ex-spouse receiving benefits without AP being notified

[Guest DMKK]

I have a valid QDRO from 1991. Since then, I have received only two communications regarding my and my ex's benefits (we have separate accounts): #1 in 1996 notifying me of the normal retirement benefit amounts for my ex and myself as of 2011, and #2 in 2001 with updated information on how to contact the PA. Several months ago, my ex contacted one of my relatives (ex and I have had no contact since the divorce) because he wanted to make sure I knew he had been receiving his benefits early (for 2-3 years already!) and that, according to him, I had "$20,000-25,000 waiting" for me. This was news to me since I hadn't received a communication regarding the payout since 1996. I then contacted the PA who has taken 2 1/2 months to "research" my account. They told me they had no obligation to tell me that my ex was receiving his benefits and that they would have only contacted me when he was approaching his 65th birthday! Ridiculous! Anyway, they are supposedly sending me papers to get my payments started (should have received them by now but haven't). Long story short, my questions are these: Am I entitled to a lump sum payment for all the months that my ex has been receiving his benefits, in order to "catch up?" What about interest? Also, the QDRO states that my ex must furnish me within 5 days copies of any documents received from the PA (which obviously didn't happen). Any recourse here? Thanks very much for any and all help!

[david rigby]

Perhaps I missed it somewhere, but what kind of plan is this? DB or DC?

(Some of your description sounds like a DB plan, but such cannot have "separate accounts", or any accounts for that matter.)

[Guest DMKK]

My documents do not use the terms Defined Benefits or Defined Contributions anywhere, but in reading the QDRO, I believe it's a DB plan. The QDRO says this: "...the accrued benefit of the community interest in the XXXX Plan is 100 percent, or $xxxx as a single life annuity monthly pension benefit payable at the age of 65 years. 40 percent of this accrued benefit is hereby set aside to DMKK, as Alternate Payee's sole and separate property and the remainder is set aside as Participant's sole and separate property...."

It also says, "...XXXX Plan is ordered to partition and maintain separate from Participant's share the 40% interest in the plan set aside to Alternate Payee under this decree and to pay directly to Alternate Payee her 40% share of the accrued monthly pension benefit beginning March x, 20xx....."

Does this help?

[Guest mjb]

Why do you think the plan had an obligaton to tell you when your ex commenced benefits? The QDRO states that your benefits are a separate interest which commence in march 20XX so you must file a request to commence benefits. Since you were on notice of when your benefits commence you had an obligaton to file a request to commence benefits.

What the plan told you is correct - you would only be notified 90 days before your ex's 65th birthday because that is the date when mandatory benefits must commence.

you need to check with the plan administrator as to what you rights are to receive benefits but I doubt that you will be able to collect retroactive payments.

[Mike Preston]

DMKK, what state are you in?

What you are describing is generally referred to as a "separate interest" QDRO, not as a "separate account" QDRO. It is not uncommon to refer to your separate interest and your ex-spouse's separate interest as being, well, "separate". In this case, of course, it means a "separate interest" rather than a "separate account". Sorry for sounding a bit redundant.

There are no general rules which apply to all participants and alternate payees that you and your ex-spouse find yourself in. This is because the "general rules" include a rule that says each plan can craft their own rules with respect to timing, etc.

This might be good news for you or bad news for you. But it is news that nobody here can provide you with. Only somebody already familiar with the plan (such as the Plan Administrator) or somebody who agrees to become familiar with the plan on your behalf (such as a lawyer or a retirement plan consultant) can really answer your questions.

In some cases, yes, you could be entitled to a lump sum to makeup for the amounts missed. In some cases, yes, you could be entitled to an interest adjustment.

In other cases, no, you would not be entitled to either and must begin your payments solely on a prospective basis. If you must begin your payments solely on a prospective basis, it is even possible that you are not entitled to commence payment until your ex-spouse would have reached age 65. I know that you now believe that the Plan is in the process of allowing you to start immediately (about 3 and 2/3 years earlier than when your ex-spouse would have reached age 65). But it is possible that before all is said and done, they might remove that alternative. I know it isn't likely that they would end up removing that option, considering that they have already told you you can begin payments now, but until your payments actually commence, don't count, as they say, any chickens.

