Limitations of QDROs

[Guest holmanjon]

I am divorcing my retired spouse, who is collecting benefits (we are in California) from a university defined benefit plan. He is taking a reduced benefit now so that I can continue to receive payments after he dies. The university plan has two categories for those who can receive payments after the principal dies. One of them clearly applies after divorce. But the other is called "surviving spouse", and it apparently does not apply to a divorced spouse (the plan says that the benefit can be paid instead to a dependent child or parent). My question is if a QDRO can be used to force the university to treat a divorced spouse as a surviving spouse. My husband has no objection to having me receive both forms of payment after he dies.

[Guest Sieve]

Depends--on a lot of things. Is it a Section 403(b) plan or a Section 457 plan or a tax-qualified plan? Is the university a governmental entity (i.e., in the state university system) or a private for-profit or not-for-profit entity?

If it's a governmental unit, then state laws will apply, and you cannot look to ERISA (governmental plans not covered) or the IRC for your answer--unless the plan happens also to be tax qualified. QDRO rules apply to 403(b) plans and to tax-qualified plans.

If the university is a not a governmental entity and you're talking about a tax-qualifed plan, or if the Plan is a 403(b) arrangement, then the answer is Yes: the QDRO can provide that the former spouse is the surviving spouse for purposes of the annuity rules.

[Guest holmanjon]

Thank you, Sieve. This is most helpful.

The plan document says that the plan isn't subject to ERISA rules, so presumably this means it isn't tax-qualified in the sense that you mention, unless "tax-qualified" means something other than ERISA. I know it isn't a 403(b) plan because he has one of those also. And it is a state university. So I may be SOL unless I'm missing something.

[K2retire]

A state institutions's plan in a community property state is probably going to be very generous to you. The plan administrator should be able to provide additional information to your husband.

[mbozek]

I am divorcing my retired spouse, who is collecting benefits (we are in California) from a university defined benefit plan. He is taking a reduced benefit now so that I can continue to receive payments after he dies. The university plan has two categories for those who can receive payments after the principal dies. One of them clearly applies after divorce. But the other is called "surviving spouse", and it apparently does not apply to a divorced spouse (the plan says that the benefit can be paid instead to a dependent child or parent). My question is if a QDRO can be used to force the university to treat a divorced spouse as a surviving spouse. My husband has no objection to having me receive both forms of payment after he dies.

Since the plan is sponsored by a state university system it is not subject to the QDRO rules unless the plan voluntarily agrees to follow the QDRO rules. In any event you will be required to follow the plan rules for benefits provided to divorced spouses unless your spouse dies before the divorce becomes final. The difference between divorced spouses and surviving spouses under the plan usually relates to when the benefit are awarded, either before or after the death of the employee spouse. If you divorce you should be able to receive a portion of the benefits that accrued during the marriage including surviving spouse benefits as provided under state law. You need to discuss these matters with counsel.

[Guest holmanjon]

I am divorcing my retired spouse, who is collecting benefits (we are in California) from a university defined benefit plan. He is taking a reduced benefit now so that I can continue to receive payments after he dies. The university plan has two categories for those who can receive payments after the principal dies. One of them clearly applies after divorce. But the other is called "surviving spouse", and it apparently does not apply to a divorced spouse (the plan says that the benefit can be paid instead to a dependent child or parent). My question is if a QDRO can be used to force the university to treat a divorced spouse as a surviving spouse. My husband has no objection to having me receive both forms of payment after he dies.

Since the plan is sponsored by a state university system it is not subject to the QDRO rules unless the plan voluntarily agrees to follow the QDRO rules. In any event you will be required to follow the plan rules for benefits provided to divorced spouses unless your spouse dies before the divorce becomes final. The difference between divorced spouses and surviving spouses under the plan usually relates to when the benefit are awarded, either before or after the death of the employee spouse. If you divorce you should be able to receive a portion of the benefits that accrued during the marriage including surviving spouse benefits as provided under state law. You need to discuss these matters with counsel.

I want to make sure I understand what you're saying. My husband is receiving retirement benefits now. I am entitled to a portion of his current stream of payments (i.e., while he is alive) under California community property law. I can start getting those now (before we are divorced) or after the divorce. Are you saying that by getting such benefits, whether before or after the divorce, I somehow become a "permanent" spouse and thus would get the surviving spouse benefit when he dies?

[Mike Preston]

As mbozek said, it is usual and customary (but not required by any specific law) for benefits that have commenced to be fixed as of the date that they began, at least with respect to death benefits. It is certainly that way in ERISA plans. It sounds like the university plan that you are dealing with, though, is not an ERISA plan. That means it is subject to State law and only counsel familiar with how your State's laws are worded can help you.

But it would, I would hope, have to be clearly spelled out in participant communication materials if it is possible that a divorce would automatically change a benefit that has commenced prior to death.

Since your husband has already commenced benefits, and has clearly elected a form of benefit that reduced his lifetime benefits so that the plan can provide a continuation benefit to his surviving spouse, I would be surprised if a divorce which takes place after such commencement of benefits can modify the continuation benefit.

*IF* it does, then the plan should (but probably doesn't have to from a legal perspective) remove the reduction in his lifetime benefits from the point in time that it erased the continuation benefit.

You need to review, in conjunction with counsel, the materials available from the plan to see if there is a section that deals with modifications that take place after benefits have commenced upon a participant's divorce.

Good luck.

If you mention the university and their plan communication materials are available online, somebody might take a look and let you know what they think.

[mbozek]

While an unusual benefit a few retirement plans permit a separate spousal annuity before the employee's death. Whether this benefit would be part of the martial estate is dependent upon CA divorce law. You need to discuss with counsel whether this benefit would be paid in addition to a surviving spouse benefit if you are divorced. Most DB plans permit the ex spouse to receive a portion of the benefit payable to the employee in addition to the surviving spouse benefit.