DB J&S payment after divorce and death of retiree

[Guest clux]

We have run into a number of cases where our in-payment status participant elected J&S. Participant subsequently divorces spouse (up to 30 years ago in one case) and does not have a QDRO. Are we required to payout to ex-spouse since the ex-spouse is no longer a qualified spouse and there is no QDRO? What happens when we can't find the ex-spouse (numerous searches, IRS letters, etc)?

We have had problems locating spouses of term vested participants who are deceased as well (they would be eligible for a 50%J&S upon reaching 65). What are our legal obligations to find these lost spouses?

[david rigby]

Are we required to payout to ex-spouse since the ex-spouse is no longer a qualified spouse and there is no QDRO?

It is likely the plan will not automatically do anything to the J&S benefit in event of a divorce.

See IRS Reg. 1.401(a)-20, Q&A25.

Also, you may find some other prior discussions, such as this one:

http://benefitslink.com/boards/index.php?showtopic=44361

[My 2 cents]

1. Once the participant has started receiving periodic retirement benefits, everything is locked in and the person who had been the spouse (and therefore was designated as joint or contingent annuitant under the payment option) remains as joint or contingent annuitant as long as they live. Remarriage after benefits commence has no effect as far as survivor rights are concerned. The ex-spouse would not be receiving benefits under a QDRO - he or she was the spouse as of the annuity commencement date and the survivor coverage is not disturbed by the participant's divorce.

2. I would presume that the same degree of effort and care would be required to locate the surviving spouse of a terminated participant who died prior to benefit commencement who was entitled (if such a person does survive the participant) to a QPSA as would be expended to find the terminated participant if he or she survived to the plan's normal retirement age. Ditto for the ex-spouse of a deceased participant who had retired prior to the divorce with the now-ex-spouse as joint or contingent annuitant under the QJSA. Wouldn't the plan administrator be obliged to be diligent in trying to locate people entitled to plan benefits, under the plan administrator's fiduciary duties?

[Guest clux]

Thanks for the information on the IRS regs. It does state divorce does not terminate survivor benefits. It just seems odd to me, especially since the legal remedy of a QDRO to split the current payable benefit is available. I have also seen divorce settlements where the spouse waived any claim to the pension benefit in return for a cash settlement.

What would due diligence entail for finding the spouse? We often use the SSA or IRS to forward letters, however many of our retiree files contain no information on the spouse other than the name - no SSN & sometimes no birthdate. This means we can't use the SS or IRS service. We could use an address search firm - but that enough?

[Guest Matthew Gouaux]

Many plans permit a participant and former spouse to convert a J&S in pay status to a single life annuity (or vice versa) pursuant to a QDRO (i.e., the plan document says that such a benefit conversion is permissible if ordered by a court). Thus, it's not always the case that a surviving spouse annuity is set in stone after the annuity starting date.

The DOL issued final regulations a few weeks ago regarding the timing of QDROs: http://www.dol.gov/federalregister/HtmlDis...;DocumentType=2. These regulations say that after the participant's annuity starting date, a QDRO cannot award the participant's former spouse any portion of the surviving spouse annuity payable to another former spouse (the spouse to whom the participant was married on his or her annuity starting date). I'm not sure this answers the question in all cases. What if the participant was married for a long time to Spouse 1, then they got divorced and the participant took off to Las Vegas and married Spouse 2, retired shortly thereafter, and elected a J&S with Spouse 2. A QDRO could award Spouse 1 a share of the participant's lifetime payments. But what if the participant dies shortly after his annuity starting date? I'm not sure a court would go along with the DOL's position on these facts because doing so would essentially extinguish Spouse 1's community/marital property interest in the participant's benefits. Any thoughts?

[My 2 cents]

The plans we service do not normally permit changes in the payment form after commencement.

It woud, presumably, be possible for there to be a QDRO to shift some of the retired participant's benefits to the Alternate Payee during the participant's lifetime, but the QDRO would have no impact on the amounts payable after the participant's death, which would almost inevitably go to the person who was the spouse at the time payments started.

It might be possible to have, as part of a divorce decree, a "sale" of the right to receive the survivor benefits in return for additional assets when the marital property is divided. In that instance (which is outside of my experience), after the participant's death, the survivor benefits would be paid based on the original election, contingent on the ex-spouse's survival, but the payments would actually go to someone else. But I've never seen such a thing and don't want to!

As for searching for the ex-spouse: The spouse's date of birth and SSN should be obtained at the time the benefit is to commence. Unless the plan is in the minority of plans using a fixed conversion factor (or having the QJSA as the normal form, without any age adjustments), you can't calculate the amount payable without knowing the spouse's birthdate, and as you cannot start paying the survivor benefits under the QJSA without having the payee's SSN, obtaining that should be a routine element of benefit processing. The enrolled actuary also must have the birthdate to be able to properly value the benefits (if they remain an ongoing obligation of the plan, as opposed to being covered through an annuity purchase - in which case the insurance company will have demanded that information). And don't QDROs normally include dates of birth and SSNs for both parties?

