AP dies before awarded 1/2 of DB commences

[J Simmons]

A DRO to award 1/2 of the EE's accrued defined benefits was determined by the PA to be a QDRO. AP dies before EE reaches earliest retirement age. Thus, payment of the awarded 1/2 of the defined benefits had not commenced to AP.

Language of the QDRO provides that AP "shall hereafter own, as her sole and separate property, all right, title, and interest to" the awarded 1/2 of the EE's accrued defined benefits, "and shall have and enjoy all rights and privileges with respect thereto as provided by such plan and [REA]." Payment of the awarded 1/2 of the EE's accrued defined benefits was to commence as early as permitted, i.e. the EE's earliest retirement age.

The QDRO specifies that the AP may choose any form of benefit options permitted by the plan as to the awarded 1/2 of the EE's accrued defined benefits. However, given that the amount does not fall below a de minimis dollar cap for lump sums, a single life annuity is the only form of benefit available. Under the plan, the AP could postpone payout commencing on the EE's earliest retirement date, but here the QDRO specified that payments to the AP were to commence as soon as possible.

The plan document specifies what happens if the EE dies before the AP, i.e. the AP is treated as the 'surviving spouse' only to the extent provided in the QDRO. If the EE dies before reaching his earliest retirement age, the AP is entitled to benefits only if the QDRO specifies the AP as the EE's surviving spouse.

However, the plan is silent as to what happens to the awarded 1/2 of the EE's accrued defined benefits if the AP, as here, dies before the benefits commence. There's two possibilities. The 1/2 of the EE's accrued defined benefits that were awarded by the QDRO do or do not 'revert' to the EE. The argument favoring reversion would seem to be that the benefits were his all along, and the QDRO's provision that payment of that 1/2 of those benefits be made to the AP failed because she died before payout of the single life annuity commenced, and therefore the QDRO ought have no bearing on the benefits to which he is entitled under the plan. Afterall, there's been no loss to the plan since no part of his benefits ever were used to base a single life annuity on as the AP died before that could happen.

The argument that the EE does not get a 'reversion' is that the QDRO was valid, for plan purposes following the PA's determination, and the QDRO gave the right to payment of 1/2 of the EE's accrued defined benefits to the AP as "her own, as her sole and separate property, all right, title, and interest". From the time of the QDRO being determined as such, the EE no longer had any right to payment of that 1/2 of the benefits. The QDRO could have, but did not, call for reversion to the EE if the AP died before payment of the awarded benefits began, as was the case here. The plan's actuarial determinations were, after the QDRO, based on two separate individuals' life expectancies, regarding the two halves and not on a joint and survivor basis. The death of the AP does not override the provisions of the QDRO, which only allow payment of that 1/2 awarded to the AP to be made to the AP.

Does anyone know how courts have ruled on such situations?

Could the EE go back into divorce court, giving notice to the executor of the AP's estate, and get a QDRO modification post-death since no payout of benefits has begun? DoL Reg 2530.206(b)(2), Example 1 permits QDRO's to be entered post-death, but what about after a risk-affecting event (here the AP's death) has transpired? Would the plan have standing to intervene and argue contrary to the EE?

Thanks in advance for responses to this post.

[Guest mjb]

While I am not going to analyze your particular facts I can offer the following observations:

1. APs with a separate interest are regarded as beneficiares under the plan and have the same benefit rights as other beneficiaries. In DB plans that I am familar with, the death of a beneficary before the earliest retirement date permitted under the plan is regarded as a forfeiture of benefits since the benefiary does not have any right to pass on the payments to a sucessor beneficiary.

2. I have seen QDROS that provide that in the case of the death of the AP the APs benefit would revert to the employee. In these case the plan administrator allows the reversion of the AP's payment instead of a forfeiture. My understanding is that that reversion is allowed where the AP's benefits are a shared interest.

