan subject to ERISA.

[QDROphile]

Although the DOL does not think section 503 of ERISA applies to a question of qualification, I disagee, so I agree with you that the matter must first be pursued through the plan's claims procedures. I don't understand your statement "which is not the case here" because we are not discussing anyone who has asserted any claim or is contemplating taking any remedial action. We are discussing theoretical propositions.

I think that a quest for qualification falls under 502(a)(1)(B) of ERISA. Under section 502(e) of ERISA, state courts have jurisdiction. Although I spit at California on the subject of QDROs, California has ruled that state courts may determine qualification. In any event, one can go to federal court.

[J. Bringhurst]

Whether or not the DOL's answer to the question is only their position/opinion, the client is fairly comfortable in conforming with the DOL's view on the subject, especially since we agree with it, as their benefits counsel. They've had enough irate drafting attorneys and crying alternate payees and are more than happy for us to provide procedures that are a bit more user friendly and open to different drafting styles/situations. Even if we do end up providing a model, it will not be required.

[Locust]

QDROphile - Q: How does a domestic relations court enforce its orders (such as a QDRO)? A: By threatening the plan administrator with contempt of court - fines at first and then ultimately jail. Would it come to this? Only in very rare circumstances - but it is the contempt power which is the basis for the court's authority to enforce its orders.

[Locust]

mjb - A court may enforce its orders. A court's contempt power extends beyond the immediate parties - for example, what if a witness refuses to testify, what if a corporation refuses to turn over documents, what if an employer refuses to withhold wages, what if a bank refuses to hand over the contents of safe deposit box? A QDRO is no different - it's an order of a domestic relations court directed to a plan administrator. You can argue that the state court has no jurisdiction over you while you're in the back of the squad car on the way to your local jail.

[david rigby]

May I watch?

[Guest mjb]

Courts only have power of contempt over persons subject to their jurisdiction. You seem to be confusing the court's authority to hold a person in contempt for the failure to comply with a subpoena to produce evidence (e.g., documents) with the power to enforce an order to pay money against a person who is not a party to the case. Where there is a dispute over an amount owed, due process requires that the court have jurisdiction over both the party who claims the money and the party who is holding the funds to order a payment. In a divorce action involving pension benefits the court only has jurisdiction over both spouses but not the party holding the plan assets. (CA joinder is ignored by ERISA plans because it is preempted.) This requires a separate procedure under IRC 414(p) by the AP to have the plan approve the DRO and illustrates that a DRO is not an automatically enforceable ct. order.

Plans and their administrators are not subject to State ct orders to divide benefits in divorce actions because state laws over plans are preempted under ERISA 514(a). A st. court can only issue a DRO but has no power to force the plan to pay benefits since only orders that meet the requirement for a QDRO are exempt from the nonalienation provisions of ERISA 206(d). Under ERISA 206(d)(3)(G)(ii) it is up to the plan administrator to determine if the DRO complies with the QDRO procedure of the Plan and only recourse by the AP if the DRO is rejected would be to file a claim to benefits under ERISA since the claim is an action in contract. I am interested in any cases where st. courts asserted jurisdiction over a plan admin to force payment of a DRO.

[QDROphile]

mjb:

You think ERISA preempts California joinder, I think ERISA preempts, the Deprtment of Labor thinks ERISA pre-empts. But the U.S. federal courts in the sovereign nation have not agreed with us. I am unaware that Nasca v. Peoplesoft has been overturned or not followed in a published opinion. It has been indirectly limited by a decision that says that a state court cannot require anything of a plan except what section 414(p) provides. However, there was some later excitement about state courts imposing attorneys' fees on plans for making the the poor proponents modify their proposed orders to meet qualification requirements. I have not heard anything about the issue for some years, but I am always nervous about what the California state courts would be willing to do in their permanent state of rectal cranial inversion and the unwillingness of the federal courts to stop the madness at its root cause.

[Guest mjb]

I have never understood how a cal court can get jurisdiction over a pension plan that has no presence in CA, e.g. plan is administered in NY and trust is sited in NY.

[QDROphile]

I have never had to worry about that extreme. Our contacts arise because the employer has a presence in California. And as you know, it is easy to confuse a plan with the employer that sponsors it. Also, if an employer has presence, I suspect the plan has presence, too. But we tend to manage OK without having to get into those fine points; we use some procedural artifice to reconcile the California law and procedures with the law that really applies. It stinks, but one can hold one's nose. One of the things we do is assert that the court has no jurisdiction when we return the form. We have never had to resort to reliance on that assertion to get out of a bind. But we don't try to disqualify legitimate orders, either.

[Guest mjb]

Under ERISA 502(d) a plan is separate entity from the employer which can sue or be sued. The employer's presence does not determine whether the plan is present in the state for jursidictional purposes. Except for claims for benefits, all actions against a plan must be brought in Fed ct. ERISA 502(e). Legal fees are not considered claims for benefits. Pension plans ignore requests to consent to cal joinder and wait for DRO to be sent for review.

[QDROphile]

Are you disagreeing or are you selectively amplifiying?

[Guest zora]

A court cannot enter a valid order against an entity that is not properly made a party to the court action. That is law school civil procedure 101. End of story as far as that goes.

Yes, a court has jurisdiction when it comes to subpoenas, such as third-party subpoenas, and that is why a court can hold a witness in contempt. But a qdro is not a third party subpoena, or any subpoena. A qdro is not even an order against a plan.

A qdro is a domestic relations order that divides/recognizes/etc. marital property. It only binds the parties, i.e., the divorcing parties. Without a valid court order against the plan or anyone related to the plan, there is no contempt, and nobody related to a plan is going to jail for failure to abide by the QDRO unless the plan is properly made a party to the action.

As for California, well, state courts have concurrent jurisdiction over benefits and a qdro claim is a benefit claim, so I don't see why a plan can't be joined in a state court action under ERISA, though be prepared to go to federal court. As for the California joinder statute, I leave that for others to decide.

[Guest mjb]

One issue with bringing the claim for benefits in a state ct is whether there would be jurisdiction under state law to sue a plan as an entity under ERISA 502(d) if the plan has no presence in the state because the plan is administerd in another state and the trust is not sited in the state. Most benefit claims are brought in fed ct because because fed jurisdiction is national.