[david rigby]

It might be possible to have, as part of a divorce decree, a "sale" of the right to receive the survivor benefits in return for additional assets when the marital property is divided. In that instance (which is outside of my experience), after the participant's death, the survivor benefits would be paid based on the original election, contingent on the ex-spouse's survival, but the payments would actually go to someone else.

It seems unlikely that a divorce decree and/or a QDRO could require this, unless the the plan already permitted it.

And don't QDROs normally include dates of birth and SSNs for both parties?

Putting such items in a QDRO may not be wise. They can always be supplied in a non-public document.

[Guest clux]

We always obtain SSN & DOB for pensions going into payment status - now. However, many of our pensioners have been in payment status for 30-40 years before collection of the SSN data or QDROs. We currently have one pensioner who passed away and was divorced over 30 years ago. No QDRO, no SSN for ex-wife, relatives have no information on the ex-wife. Very frustrating!

[My 2 cents]

If the alternate payee's date of birth and SSNO are not on the DRO (and they often are), we will explicitly request that information. Unless the order is to merely send a piece of each payment to the alternate payee (with the overall payments not contingent on the alternate payee's survival), it would not be possible to work out the division of benefits without the date of birth. In addition to needing the alternate payee's SSNO when payments are made, we would want the SSNO in case we ever have to go looking for the alternate payee.

Not much to be done, though, if payments started decades ago and the information is not in the files! The name on file (if you have one) may be as obsolete as the address on file.

Hope that word gets to them that the ex-spouse had died, prompting them to go looking to see if anything is owed to them. If there is a place for them to look!

[Mike Preston]

It might be possible to have, as part of a divorce decree, a "sale" of the right to receive the survivor benefits in return for additional assets when the marital property is divided. In that instance (which is outside of my experience), after the participant's death, the survivor benefits would be paid based on the original election, contingent on the ex-spouse's survival, but the payments would actually go to someone else.

It seems unlikely that a divorce decree and/or a QDRO could require this, unless the the plan already permitted it.

My experience has been that the "sale" can only favor somebody who is otherwise entitled to alternate payee status. Otherwise, the plan will, as indicated, reject it.

[mbozek]

We have run into a number of cases where our in-payment status participant elected J&S. Participant subsequently divorces spouse (up to 30 years ago in one case) and does not have a QDRO. Are we required to payout to ex-spouse since the ex-spouse is no longer a qualified spouse and there is no QDRO? What happens when we can't find the ex-spouse (numerous searches, IRS letters, etc)?

We have had problems locating spouses of term vested participants who are deceased as well (they would be eligible for a 50%J&S upon reaching 65). What are our legal obligations to find these lost spouses?

First: According to Committee reports on REA, Plan administrators have discretion to treat divorce orders entered prior to 1/1/85 as a QDRO if the benefits were not in pay status on that date. According to the report the Plan administator is encouraged to treat pre 1985 divorces as QDROs to the extent consistent with REA.

If there is no QDRO on a divorce issued after 1/1/85 the plan has no obligation to pay a J & S benefit because no QDRO was approved by the plan.

Second: under 414(p) the QDRO must include the name and last known address of the of the AP. The plan should send notice of benefit availability to the AP's last known address in the plan's records or the QDRO. The plan has no responsibility to try to locate the AP if the AP has not provided a forwarding address but could elect to find the AP through a locator service. You need to consider the fact that many "missing" persons have changed their identities to prevent being found or died years ago.

As far as paying out benefits of missing spouses who haved attained 65, IRS regulation 1.411(a)-4(b)(6) provides that the plan can forfeit the benefits of a participant or beneficiary to whom payment is due on account of the inability to locate such person provided that the benefit will be reinstated if a claim is made at a later date.

[My 2 cents]

Don't think a QDRO would be required to pay survivor benefits to the ex-spouse if the participant had commenced benefits under a QJSA, then there was a divorce, then the participant died. The payment of survivor benefits to the person who had been designated as the joint/contingent annuitant would be automatic upon the death of the retired participant, whether or not he or she was still married to the retired participant. I would presume that any sort of waiver of rights in connection with the divorce would have to be disregarded by the plan if benefit payments had already commenced prior to the divorce. Wouldn't it be the case that the survivor benefits under a contingent/joint annuity cannot be waived, assigned or alienated once payments have begun?

[Guest Matthew Gouaux]

2 cents - see my post above. I think the 9th Circuit and the DOL would agree with you that once benefits commence, a QDRO cannot award to the participant's former spouse any portion of the surviving spouse annuity payable to a different spouse under a QJSA. That makes perfect sense if Spouse 1 is the surviving spouse and benefits commence before the participant marries Spouse 2. I'm not sure it's consistent with community property law if both spouses have a community property interest in the participant's benefits and only one spouse is entitled to the survivor annuity (because the other spouse one didn't get a QDRO until after benefits commenced).