3. I dont know of any court decisions on this issue. I know there have been court decisions (NJ) where courts have denied a request to retroactively amend a QDRO to provide for pre retirement death benefits for the AP where the employee died prior to retirement. In these cases the QDRO only provided for the AP to recieve retirement benefits after the employee retired.

4. In some states (NC?) retroactive amendment of a QDRO is not permitted after one party dies.

5. The plan would have standing in federal court to obect to a post death change in the QDRO on the grounds that it increases the amount of benefits that the plan is required to provide.

[QDROphile]

If a db plan provides for a truly separate interest, then someone should should be on the carpet for not providing complete and comprehensive documentation about all of the possible events and outcomes realteing to domestic relations orders. More likely the plan does not allow a separate interest award and the order can't make it so. Generally, death of the AP before starting benefits causes a lapse of the interest and the participant's benefit is restored. The plan administrator has some explaining to do about determining the order to be qualified without at least some conditions and interpretations relating to those terms.

[Peter Gulia]

The last post particularly, and this thread generally, remind me to ask a request of the practitioners who read these boards:

Does anyone know of a court decision in which a court found a plan administrator liable (or potentially liable) for failing to inform an alternate payee that an order, although qualifying as a QDRO, does not protect the alternate payee in circumstances not provided for in the order?

One would like to think that there should be no such liability, because the plan administrator's task is only to make a correct decision on whether an order presented to it is or is not a QDRO. But any of us who's had even modest exposure to courts and judges can imagine ways that they'd put an extra duty on a plan administrator. Still, I haven't found any court decisions; have you read or experienced any?

Even if there is little or no risk of liability, are there "best-practices" arguments for or against the idea that a plan administrator should tell an alternate payee, a participant, or both about circumstances not provided for in an order?

[QDROphile]

Not quite on point, but you might enjoy reading Dahlgren v. U.S. West Direct, 12 EBC 2275 (D Or 1990). According to the lawyers for the plan administrator, the matter settled, so we don't know if the administrator would have had any responsibility for a lawyer overlooking an unexpected death consequence. My advice is that plan administrators should not try to help or explain and should confine themsleves to what the law requires -- is the order qualified or not? I think the adminstrator can and should state the interpretation of the order when the order is not clear or complete, and that explanation might make use of illustrations of consequences. The explanation will give the parties a timely opportunity to revisit the interpretation or the determination when it makes sense, not years later when the latent issue becomes the unpleasant surprise and remedial options may be unavailable.

[Peter Gulia]

QDROphile, thanks for the reminder about that decision.

Like you, I've cited it (in books and elsewhere) to support the idea that a plan administrator might reduce its liability exposure by not writing or speaking information beyond a required decision on whether an order is or is not a QDRO.

In Templeman/Dahlgren/U.S. West, the court held that a lawyer's state-law claim (if any) against a nonlawyer who gave legal advice to the lawyer was not ERISA-preempted, and sent it back to a state court. The Federal court did not consider whether that third-party plaintiff had alleged sufficient facts to state the claim - leaving that issue to the state court (which then did not have an occasion to decide whether a lawyer could reasonably rely on a nonlawyer's legal advice).

But even the strained reasoning of that opinion was grounded on an allegation (accepted as undisputed for the purposes of the summary-judgment motions) that the plan administrator had given advice. The court did not consider whether the plan administrator had any duty.

Again, in the interests of "equal time", has anyone seen a case in which a court suggested that a plan administrator could be responsible for a failure to provide advice or information (beyond the required QDRO decision)?

[Guest mjb]

The last post particularly, and this thread generally, remind me to ask a request of the practitioners who read these boards:

Does anyone know of a court decision in which a court found a plan administrator liable (or potentially liable) for failing to inform an alternate payee that an order, although qualifying as a QDRO, does not protect the alternate payee in circumstances not provided for in the order?

