Contingent Interests in QDRO

[J Simmons]

The plan is a DB that does not offer lump sums. The earliest retirement age is 55.

The plan administrator received and is reviewing an interesting DRO.

The DRO provides that until the EE reaches age 55, the AP is the 'surviving spouse' of all benefits accrued during the marriage.

The DRO provides that on and after the EE reaching age 55, the AP may choose to begin taking a single life annuity of 1/2 of the value that accrued during the marriage. If the AP does so, then the AP will not be the 'surviving spouse' of any benefits retained by the EE.

If the AP does not elect to have the single life annuity begin paying before the EE's annuity starting date (and the AP is yet alive at that time), the benefits accrued during the marriage will be paid as a QJSA with the AP as the 'surviving spouse' and the AP to receive 50% of each payment otherwise made to the EE until he dies.

Apart from the contingency depending on the AP commencing the single life annuity on or after the EE reaches age 55 but before the EE's annuity starting date, the language of the order seems to specify clearly the amount or percentage of benefits. The language of the contingency would seem also to specify clearly the manner such amount or percentage is to be determined--under the various contingencies.

My question is whether these contingencies--because they are contingencies--calls into question the validity of the order as a QDRO. Any thoughts?

[JanetM]

John,

The second scenario - just to be sure I am reading this right - AP gets 50% of benefit. When the EE dies the AP now receives 50% J&S benefit for life? The 50% the AP was getting stops and the benefits continue in different form.

Wouldn't this require plan to offer form of benefit not currently offered? Does your plan pay J&S benefits to non spousal beneficiarys?

[J Simmons]

Hi, Janet,

The second scenario would, for example, be that the QJSA of the benefit accrued during marriage is $1,000 a month while the employee remains yet alive, then $500 a month to the alternate payee for the remainder of her life. The $1,000 per month while the employee is yet alive would be split $500 each between the employee and the alternate payee. In essence, both the alternate payee and the employee would each receive $500 a month for the rest of their respective lives once the employee's benefits commence paying.

Under IRC sec 414(p)(5) and ERISA sec 206(d)(3)(F), if the marriage lasted at least 1 year and the QDRO provides the alternate payee

shall be treated as a surviving spouse

of the employee for purposes of IRC sections 401(a)(11) and 417 and ERISA section 205. As to benefits not separately awarded to the alternate payee but retained by the employee, the alternate payee must be treated as the 'surviving spouse' to the extent so provided in the QDRO.

As for any portion of benefits awarded and payable to the alternate payee separate and apart from what the employee retains, the only form of benefit available under this plan is a single life annuity. Even if the alternate payee marries again, the alternate payee's new spouse is not a "spouse" for purposes of QJSA.

Is there something else regarding non-spousal beneficiary that you are referring to?

[david rigby]

I like it. Your reference to "contingencies" is (IMHO) only outlining multiple (non-overlapping) scenarios.

Note that the AP benefit at 55 is "1/2 of the value", which is probably not one-half of the accrued monthly benefit, in absolute dollars.

Suggestion: Since the DRO specifies what happens if the participant dies first, why not also specify what happens if the AP dies first before commencment, and what happens if the AP dies first after commencment?

[J Simmons]

Hi, David,

I thought the DRO was pretty cleverly drafted also. It is amazingly short and simply worded too. (My hat's off to the author.) In fact, it might have covered the two areas you mention.

If the EE dies before either his annuity starting date or the AP electing the single life annuity after the EE might reach age 55 years, the AP would be the 'surviving spouse' of all the benefits accrued during marriage.

If the EE reaches age 55 and the AP opts for the single life annuity before the EE's annuity starting date, the actuarial risk with respect to that 50% of the benefits accrued during marriage would be factored into the monthly amounts payable to the AP's single life annuity. So if the AP is in pay status and dies before the EE, any 'windfall' would be to the plan by reason of that actuarial risk.

[Mike Preston]

I agree with David. It doesn't seem to be anything other than a multiple scenario QDRO that fairly apportions benefits, give choices to the AP and makes appropriate adjustments in remaining benefits once such a choice is made. I see nothing other than a job fairly done (and I say that because I frequently see that the AP is considered the surviving spouse with respect to all benefits, not just those accrued during marriage and that strikes me as unfair - but when measured actuarially it usually doesn't amount to a hill of beans so it isn't worthwhile to fight - only if the P has already remarried does the unfairness of the provision become apparent).

[JanetM]

John,

Forget the non spouse beneficiary angle. I didn't quite understand the form of benefit. Thanks for explaining.

[J Simmons]

David, Mike and Janet,

Thanks for your input on this thread. The QDRO at issue is short (2 pages). It has all the statutory elements required of a QDRO. It has these contingencies in it. I was taken aback it accomplished so much with so few words--I guess I was skeptical but shouldn't have been.

[david rigby]

BTW, as you probably already know, if the DRO contains the SSN of the P and/or AP, it is prudent to have it removed, since the QDRO will be a public document. In these days of heightened interest in personal security, it seems ridiculous to require the QDRO to contain the SSN. Just a thought.

[QDROphile]

A plan cannot refuse to qualify the order because of no SSNs or DOBs and it is foolish even to suggest or encourage inclusion of SSNs or DOBs.