Separate Interest vs Shared Payment QDRO

[Guest QDROs]

Situation: Participant (my client) is not is pay status in ERISA DB plan which permits either a separate interest or shared payment QDRO. Former Spouse was awarded 40% of the accrued benfit. Participant wants shared payment. Former Spouse wants separate interest. I have found no case law (anywhere) to the effect that the QDRO must be written one way or the other. Does anyone know of any?

[J Simmons]

40% of the accrued benefit.

Does the DRO read in a way that suggests that it is 40% of each payment when and as otherwise paid to the EE? Does the QDRO allow the ex-spouse to begin taking his/her 40% before the EE begins taking the remaining 60%?

The statutes require that the DRO "clearly" specify "the amount or percentage of the participant's benefits to be paid by the plan to each such alternate payee, and the number of payments or period to which such order applies".

If the DRO isn't clear in this regard, the PA ought to bounce the DRO as not being a QDRO.

[Mike Preston]

Trying to actually respond to the question as posed, I'm not aware of any specific rule, one way or the other. I know that those who practice in California have frequently told me that California law requires the ability for a spouse to elect shared payment. That is a far cry from a mandate, though. I expect it is therefore a decision that should be put to the alternate payee and, unless objected to by the participant, write the DRO in that manner, whatever that happens to be.

[QDROphile]

From the plan's perspective, the terms of the order will have to specify so the plan will know how to pay.

Otherwise, how the award is structured is a matter of state law and agreement of the individuals. Certain states have case law addressing the propriety of use of a coverture fraction applied to the entire accrued benefit, always approved as far as I know. I would be a bit surprised if any state law took on your question directly.

[Mike Preston]

After re-reading the OP's post, a question comes to mind. WHY does the participant want shared payment? The payment to the participant should be the same, or MORE, using separate interest, not shared payment.

About the only thing I can think of would be a DC plan where there was a significant drop in assets invested and where the plan segregated the AP's share into a money market as per QDRO procedures. If eventually determined as shared payment, both share in the loss.

However, in a DB plan it can't work that way. The only thing that is possible is that the participant earns into a substantially higher benefit. With a shared payment, the non-participant spouse receives a share of that higher benefit. With a separate interest, they don't.

But that is the opposite of what these people supposedly want. Care to share?

[J Simmons]

Where it's a DB, maybe the EE is in better health than and expects to outlive the ex-spouse, whereas the ex-spouse may want to start taking the 40% earlier than the EE will.

[Guest mjb]

Situation: Participant (my client) is not is pay status in ERISA DB plan which permits either a separate interest or shared payment QDRO. Former Spouse was awarded 40% of the accrued benfit. Participant wants shared payment. Former Spouse wants separate interest. I have found no case law (anywhere) to the effect that the QDRO must be written one way or the other. Does anyone know of any?

Where are you in the QDRO process? If the state court issued a divorce decree or property settlement granting the former spouse a 40% interest in the participant's pension benefit and the parties are now negotiating the terms of the DRO to be approved by the court then it is up to parties to agree on the DRO which will comply with the plan provisions and state law. Most plans have model QDROs which state how the benefits can be divided and most plans permit both shared interest and separate interest. You need to check state law to see if there are any restrictions on the use of shared or separate interests.

If the parties cannot agree on the terms of the DRO the court will issue its own DRO to provide for either a shared or separate interest.

[J Simmons]

Situation: Participant (my client) is not is pay status in ERISA DB plan which permits either a separate interest or shared payment QDRO. Former Spouse was awarded 40% of the accrued benfit. Participant wants shared payment. Former Spouse wants separate interest. I have found no case law (anywhere) to the effect that the QDRO must be written one way or the other. Does anyone know of any?

The state where you are might have a notion like that in Idaho domestic relations law, i.e. favoring the approach that gives each divorcing spouse immediate control of his or her share of community property. Ramsey v Ramsey, 96 Idaho 672, 535 P2d 53 (1975). There a military pension was at issue and the trial court had ordered a 'shared payment' approach. The Idaho Supreme Court reversed and remanded with instructions to the trial court to calculate the ex-spouse's interest as a lump sum and that the employee-serviceman pay the ex-spouse that lump sum amount 'within a reasonable time from the final judgment'. That is, out of other assets the employee-serviceman had received in the community property division.

The underlying notion, that each divorcing spouse ought to have immediate control of his or her share of community property would seem to suggest that the divorce judge ought to issue a separate interest QDRO rather than a shared payment QDROs, when the divorcing spouses do not agree on a shared payment QDRO.

[Guest QDROs]

first, some answers:

I am in the process of preparing the DRO.

Participant prefers shared payment because he believes that he will outlive the AP. In that case, he does not want "his" retirement evaporating. Instead, he wants it to revert to him (as it would in a shared payment). I have also heard -- in other cases -- participants voice displeasure with the facts that the former spouse can access the retirement before the participant may (due to continued employment).

I have not found any support with case law.

My thoughts are that there is a strong preference for disentangling the parties following a divorce. That probably weighs in favor of establishing a separate interest QDRO, if the plan so provides.

Beyond that, I'm stuck. Should the AP get to take the benefit in the form she wants? After all, the property was awarded to her. What if the AP wants a shared payment, and therefore wants the participant to take a shared payment, naming AP as the survivor of a J&S? In that case, participant will probably receive less than he would have under the separate interest (since most plans reduce the benefit aount payable during the participant's life when a J&S is elected). And, would naming the AP as the survivor interfere with the rights of any subsequent spouse of participant?

Or, should the participant get to decide?

Or, should the decision be based on an analysis of which approach is expected to return the greatest amount to the parties (as a unit). For example, does the decision change if one party is ill and arguably will not be able to realize anywhere close to the expected value of the asset?

Or, should the person who is most retaliatory get to decide, as in "I don't want him/her to get it the way he/she wants?" In this case, I believe that's where we are. I believe former spouse wants the separate interest because participant wants the shared payment, no matter how much participant has sweetened the deal.

I appreciate the feedback.