One would like to think that there should be no such liability, because the plan administrator's task is only to make a correct decision on whether an order presented to it is or is not a QDRO. But any of us who's had even modest exposure to courts and judges can imagine ways that they'd put an extra duty on a plan administrator. Still, I haven't found any court decisions; have you read or experienced any?

Even if there is little or no risk of liability, are there "best-practices" arguments for or against the idea that a plan administrator should tell an alternate payee, a participant, or both about circumstances not provided for in an order?

What would be the basis in ERISA for imposing such liability since the plan administrator cannot provide legal advice or as a fiduciary cannot take sides in advising either party?? Also the parties are represented by counsel who are their legal advisors.

PAs see many strange results in QDROs in which one side gives up benefits but they have no way of knowing whether it is though negotiation or ingorance. One of the most common mistake is employees who give the ex spouse both part of their retirement benefit and 100% of the survivor annuity because they want out of the marriage and dont see any value in the survivor benefit. Several years later after remarring the employee comes back to the PA asking to change the QDRO because his new wife will not get any survivor benefits. The usual complaint is that his attorney never explained the survivor benefit to him. Some PAs provide a form letter to the parties explaining the different benefits rights and the consequeences of waiving benefits.

If you go back in history there were cases before REA was enacted in 1984 where surviving spouses sued plan administrators after the death of the employee because the employee elected to take a single life annuity instead of a J & S. (In those days spousal consent was not required the elect out of a J & S). Every case was rejected where the PA provided the necessary J & S disclosure to the employee.

[BTG]

A DRO to award 1/2 of the EE's accrued defined benefits was determined by the PA to be a QDRO. AP dies before EE reaches earliest retirement age. Thus, payment of the awarded 1/2 of the defined benefits had not commenced to AP.

Language of the QDRO provides that AP "shall hereafter own, as her sole and separate property, all right, title, and interest to" the awarded 1/2 of the EE's accrued defined benefits, "and shall have and enjoy all rights and privileges with respect thereto as provided by such plan and [REA]." Payment of the awarded 1/2 of the EE's accrued defined benefits was to commence as early as permitted, i.e. the EE's earliest retirement age.

The QDRO specifies that the AP may choose any form of benefit options permitted by the plan as to the awarded 1/2 of the EE's accrued defined benefits. However, given that the amount does not fall below a de minimis dollar cap for lump sums, a single life annuity is the only form of benefit available. Under the plan, the AP could postpone payout commencing on the EE's earliest retirement date, but here the QDRO specified that payments to the AP were to commence as soon as possible.

The plan document specifies what happens if the EE dies before the AP, i.e. the AP is treated as the 'surviving spouse' only to the extent provided in the QDRO. If the EE dies before reaching his earliest retirement age, the AP is entitled to benefits only if the QDRO specifies the AP as the EE's surviving spouse.

However, the plan is silent as to what happens to the awarded 1/2 of the EE's accrued defined benefits if the AP, as here, dies before the benefits commence. There's two possibilities. The 1/2 of the EE's accrued defined benefits that were awarded by the QDRO do or do not 'revert' to the EE. The argument favoring reversion would seem to be that the benefits were his all along, and the QDRO's provision that payment of that 1/2 of those benefits be made to the AP failed because she died before payout of the single life annuity commenced, and therefore the QDRO ought have no bearing on the benefits to which he is entitled under the plan. Afterall, there's been no loss to the plan since no part of his benefits ever were used to base a single life annuity on as the AP died before that could happen.

The argument that the EE does not get a 'reversion' is that the QDRO was valid, for plan purposes following the PA's determination, and the QDRO gave the right to payment of 1/2 of the EE's accrued defined benefits to the AP as "her own, as her sole and separate property, all right, title, and interest". From the time of the QDRO being determined as such, the EE no longer had any right to payment of that 1/2 of the benefits. The QDRO could have, but did not, call for reversion to the EE if the AP died before payment of the awarded benefits began, as was the case here. The plan's actuarial determinations were, after the QDRO, based on two separate individuals' life expectancies, regarding the two halves and not on a joint and survivor basis. The death of the AP does not override the provisions of the QDRO, which only allow payment of that 1/2 awarded to the AP to be made to the AP.