I would be curious as to whether the $ amount of your separate interest in 1991 (what is referred to in your posts as your "40% interest") is the same $ amount that was communicated to you in 1996 when they told you what you were entitled to in 2011 when your ex-spouse turns 65. Are they the same number? If not, why not?

[Guest DMKK]

I'm in Texas. I was never given an amount in 1991. The only numbers I've seen were sent to me in 1996.

I guess I naively thought that all QDROs were governed by the same rules. The best thing to do, I suppose, is to pay the bucks and hire an attorney to look out for my interests and investigate my circumstances before I sign anything the PA sends me.

Thank you for your insight and guidance! It was helpful.

[masteff]

I'm in Texas. I was never given an amount in 1991. The only numbers I've seen were sent to me in 1996.

I guess I naively thought that all QDROs were governed by the same rules. The best thing to do, I suppose, is to pay the bucks and hire an attorney to look out for my interests and investigate my circumstances before I sign anything the PA sends me.

Thank you for your insight and guidance! It was helpful.

I agree w/ others that everything sounds on the up and up to me. They had no reason at all to notify you that your ex started to receive his benefit. Your ex is mistaken that you have "20-25,000 waiting". Your benefit starts when you start it, not when he started his. And your benefit will be adjusted accordingly.

When you get your paperwork, you'll likely see an age 65 benefit amount and it will likely be reduced because you are starting prior to that age (or really when your ex would have been 65, but you see what I mean). The longer you wait, the less that amount is reduced. For comparison, you might ask the plan what the reduction would have been if you had started your benefit 3 years ago. You might also ask them if there is a date earlier than age 65 that you can receive the full benefit w/out reduction (since your ex retired early, this is possible depending on their plan's rules).

[Mike Preston]

Can you clarify something for me?

In one of your posts you mention that you know the 100% accrued benefit as of the date of the QDRO in 1991. I was asking that you multiply that number by 40% to determine what the 1991 QDRO indicated was your entitlement at your ex-spouse's age 65 and then compare that number to the number they gave you in 1996.

Are they equal?

[Guest DMKK]

Mike - sorry I didn't understand. I did the calculation and, yes, the amounts are equal.

[Mike Preston]

Mike - sorry I didn't understand. I did the calculation and, yes, the amounts are equal.

OK, great.

Divorces and QDROs are, unfortunately, complicated. There are a number of ways to fashion marital settlements as they relate to pension benefits. As has already been discussed, you have a "separate interest" QDRO.

It also appears that you have a "frozen separate interest" QDRO. By "frozen" I mean that *your* benefit does not change, no matter what happens to your ex-spouse's benefit after your divorce.

This may very well be the normal way to determine separate interests under Texas law.

It is *not* the normal way to determine separate interests in some other states. For example, in California (where I am), a separate interest QDRO will almost always be a "non-frozen" separate interest QDRO. In California, as the participant spouse ages, the non-participant spouse's interest automatically changes to reflect both the change in the benefit and, at the same time, the change in the percentage of the benefit that is considered to be marital property (in community property states, [Texas and California are both community property states] this is generally referred to as the community interest).

In many cases, a "non-frozen" separate interest QDRO will result in the non-participant spouse receiving a larger benefit. However, this isn't true in all cases. In some cases, a "non-frozen" separate interest QDRO can result in the non-participant spouse receiving a smaller benefit.

I wanted to know whether you had a frozen separate interest QDRO or a non-frozen separate interest QDRO, because it allows further comments to be more focused.

Given that you have a frozen separate interest QDRO, you should be aware that when your ex-spouse retired has very little, if anything, to deal with your benefits in a typical situation. You were originally told in 1991 that you were entitled to benefits commencing in 2011 and that your QDRO was a frozen interest QDRO. Hence, it is highly likely that even if the plan allows you to commence benefits prior to the originally scheduled date of March, 2011, the plan will probably REDUCE your monthly benefit amount to account for the fact that you are starting them at an earlier age than anticipated. In this way, the present value of the total expected payout remains the same. That is, you don't gain or lose (and, more importantly from the plan's perspective, the plan does not gain or lose) from you commencing the benefit earlier than originally anticipated.

