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Named Beneficiaries vs. Ex-Spouse: Who Wins?


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Participant in Company's DB and 401(k) plans died two weeks after his divorce decree was entered. The decree wouldn't qualify as a QDRO under the terms of the statute, but would probably satisfy the requirements Judge Posner described in Wheaton (42 F.3d 1080); i.e., although the decree doesn't name the plans or include the necessary participant/alternate payee addresses, there is no ambiguity about who's who or what plan is at issue. Ex-wife now wants to enforce the decree against the plans, but didn't provide the divorce decree until after the participant died (i.e., there was no notice of an impending QDRO until after the participant died).

The plans say that, except as provided under a QDRO, in the event of a divorce, ex-spouses are deemed to predecease the participant and get nothing, unless the participant designates the ex-spouse as a beneficiary after the divorce. Instead, the participant named the couple's children as beneficiaries. Kids now want to enforce the beneficiary designations, arguing that no QDRO is on file and that the divorce decree isn't a QDRO.

I understand that post-death QDROs are permissible under the 2010 DOL regs, but the plans had no way of knowing a QDRO was possible when the kids asked for the money.

Who wins? We're in the 8th Cir., and I haven't found a case on point. Company would prefer to avoid an interpleader action but is afraid of getting sued whichever way it goes. My gut is that, now the plans have the decree, the ex-wife has 18 months to perfect a QDRO.

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1. The Department of Labor spit on us with its useless regulations on a difficult subject. The Department has a very low batting average on QDROs. The standards are uncertain.

2. I think it depends on what the divorce decree said. It could be rehabilitated, or not. If the decree mentions dividing the retirement benefits with enough clarity and particularity that a subsequent order is only an embellishment on that substance, then a valid QDRO is possible. If the original terms about property division do not demonstrate intent to divide the property with enough particularity to keep the former spouse from just making up substantive terms (without opposition from the dead guy), then the door might be closed to an order. How the subsequent order comes about might make a difference. If the children get involved in the state court proceeding to limit the imagination of the former spouse (which may be impossible under state law), then the plan might not have to be so critical.

3. The statutory 18 months does not apply as you suggest. I assume that is where you got the number from the statute. I think the standard for correcting qualfication defects is a reasonable time. Trustees of Director's Guild v. Tise (9th Cir.).

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Guest Matthew Gouaux

Also take a look at Carmona (9th Circuit), which offers support for the conclusion that defects in a domestic relations order issued before the participant's death generally can be cured after the participant's death if there is no doubt that the domestic relations order awards the former spouse a property interest in the participant's benefits. But you may want to insist that the former spouse join the beneficiaries in the proceedings to obtain a QDRO, or at least serve them with notice of the proceedings, so that the beneficiaries have an opportunity to object to the QDRO.

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Participant in Company's DB and 401(k) plans died two weeks after his divorce decree was entered. The decree wouldn't qualify as a QDRO under the terms of the statute, but would probably satisfy the requirements Judge Posner described in Wheaton (42 F.3d 1080); i.e., although the decree doesn't name the plans or include the necessary participant/alternate payee addresses, there is no ambiguity about who's who or what plan is at issue. Ex-wife now wants to enforce the decree against the plans, but didn't provide the divorce decree until after the participant died (i.e., there was no notice of an impending QDRO until after the participant died).

The plans say that, except as provided under a QDRO, in the event of a divorce, ex-spouses are deemed to predecease the participant and get nothing, unless the participant designates the ex-spouse as a beneficiary after the divorce. Instead, the participant named the couple's children as beneficiaries. Kids now want to enforce the beneficiary designations, arguing that no QDRO is on file and that the divorce decree isn't a QDRO.

I understand that post-death QDROs are permissible under the 2010 DOL regs, but the plans had no way of knowing a QDRO was possible when the kids asked for the money.

Who wins? We're in the 8th Cir., and I haven't found a case on point. Company would prefer to avoid an interpleader action but is afraid of getting sued whichever way it goes. My gut is that, now the plans have the decree, the ex-wife has 18 months to perfect a QDRO.

Who is asking the q? Plan admin, Trustee? If it is the plan then you should ask plan counsel if a DRO can be issued by the state court after one party dies. While a divorce proceeding is dismissed if one party dies before the decree is issued, many states allow the court to retain jurisdiction over the divorce proceeding if one party dies after the decree is issued and issue a DRO. If the divorce decree alone will meet the requirement for a QDRO then the plan has two choices- wait for a party to file for the benefits and follow the procedures for reviewing a claim for benefits under ERISA 503 to determine who is entitled to the benefits or file an interpleader.

mjb

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Thanks for the responses.

QDROphile - The property settlement is close to a QDRO in its specificity. It specifies dollar amounts under the 401(k) and a marital period portion of the DB benefit. It's at least as QDRO-like as the decree Posner accepted as a QDRO in Wheaton.

Sorry, I should have mentioned that the 18-month period is specified as an outer limit on QDRO "holds" in the plans' QDRO procedures.

mbozek - Plan admin (plan sponsor) is asking the questions. Whether the court can perfect what is, from a reasonable perspective, a DRO is a good question. I'll look into that.

I think the real question is the threshold question of whether the decree should be treated as an imperfect QDRO or just a divorce decree. If it's an imperfect DRO, it triggers the exception to the plalns' rule that ex-spouses are deemed to predecase the participant and get nothing unless they are re-designated as contingent beneficiaries. My gut is that it should be treated as a DRO--even though noboy (neither ex-spouse, her attorney, nor the court) has never referred to it as a DRO. But there's enough gray here that the sponsor is nervous about getting sued either way.