Does anyone know how courts have ruled on such situations?

Could the EE go back into divorce court, giving notice to the executor of the AP's estate, and get a QDRO modification post-death since no payout of benefits has begun? DoL Reg 2530.206(b)(2), Example 1 permits QDRO's to be entered post-death, but what about after a risk-affecting event (here the AP's death) has transpired? Would the plan have standing to intervene and argue contrary to the EE?

Thanks in advance for responses to this post.

Mr. Simmons, one of our clients is facing a virtually identical set of circumstances. Would you mind sharing how you ultimately came out on this issue and your rationale? I see merit to both of the arguments you laid out in your original post, and I keep flip-flopping.

[J Simmons]

Hi, BTG--

See private message sent to your BenefitsLink mailbox.

BTW, if you address me as Mr Simmons (uncomfortable as that is for me), Larry asks that you address him as Mr Sieve.

[Guest Sieve]

Mr. Simmons --

The proposed regs provide 3 exceptions to the Mister rule (which you have stated very succinctly and, I think, correctly):

• if neither you nor I have posted in the thread at any time after the day with respect to which the initial post has appeared, as long as such OP claims exemption from the Mister rule and is not otherwise subject to fluffy effective availability under the regs,
  
• if waived in that thread in a manner which, under the facts and circumstances, prevents the exemption from becoming applicable prior to the plan year begining on or after the plan year following the demographic failure, or
  
• if preempted by any other greeting already used in the thread or in any prior thread within 180 days after the end of the plan year during which the thread became applicable, including, but not limited to "hey, you" or "unintelligble" or "%#$*^!%$", but only to the extent such greeting appeared in a predecessor terminated plan covering the same greetings.
  

- Mr. Sieve (aka "#$*^!%$")

[J Simmons]

Geez, I'm glad those Regs are only proposed--and hopefully with a January 1, 2029 effective date.

[RTK]

Couple of comments (and perhaps my biases):

I view a separate interest QDRO as an outright assignment of benefits to the alternate payee at the time the QDRO is approved. Thus, the alternate payee has his or her own benefit and may elect a time and form for payment of the assigned benefit that is different than the time and form of payment elected by the participant for his or her remaining accrued benefit. It follows then, in my view, that the participant's death has no effect on the alternate payee's right to payment of the assigned benefit at a time and in a form elected by the alternate payee.

Assuming a typical defined benefit plan without ancillary death benefits, other than amounts payable under a form of payment elected by the alternate payee, the alternate payee's assigned benefit under a separate interest qdro should not be payable to anyone upon death, including a reversion to the participant, since that would provide a type or form of benefit or option not otherwise provided by the plan. I know that there are those who disagree and allow a reversion of the assigned benefit to the participant upon the alternate payee's death, but I'm not sure on what theory - perhaps on the basis that the assignment to the alternate payee is contingent upon the survival of the alternate payee. But that raises additional questions, e.g., how much should be paid to the participant if payment to the participant begins (say at early retirement or disability) before payment to the alternate payee begins.

If a "reversion" is desired, I say a shared payment QDRO can be used.

[J Simmons]

RTK,

I agree with your analysis about reversion of a separate interest.

I do think, however, that if the awarded benefits are contingent upon the AP electing to take and beginning payment of benefits but dies first, then the award attempted by the QDRO lapses--leaving the employee with all his/her benefits intact.

[RTK]

A follow up.

I think that a shared payment qdro can and should provide for reversion of the assigned benefit to the participant upon an alternate payee's death. My view is that a shared payment qdro assigns the alternate payee the right to receive part (or all) of the benefit payment (rather than part of the accrued benefit). It follows then that if the alternate payee is dead (so there is no alternate payee entitled to payment), the participant should be paid the entire benefit. This would be the case if the alternate payee died before or after payment of the benefit began.