Let me take a break here and recap what that means to you. You were originally told that your benefit would commence in 2011. You were originally told that your benefit would be a certain dollar amount per month beginning in 2011. Nothing has happened that would change those facts. You most certainly can still begin your benefits in 2011 at the originally anticipated amount.

Now, based on some third-party communication from your ex-spouse, you have come to believe that you were entitled to commence your benefits earlier than 2011. So, my next question is: where in the QDRO does it say that should your ex-spouse retire before 2011 you can then commence your benefit at that time? And, perhaps more importantly, if the QDRO does, in fact, say that you can commence your benefit earlier than the originally expected date in 2011, what does it say will happen to the monthly benefit amount you will be entitled to? That is, how is the calculation of your monthly benefit amount modified to take into account the different commencement date?

As you can see, there are many complications that arise when trying to weave through a QDRO's provisions and how they relate to the underlying plan's provisions.

What masteff said is right on point: get information from the plan administrator as to what your benefit amount will be if commenced at various points in time. If you want to see if you were harmed by not being given the option to begin your benefits as early as they might have begun, ask the plan administrator to tell you what the earliest date was you could have received benefits and what the monthly benefit would have been had you commenced your benefit at that point. As masteff stated, you might want to inquire when the earliest date you can receive unreduced benefits is. Or, was.

Good luck.

[Guest Ms Behave]

It also appears that you have a "frozen separate interest" QDRO. By "frozen" I mean that *your* benefit does not change, no matter what happens to your ex-spouse's benefit after your divorce.

I have a question . . . Would a QDRO with the following provisions also be considered a "frozen separate interest?"

1. Awarded a specific dollar amount for the AP's lifetime

2. AP treated as "surviving spouse"

3. AP not required to wait until the Participant retired, but may elect to receive benefits at participant's earliest retirement date

Also, when you said:

. . . I mean that *your" benefit does not change, no matter what happens to your ex-spouse's benefit after your divorce.

What does that mean? What is that opinion based on? Sorry, about these questions, but I'm involved in a court matter with my former spouse and I guess I'm hoping that some of this might be helpful to me.

Thanks very much.

[Mike Preston]

It also appears that you have a "frozen separate interest" QDRO. By "frozen" I mean that *your* benefit does not change, no matter what happens to your ex-spouse's benefit after your divorce.

I have a question . . . Would a QDRO with the following provisions also be considered a "frozen separate interest?"

1. Awarded a specific dollar amount for the AP's lifetime

2. AP treated as "surviving spouse"

3. AP not required to wait until the Participant retired, but may elect to receive benefits at participant's earliest retirement date

It sounds like it to me. (2) is irrelevant to the determination of the AP's frozen separate interest benefit. (2) applies to whether the AP can gain an additional benefit [beyond the frozen separate interest] from P's benefit predicated upon P's death. So we ignore (2). Assuming the intent of (1) and (3) is to provide a specific monthly benefit to the AP, and that amount begins at the age that the AP is when the Participant (P) reaches the earliest retirement age, then it sure sounds like a frozen separate interest to me.

Also, when you said:

. . . I mean that *your" benefit does not change, no matter what happens to your ex-spouse's benefit after your divorce.

What does that mean? What is that opinion based on? Sorry, about these questions, but I'm involved in a court matter with my former spouse and I guess I'm hoping that some of this might be helpful to me.

Thanks very much.

