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Shared payments after Alternate Payee dies


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May a QDRO specify that the share of payments (e.g., 50%) otherwise being made to the employee that are awarded to and to be made by the plan directly to the ex-spouse continue to the ex-spouse's estate after his death, until the later death of the employee?

Or, would that be impermissible after the ex-spouse's death since the estate is not per se a "spouse, former spouse, child, or other dependent of a participant" (IRC section 414(p)(1)(B)(i) and ERISA section 206(d)(3)(B)(ii)(I)) and thus not per se an alternate payee?

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May a QDRO specify that the share of payments (e.g., 50%) otherwise being made to the employee that are awarded to and to be made by the plan directly to the ex-spouse continue to the ex-spouse's estate after his death, until the later death of the employee?

Or, would that be impermissible after the ex-spouse's death since the estate is not per se a "spouse, former spouse, child, or other dependent of a participant" (IRC section 414(p)(1)(B)(i) and ERISA section 206(d)(3)(B)(ii)(I)) and thus not per se an alternate payee?

Under 414(p) a QDRO cannot have a benefit which is not provided under a plan. I think you need to ask the plan administrator if it would continue to pay the 50% share of benefits to the estate of the AP for the remainder of the employee's life after the AP's death. You would need to set up a trust to receive payments and then pay beneficaries of the trust which would require keeping the estate open and paying admin expenses.

mjb

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A well-advised plan administrator of a well-designed plan would not allow payments to continue in respect of the alternate payee after the alternate payee's death. Among other more practical reasons, it dodges the legal question you posed.

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Thank you both.

The plan's general terms do not specify that there would be any change in the monthly benefit payments to the employee in pay status by reason of the death of his or her spouse to whom yet married. The plan pays the same total payment per month from the benefits commencement date to the employee's death, regardless of the interim death of the employee's yet current spouse. (Of course, any survivor benefits under the J&S would lapse by reason of the yet current spouse dying before the employee.)

Neither the plan, nor its written QDRO policy, specifies that QDRO payments must stop on the death of the ex-spouse (unless they were, of course, survivor benefits, but that would only come into play where the employee dies before the ex-spouse and then the ex-spouse dies). Here, the possibility being addressed in the QDRO is what happens when the ex-spouse dies before the employee.

The Plan Administrator has received a QDRO that specifies that 50% of the monthly amounts otherwise payable as benefits to the employee are to be paid to the the ex-spouse, and the QDRO specifies that if the ex-spouse dies before the employee, the plan is to pay that 50% to the ex-spouse's estate (until the employee then later dies).

That returns me, in this situation, to the 'legal question' of whether the ex-spouse's estate may properly be a 'follow-on' alternate payee or not.

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Where in the plan does it ever provide for a stream of payments to continue to the payee's estate after the payee's death?

If you can't find that, then a domestic relations order is not qualified if it requires the plan to pay the alternate payee's estate after the alternate payee's death.

Even if you find such a provision, it does not mean that the order would qualify. An alternate payee is generally treated as a beneficiary. Does the plan provide for payments to a beneficiary to continue to the the beneficiary's estate after the beneficiary dies?

In any event someone should fix the written QDRO procedures. Competent QDRO procedures will cover what happens if the participant dies or if the alternate payee dies when payments in a stream of payments are divided.

I would also check to see if the plan allows the "shared payments" that you describe. Never mind the death question. Shared payments should be allowed only under limited circumstances, although that can be a matter of judgment.

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Where in the plan does it ever provide for a stream of payments to continue to the payee's estate after the payee's death?

The plan does not specify that it can pay any part of a stream of payments to the employee to the alternate payee while he is alive either. The plan generally provides that QDROs will be recognized despite the rule against alienation of benefits, it requires that the number of payments or period to which the order applies be specified. It does not say that these payments may be those during life of the employee. It does not forbid them from payments after the death of the employee.

Is it your position that since the plan does not specify that the QDRO award may come out of benefit payments while the employee is alive, the plan cannot honor a QDRO that specifies such? If not, what is the authority for the proposition that the plan would have to specify that QDRO awarded payments after the death of the alternate payee will be honored, but the plan would not also have to specify that QDRO awarded payments before the death of the alternate payee would have to be honored?

Either way, it is a QDRO carve out of payments that the plan does call for being made to the employee while she is yet alive.

Our attorney has since chimed in. Apparently, the courts are not of the same mind on this issue. He told us about 4 decisions from his research. Three, from inside the 9th Circuit, conclude that an estate cannot be an alternate payee. Branco v UFCW-Northern California, 2002; In re Marriage of Campbell, 2009; and Mack v Estate of Mack, 2009. One from South Dakota came out in favor of the ex-spouse's estate, Divich v Divich, 2003. We're in the 9th Circuit, so our attorney recommended we follow those cases. He said his advice would be to follow Divich v Divich if we were located in South Dakota.

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Above advice is desirable.

While the original post defined an unusual benefit, it is not impossible. It is probably not permitted by plan design. It is also not likely any well-designed plan would include this form of payment.

However, don't jump to the conclusion that no portion of the AP benefit stream can be paid to an estate after death of the AP. Example: if AP elects a life annuity with 10-yr guarantee, fails to name a beneficiary, and dies before 10 years, then the default beneficiary may be the AP's estate.

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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