The participants' attorneys like this, but not so much the attorneys for the alternate payees. The alternate payees' attorneys don't seem to object so much to the reversion, as they do to linking payment to the alternate payee to payment to the participant -- and thus, not allowing for an independent payment to the alternate payee measured by the alternate payee's life and making payments to the alternate payee contingent upon the participant's survival.

I guess I'm just not sure that a separate interest qdro assigning an alternate payee part of an accrued benefit can provide for reversion (or payment) of the accrued benefit to the participant at the alternate payee's death. Even if the qdro is written so that the assignment is a contingent award (conditioned upon the survival of the alternate payee), if the qdro otherwise assigns the alternate payee the right to receive payment measured by the alternate payee's life at a time and in a form elected by the alternate payee, my concern is that the contingency is an attempt to provide a death benefit not otherwise provided by the plan for an accrued benefit.

Also, I'm not sure how such a contingent award would work. For example, assume a $500 total accrued benefit with $100 assigned to the alternate payee contingent upon the alternate payee's survival to the payment date. If payment to the participant begins before payment to the alternate payee and before the alternate payee's death, does the participant receive $400 with that amount subsequently increased to $500 if the alternate payee dies before beginning to receive payment? Or does the participant receive $500 with that amount subsequently decreased to $400 if the alternate payee begins to receive payment before death. There would likely be additional issues if the payment was not contingent upon the alternate payee's survival to the payment date, but simply upon survival, so that the assigned benefit would revert to the participant if the alternate payee died after payment began.

Maybe I'll figure this all out someday. Heck REA was only enacted some 24 years ago.

[J Simmons]

Hi, RTK,

Your post is thought provoking.

Contingency perhaps being "... an attempt to provide a death benefit not otherwise provided by the plan for an accrued benefit". Couched as a contingency, the awarded benefit is subject to a condition precedent. As a reversion, it is a condition subsequent. The difference has substance, not just form.

The implementation I've seen is, on your example numbers, $400 if the participant begins taking before the alternate payee, bumped up on the alternate payee's death.

[RTK]

A delayed follow up (been a couple of busy weeks).

You make good comments John, and I am back to mulling over whether a separate interest QDRO subjecting the assigned benefit to the condition subsequent of survival to the payment date would be acceptable under ERISA.

One specific question I am contemplating is whether a reversion would comply with the requirement that the QDRO not provide increased benefits determined on the basis of actuarial value (or not result in increased costs to the Plan).

If you recall, under my "standard" separate interest QDRO, the alternate payee's assigned benefit is forfeited upon the alternate payee's death. Under the "reversion" separate interest QDRO, the assigned benefit would revert to the participant if the alternate payee died before the payment date. (Presumably, there would be no reversion if the alternate payee died after the payment date. Note Szydlowski v. PBGC, 37 EBC 2643.)

Taking the example of a $500 accrued benefit with $100 assigned to the alternate payee under a separate interest QDRO, my question arises as follows (disregarding ancillary and spouse death benefits):

1. Before the QDRO, the participant's death would result in the forfeiture of the entire $500 accrued benefit.

2. Under my standard approach, $100 of the $500 accrued benefit is assigned outright to the alternate payee. If the alternate payee dies, the assigned benefit is forfeited. I view this as cost neutral to the Plan.

3. Under the reversion approach, $100 of the $500 accrued benefit is also assigned to the alternate payee, subject to the condition subsequent of survival to the payment date. If the alternate payee dies before the payment date, the $100 reverts to the participant, and is not forfeited unless the participant is then deceased or later dies before the payment date.

4. The nagging part of this is that under the reversion approach, after the QDRO, the $100 assigned benefit is forfeited only upon the death of two persons (i.e., the alternate payee and the participant), whereas before the issuance of the QDRO, it would have been forfeited upon the death of one person (i.e., the participant). Note that under my standard approach, the $100 assigned benefit would also be forfeited upon the death of one person (i.e., the alternate payee), but the focus probably should be on whether the reversion approach results in increased benefits (or cost) relative to no QDRO.