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There is no question that the decree is a DRO. All DROs are imperfect QDROs until the plan administrator determines qualification. If the decree were not a DRO, the plan would not implement restrictions on the account (assuming the plan knows the law better than the DOL). I don't see what is the fuss, especially for the 401(k). The DB plan might be a more interesting situation depending on the plan's death benefits and whether or not the divorce decree speaks to death benefits. Death benefits are not awarded automatically under most DB plans; the order has to award them experessly. Even if the divorcce decree has a lot if details, it probably does not mention death benefits. Is that fatal now because adding the death benefit terms after death is too much? Or does one infer death benefits from the express award of regular benefits becuase it is unlikely that the asymmetry was intended? If so, then the post-death order that qualifies can pick up the express award and details. That is a tough call because I have seen deliberate asymmetry and there are many nuances in defining death benefits that relate to the award of the regular benefit -- it is not a matter of automatic mapping.

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There is no question that the decree is a DRO. All DROs are imperfect QDROs until the plan administrator determines qualification. If the decree were not a DRO, the plan would not implement restrictions on the account (assuming the plan knows the law better than the DOL). I don't see what is the fuss, especially for the 401(k). The DB plan might be a more interesting situation depending on the plan's death benefits and whether or not the divorce decree speaks to death benefits. Death benefits are not awarded automatically under most DB plans; the order has to award them experessly. Even if the divorcce decree has a lot if details, it probably does not mention death benefits. Is that fatal now because adding the death benefit terms after death is too much? Or does one infer death benefits from the express award of regular benefits becuase it is unlikely that the asymmetry was intended? If so, then the post-death order that qualifies can pick up the express award and details. That is a tough call because I have seen deliberate asymmetry and there are many nuances in defining death benefits that relate to the award of the regular benefit -- it is not a matter of automatic mapping.

Well, not to be flip, but there's a lot of money at stake. The kids see the plan language that says mom loses any claim to the death benefit as an ex-spouse, and they are next in line. The only exception is for QDROs, and there wasn't one when the participant died. So they think the money is theirs and might well sue to get it. On the other hand, there's plenty of support for the proposition that the decree should be read as either a DRO that can now be perfected or, under the circumstances, a QDRO.

The decree doesn't mention death benefits. The DB plan has a special lump-sum death benefit. The formula is complicated, but there will be nothing left after it is paid. Although the form on file names the ex-spouse as primary and the children as contingnent beneficiares, ex-spouses are deemed to pre-decease the participant and don't get this benefit unless the participant re-designates them after the divorce. That didn't happen here, so the kids are the now the designated beneficiaries.

The only exception is for QDROs. As we've been discussing, there was no QDRO on file when the participant died, but the decree had just been entered.

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There is no question that the decree is a DRO. All DROs are imperfect QDROs until the plan administrator determines qualification. If the decree were not a DRO, the plan would not implement restrictions on the account (assuming the plan knows the law better than the DOL). I don't see what is the fuss, especially for the 401(k). The DB plan might be a more interesting situation depending on the plan's death benefits and whether or not the divorce decree speaks to death benefits. Death benefits are not awarded automatically under most DB plans; the order has to award them experessly. Even if the divorcce decree has a lot if details, it probably does not mention death benefits. Is that fatal now because adding the death benefit terms after death is too much? Or does one infer death benefits from the express award of regular benefits becuase it is unlikely that the asymmetry was intended? If so, then the post-death order that qualifies can pick up the express award and details. That is a tough call because I have seen deliberate asymmetry and there are many nuances in defining death benefits that relate to the award of the regular benefit -- it is not a matter of automatic mapping.

Well, not to be flip, but there's a lot of money at stake. The kids see the plan language that says mom loses any claim to the death benefit as an ex-spouse, and they are next in line. The only exception is for QDROs, and there wasn't one when the participant died. So they think the money is theirs and might well sue to get it. On the other hand, there's plenty of support for the proposition that the decree should be read as either a DRO that can now be perfected or, under the circumstances, a QDRO.

The decree doesn't mention death benefits. The DB plan has a special lump-sum death benefit. The formula is complicated, but there will be nothing left after it is paid. Although the form on file names the ex-spouse as primary and the children as contingnent beneficiares, ex-spouses are deemed to pre-decease the participant and don't get this benefit unless the participant re-designates them after the divorce. That didn't happen here, so the kids are the now the designated beneficiaries.

The only exception is for QDROs. As we've been discussing, there was no QDRO on file when the participant died, but the decree had just been entered.

Uber:

I think counsel for the plan needs to focus on the question of whether the divorce decree contains sufficient information to meet the material requirements for a QDRO under existing precedents. Failure to list the address of the AP is not a material omission. The intent of PPA section 1001 was to clarify that death of a participant before a QDRO was approved would not preclude a plan administrator from issuing a QDRO if the divorce decree or proposed DRO met material requirements for a QDRO. For example, if the divorce decree awarded a separate interest in plan benefits to the AP as a specific $ amount or % the death of the participant before a DRO was presented to the Plan admin would not prevent the plan administrator from approving the divorce decreee as a sufficent to meet the requirements of a QDRO since the separate interest would give the AP all of the rights accorded to a beneficiary under the plan. However, amending a DRO or a divorce decree after the death of a participant to create a new benefit right not present in the divorce decree issued before death (e.g., surviving spouse benefit) would not be permitted because amendments of QDROs to add benefits after death are not permitted.

mjb

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