Well, I'm not sure how to say it any differently. So, let me cite an example or two or three and maybe that will illuminate the issue: (1) At divorce, after 10 years of participation (all of which were during the marriage), with an accrued benefit of $2,000/month, all of which are community, the AP and P are each awarded a separate interest benefit of $1,000/month beginning in 10 years. If P retires in 10 years with a benefit of $5,000/month, the AP still gets a benefit of $1,000/month. That would be a frozen separate interest. Change it to a "non-frozen" separate interest and we find that AP and P were married and participating in the plan for 10 years, while P was unmarried and participating in the plan for an additional 10 years. Hence, the plan's benefit is 50% marital interest. AP is entitled to 1/2 of the marital interest and therefore 25% of $5,000, which is $1,250. So, if it is a frozen separate interest, the benefit is $1,000/month. If it is not a frozen separate interest, the benefit is $1,250/month. (2) Now change P's benefit from $5,000/month to $3,600/month. If "frozen", AP gets $1,000 and P gets $2,600. If non-frozen, AP gets 25% of $3,600, which is $900 and P gets $2,700.

As you can see, a "non-frozen" benefit is better for the participant if the benefit accrual rate AFTER marriage will be slower than the benefit accrual rate BEFORE divorce. And, of course, the opposite is true. If the benefit accrual rate AFTER marriage will be faster than the benefit accrual rate BEFORE divorce, it is better for the AP. I refer to this as the "coattails" effect. Does the AP wish to ride on the coattails of the P? That would be a resounding "yes" for any P who is expected to have a significant increase in the rate of accrual in the future (such as a rising young executive might expect).

The above two examples highlight the coattails effect.

(3) Another example might be based on a separate benefit being written into the plan after divorce. Imagine, if you will, that after the divorce in question, the company implements a lump sum arrangement on top of the existing plan's provisions, but predicates that lump sum on total years of participation in the plan. Something like $1,000 per year of participation. Our hypothetical P will get a $20,000 lump sum at retirement, on top of whatever monthly pension the plan provides. Is the AP entitled to any share of that $20,000? Don't answer as the question is unanswerable in its current form. The basic question that courts have had to wrestle with is whether those first 10 years were used by the plan sponsor "enough" to establish the AP's right to a share of that lump sum. For now, let's assume that the design of the plan is such that it is unquestionable but that the first 10 years are the reason for 1/2 of the lump sum. In the case of a "frozen" separate interest, the AP would not share, since the benefit didn't exist at the time that the divorce took place. In the case of a "non-frozen" separate interest, the AP would share. As Randy Cohen (the NYTimes columnist) is fond of saying: Intent matters. If the intent is to award an individual for all service then the additional benefit is rightfully attributed, in part, to those early years. If the intent is to award future effort (from the date of amendment onwards) and the formula is merely a convenience, then the additional benefit should not be attributed, even in part, to those early years. Whether such a benefit is subject to the claims of an AP is therefore the purview of the courts to decide, after reviewing the plan and discerning the intent of the plan sponsor (usually easy to do once you get your hands on the communication sent from the plan sponsor to the participants). A careful plan sponsor will be aware of this issue and design their benefit formula to take into account future service only if they wanted to ensure that the increase would not be allocated to an ex-spouse. Otherwise they risk having monies they thought were intended for current employees instead redirected to their ex-spouse, in part.

We've dealt with increases due to normal events associated with employment (raises, etc.) and with increases due to plan changes which take place subsequent to divorce. There is a third category, and it has perplexed the courts, as well. What about a future benefit, not yet earned, but fully identified at time of divorce, that matures between divorce and retirement? A classic example of this is an early retirement subsidy. (4) Let's say that on divorce, the expectation is that our P will have a benefit at retirement, in 10 years, of $5,000/month. But the plan has a benefit that says you can begin your benefits early, without reduction, if you have a total of 90 points (where you get one point for each year of your age and 2 points for every year that you work for the company). Our P will have 90 points at the end of his 15th year of employment, when he reaches age 60. Clearly the increase associated with being able to begin benefits early, without reduction, is of value to the participant. How much of that is attributable to the years during which the marriage was in existence? Once you can answer that question you can then decide how much of the increase goes to the ex-spouse. In the case of a frozen separate interest, nothing. In the case of a non-frozen separate interest, maybe something.

Each state has their own rules for each of these sorts of things. You really need to talk to somebody in your own state to determine which, if any of these, can have an impact on your case. I can quote you cases in California (Oddino, Lehman, Brown, Poppe and others) that deal with these things. I can't cite them in any other jurisdiction.

Good luck.