I don't know the answer at this point, but I have asked a smart actuary for comments.

[J Simmons]

....I am back to mulling over whether a separate interest QDRO subjecting the assigned benefit to the condition subsequent of survival to the payment date would be acceptable under ERISA.

Condition precedent is what I think is ERISA acceptable, not reversion or other condition subsequent.

One specific question I am contemplating is whether a reversion would comply with the requirement that the QDRO not provide increased benefits determined on the basis of actuarial value (or not result in increased costs to the Plan).

* * *

Taking the example of a $500 accrued benefit with $100 assigned to the alternate payee under a separate interest QDRO, my question arises as follows (disregarding ancillary and spouse death benefits):

1. Before the QDRO, the participant's death would result in the forfeiture of the entire $500 accrued benefit.

Not necessarily so. There is the preretirement survivor and joint and survivor annuity benefits to consider--the QDRO could be looked at as simply preserving those passed the divorce.

2. Under my standard approach, $100 of the $500 accrued benefit is assigned outright to the alternate payee. If the alternate payee dies, the assigned benefit is forfeited. I view this as cost neutral to the Plan.

I am no actuary, but I'd view that as a windfall to the plan. By reason of the QDRO and the AP's death, the plan now pays just $400 per month over the EE's life, not $500 as would have been the case without the QDRO ad AP's death.

3. Under the reversion approach, $100 of the $500 accrued benefit is also assigned to the alternate payee, subject to the condition subsequent of survival to the payment date. If the alternate payee dies before the payment date, the $100 reverts to the participant, and is not forfeited unless the participant is then deceased or later dies before the payment date.

Agreed.

4. The nagging part of this is that under the reversion approach, after the QDRO, the $100 assigned benefit is forfeited only upon the death of two persons (i.e., the alternate payee and the participant), whereas before the issuance of the QDRO, it would have been forfeited upon the death of one person (i.e., the participant). Note that under my standard approach, the $100 assigned benefit would also be forfeited upon the death of one person (i.e., the alternate payee), but the focus probably should be on whether the reversion approach results in increased benefits (or cost) relative to no QDRO.

But for the divorce in the first place, it took two deaths for the $100 to be forfeited. A QDRO with a condition precedent or subsequent (i.e. reversion) simply continued this, despite the the divorce.

[Mike Preston]

Neat discussion.

I think we all agree that a shared interest gets paid predicated on the participant's life and the plan is merely told who to write the checks to.

In the case of a separate interest, doesn't it depend on the separate interest being perfected? I'm not sure when that happens, but whenever it does, it should be irrevocable. And by that I mean that the death of the opposite party no longer has an impact on the other's separate interest.

Take the $500/$400/$100 example. At the point when the $100 is perfected as a separate interest, the death of the P shouldn't reduce the benefits payable to AP.

In the case at hand, does it? If so, then it really isn't a separate interest DRO.

What typically happens once a separate interest is perfected is that the plan will provide a stream of actuarially equivalent payments predicated on the AP's life and give the AP the right to elect certain (typically somewhat restricted) optional forms. With the most telling element being that all of the optional forms are

keyed to the AP's life and no longer contingent on the P's life. I think once that happens there is no potential for reversion. This is inherent in the calculations and the benefit levels being offered.

In the case where there is confusing crossover in the form of a separate interest DRO that purports to key the payment based on the P's life, that is where it gets interesting

and no, I'm not aware of any case to cite on this specific issue.

My own view would be that it is a facts and circumstances test. If we measure the actuarial value of the payments to the AP including a value for the death benefit (that is, a reversion) and find that it is equal to the amount carved away from the P's benefit, I find it hard to see an argument that the plan has provided a benefit not otherwise available. OTOH, if the actuarial value is enhanced, it seems a clear violation of the Code.

