QDRO basis for Stream of Payments

[RSG15812]

Mr. Smith is a Participant in a Defined Benefit retirement plan. Mr. Green was previously married, but this ended in divorce about 8 years ago. In the Settlement Agreement with his first wife she was awarded 50% marital share of his pension. He subsequently remarried about 5 years ago.

Recently Mr. Smith filed for retirement and he chose a 50% JSA with his current spouse. Approximately 6 months after Mr. Smith’s retirement his former spouse filed a QDRO to the plan administrator asking for 50% of the marital share of Mr. Smith’s pension in a Stream of Payments. Her attorney, however, asked for a 50% marital share of the Single Life Annuity (SLA) amount, and not the marital share from the payments being received by Mr. Smith. His reasoning was that Mr. Smith's former spouse should not be subsidizing the JSA awarded to the current spouse.

Mr. Smith’s attorney argued that Mr. Smith, because he was married when he retired, was required by ERISA law to select a 50% JSA naming his current wife as beneficiary, unless she declined the benefit in writing. The only other way in which the previous spouse would have had access to the SLA would have been with a selection of a “carve out” (separate interest) annuity through a QDRO submitted prior to Mr. Smith’s retirement.

What happens in the situation where the ex-spouse believes her portion of the marital share should be based on the (fictitious) SLA rather than on the current payments being received by the Participant?

[david rigby]

Is this a new discussion?
http://benefitslink.com/boards/index.php/topic/58563-qdro-submission-after-participant-retirement/

[My 2 cents]

First question is why was Smith permitted to ignore the earlier settlement agreement when he retired? I know what you are going to say - that the first Mrs. Smith had not gone to the trouble of reporting the court order (a settlement agreement in a divorce proceeding is a sort of court order, right?) to the plan. The second Mrs. Smith would only be treated, all facts being known, as the spouse with respect to the portion of the benefit not assigned to the first Mrs. Smith, whose rights should prevail over those of the second Mrs. Smith. Where is Mr. Smith's duty to the first Mrs. Smith and the settlement agreement? Why didn't he bring this up when he retired?

Who is Mr. Green?

[Effen]

He is in the library with the candlestick.

[QDROphile]

I have been waiting for this for years. Pretty Effen funny.

[RSG15812]

Is this a new discussion?

http://benefitslink.com/boards/index.php/topic/58563-qdro-submission-after-participant-retirement/

Yes, this is a new discussion. It has nothing to do with the Mr. Green discussion. This one involves the Alternate Payee's claim for 50% marital share based on the fictitious Single Life Annuity amount and not the Stream of Payments Mr. Smith is actually receiving.

[My 2 cents]

Is this a new discussion?

http://benefitslink.com/boards/index.php/topic/58563-qdro-submission-after-participant-retirement/

Yes, this is a new discussion. It has nothing to do with the Mr. Green discussion. This one involves the Alternate Payee's claim for 50% marital share based on the fictitious Single Life Annuity amount and not the Stream of Payments Mr. Smith is actually receiving.

Equity demands that the second spouse have much of her so-called "rights" ripped away from her. The rights of the first spouse prevail over those of the second spouse, based on the court order (the divorce settlement) issued at the time of the divorce. If it is not possible to void the election as made, it should be determined how much should have gone to the ex-spouse based on the divorce settlement, both before and after the death of the participant, and the ex-spouse should receive that, even if the post-death payments have to come out of the second spouse's survivor benefits under the election as made.

[QDROphile]

As far as the plan is concerned, this is the same as the Mr. Green situation. Some or all of the periodic payments to the participant can be assigned to an alternate payee. The federal circuit courts that have considered the issue have ruled that the spouse annuity benefit cannot be invaded. An order that tries to assign any of the spouse benefit is not a QDRO. The decisions in the fourth and fifth circuits are intellectually unsatisfying. The decision in the ninth circuit is at least grounded in law, although one could argue that it could have gone the other way.

If your interest is in justice for the former spouse, the discussion is more complicated. Justice for the former spouse is not a concern of the plan.

[david rigby]

Equity demands that the second spouse have much of her so-called "rights" ripped away from her.

Echoing QDROphile, defining "equity" might not be so simple. If the first spouse pursues this, might the court exhibit some skepticism and say, "You had ample opportunity. Why didn't you file an actual QDRO?"

Of course, I don't know. Just pointing out that the non-action of Spouse 1 might have consequences.