Is it really that simple? Nothing ever is in the QDRO world it seems.

[Guest Sieve]

I'd like to open this back up to see if anyone has any guidance as to what might differentiate a QDRO as a shared or separate interest.

I'm sure the result will depend on the surrounding facts and circumstances, but . . . Assume the Plan does not suggest either approach (as is the case with, e.g., Corbel documents). Should language in the QDRO be interpreted as a shared interest unless it is very specific that it is not intended to be a shared interest? In other words, should such general language as "this QDRO assigns to the alternate payee the right to receive 50% of the benefit to which the participant is entitled" or "the benefit to be paid pursuant to this QDRO's assignment of benefits to the alternate payee is . . .", with nothing more, be seen as merely a shared interest (because of the QDRO's use of general assignment language), rather than a separate interest, since the QDRO lacks very direct and specific language causing the AP to have "all right, title and interest to the assigned benefit"?

[J Simmons]

The terms "shared payment" or "separate interest" are not statute or regulation terms of art. I've seen a single DRO bear characteristics of both terms, and yet meet the statutory and regulatory standards to be a QDRO. For example, the DRO might specify that at any time the EE reaches the age for early retirement distribution if EE were then separated from service, the Ex may elect to take 50% of the benefit accrued during marriage, in the form of a single life annuity based on the Ex's life or as a lump sum. That would be what I would term a 'separate interest', if elected.

The same DRO might specify that if the Ex has not so elected by the time of the EE's annuity starting date, that the benefits accrued during marriage will be payable as a QJSA on the joint lives of the EE and Ex, with the Ex to receive 50% of each payment otherwise payable to the EE until EE dies and then Ex receives the survivor benefits off of those benefits accrued during marriage. That is what I would term 'shared payment'.

In such a DRO, if the Ex has elected the 'separate interest' before the EE's annuity starting date, then the remaining benefits accrued during marriage would be payable to the EE free of any claim or right, including as a surviving spouse, by the Ex.

I think awarded benefits can be in the vein of a 'separate interest' even if the language of the QDRO does not have the common "all right, title and interest to the assigned benefit" buzz words.

[QDROphile]

I generally advise not to allow shared payment QDROs if the order is qualified before benefits start. Since a shared payment provides payment to one person for the life of another, it is not a form of benefit provided by the plan. I am not saying a plan cannot allow shared payments. I also think there is no such thing as a truly separate interest. Section 401(a)(9) does not recognize a separate interest.

[RTK]

I now feel compelled to finally follow up on issues that I raised and then rudely moved on, but first I throw in my comments on today's issues:

1. I am now convinced that there is no consensus in this area among employee benefit practitioners (pity the family law bar).

2. As far as I know, the terms "separate interest" and "shared payment" are not found in the statutes and regulations.

However, the DOL and PBGC publications use those terms in their explanatory booklets (and the PBGC has model separate interest and shared payment qdros). Also, the distinction is (at least somewhat) recognized in IRS Regs. 1.401(a)-13(g) & 1.401(a)(9)-8, Q&A-6. In this regard, the a9 regulations permit payment over a period measured by the alternate payee's life, but still tie the required beginning date to the participant's age.

3. My basic take on the two types of qdros is basically the same as the IRS, DOL and PBGC. I explained the same as follows in a recent letter:

Separate Interest – A separate interest order assigns all or part of a participant's accrued benefit to the alternate payee (i.e., it divides the participant's accrued benefit between the participant and alternate payee). Under this type of order, the alternate payee may elect a time and form for payment of the assigned benefit to the alternate payee that is different than that elected by the participant for the payment of the participant's remaining accrued benefit. Also, the assigned benefit is paid to the alternate payee over the alternate payee's life (independent of the participant's survival).

Shared Payment – A shared payment order assigns to the alternate payee the right to receive all or part of the participant's benefit if, as and when the benefit is paid to the participant (i.e., it divides the payment of benefits between the participant and the alternate payee, instead of the accrued benefit). Under this type of order, the alternate payee may not elect the time and form for the payment of the assigned benefit, and the alternate payee cannot receive payment of the assigned benefit over the alternate payee's life. Instead, the alternate payee will receive the assigned benefit if, as and when benefits are paid to the participant under the Pension Fund.

4. I distinguish the types of the qdros not so much on the language used in the qdro, but on whether the terms for payment fit the separate interest type or the shared payment type (as noted above). If the terms are not clear enough to tell, the qdro is not approved (and should not be).

5. I do encounter qdros with mixed characteristics, but they are usually drafted by counsel with limited knowledge of qdros, in which case the language is usually incomprehensible and not capable of being approved. A key exception is that I have seen well drafted mixed qdros for plans with auxiliary disability benefits where the qdro assigns the alternate payee (1) a separate interest award with respect to the accrued payment and (2) a shared payment award with respect to the disability benefit. (I'll leave it to the state court and counsel for the parties to determine whether a disability benefit is a marital asset under state law. If the judge and counsel like it, I'm ok with it.)

6. IMHO, a shared payment qdro can be accepted before payment of the participant's pension begins, because at the most basic level, I view the qdro as ordering the plan to deduct the alternate payee's assigned benefit from the participant's pension payment, which I see not as a form of payment, but as a deduction from the pension payable to the participant (like any other deduction such as income tax withholding or an IRS attachment for unpaid income tax).

7. My plan documents do not address the types of qdros, but my qdro procedures do.

Circling back to my prior issues -- Thanks to all of your input, I have sorted out some of my thoughts and reached (at least some tentative) conclusions. I note them for what they are worth.

1. Yes, a condition precedent and condition subsequent are different.

2. A separate interest award to an alternate payee that is subject to the condition subsequent of survival to the alternate payee's payment date (with reversion to the participant) should not be approved. In my mind, the assignment of accrued benefit to the alternate payee occurs in such case when the qdro is approved, and the reversion provided by the condition subsequent just seems too much like a type or form of benefit or option not otherwise provided by the plan.

3. On the other hand, it seems that a separate interest qdro that is subject to the condition precedent of survival to the alternate payee's payment date can be approved. In essence, the accrued benefit is not assigned to the alternate payee until the alternate payee's payment date when the condition for the assignment is satisfied. However, in such case, it would seem to follow that if the participant dies before the alternate payee's payment date, there is no accrued benefit that could be assigned to the alternate payee, and the alternate payee would not have any right to payment of any part of the participant's accrued benefit. Of course, the alternate payee could be designated as the surviving spouse for qpsa purposes, but that would be different than an assignment of an accrued benefit (and normally would result in a different $ amount to the alternate payee). Also, back in my prior example of a $500 total accrued benefit with $100 assigned to the alternate payee, if payment to the participant began before payment to the alternate payee, it would seem that the participant should be paid $500 until the alternate payee's payment date when the condition for the assignment to the alternate payee is satisfied.

4 The above seems too complicated to me. Mike's comments are simpler. Inspired then, I'm going back to where I was for a basic approach. There is a $500 accrued benefit in the marital estate. If $100 is assigned to the alternate payee under a separate interest qdro, the $100 is an outright award to the alternate payee. The death of the participant has no effect on the alternate payee's $100 assigned benefit, and the death of the alternate payee has no effect on the participant's remaining $400 accrued benefit. Each elects a separate time and form of payment. (These truly are separate interests, and the participant and alternate payee can go their own way.)

5. If the parties really really want a reversion to the participant under a separate interest qdro upon the alternate payee's death before the payment date, this can be done only under the condition precedent approach of #3. That said, my experience has been that most alternate payee's counsel like the basic approach of #4, and not so much #3.

Glad I got that out of my system.

[Mike Preston]

Me, too.