Effect of Annulment on Joint & Survivor Annuity

[J Simmons]

This situation arises in the 9th Circuit, where the Carmona v Carmona decision was rendered.

Here are the facts:

Employee 'marries' Spouse.

Employee retires and begins taking benefits under a DB plan as a joint and survivor annuity based on the lives of Employee and Spouse.

Sometime later, Spouse is diagnosed with a terminal illness and in all likelihood died 15-20 years before Employee.

Employee wants plan to recalculate the benefit and henceforth pay it as a higher per month, single life annuity to him. Plan denies the request.

Employee and Spouse further obtain a declaration of annulment from a state court--as if, legally, they were never married. Employee presents that decree, along with a waiver signed by the negated 'spouse', to the plan administrator, renewing the request for recalculation and then payment as a single life annuity.

Plan administrator is facing the question again.

Of course, had the Employee died already the 'Spouse' would be entitled to the survivor annuity from the plan, the administrator of which would not be the wiser about the 'illegality' of the marriage. They would not have gotten an annulment (which are usually granted on trumped up allegations and affidavits of never-intended-to-be-married anyway).

The plan could easily be gamed in situations like this, where the benefits obligation has already attached to the two lives and been calculated accordingly. Only after additional facts come to light about perhaps the early demise of the spouse could the employee then want to go back, do an election 'Muligan' at the expense and to the detriment of the plan regarding the extent of its benefits obligations. The Carmona decision is that the rights of a spouse vest when the benefits go into pay status with a survivor annuity for that spouse, and divorce courts cannot make the plan undo it and recalculate the benefits (such as there, in Carmona, in favor of a different, prior spouse per a QDRO order).

Plan is considering denying again the request to change to single life annuity.

Does anyone know of a situation where a court has ruled on the effect of an annulment on benefits already in pay status with a survivor annuity?

[QDROphile]

I think the plan should deny the claim for a change in the benefit and see if the participant can provide authority in the claims review process for requiring the plan to make a change that is not within the terms of the plan.

ERISA has been interpreted as based in equity, so concepts like estoppel and laches go both ways. Not that it applies directly, but you are aware that section 414(p) and the ERSA counterpart says that a domestic relations order is not qualified if it requires the plan to provide a benefit that the plan is not designed to provide. Changing a form of benefit after the benefits start in good faith would seem to be similar as a concept as well as a specific QDRO statutory provision.

[jpod]

There may be cases, but I am not aware of any, but I have never researched it either.

I wonder what California law says about the effect of annulment on third parties. That could be very relevant.

[mphs77]

Under what plan provision may a participant, who is already receiving benefits, change the benefit form?

[Peter Gulia]

If the plan's administrator communicates clearly its decision that the State court's order is not a QDRO and its denial of the participant's claim for a do-over on the pension that commenced; explains clearly the administrator's reasons for each decisions (following ERISA section 503 rules and other good claims procedure); and allows the claimant full resort to reviews and appeals under the plan's claims procedures, would doing so harm or weaken the administrator's position?

[RatherBeGolfing]

Just wanted throw this out there for discussion. Per the Judicial Branch of California website http://www.courts.ca.gov/1037.htm. Obviously this is just what their website says, I didn't look up the actual statutes that would govern annulment, but still...

Since an annulment means your marriage or domestic partnership was never valid, you may not have other rights and obligations that couples who file for divorce or legal separation do... It also means that you would not have the right to spousal or partner support, or other benefits like the right to a portion of the other person’s pension or retirement benefits.

Not sure if that matters here, but if the effect of annulment is that the marriage was never legal, what would be the outcome if a participant who is not married elected to take benefits based on the life of the participant and a named "spouse"? Once it was discovered that this person was never married to the "spouse", would it be treated as a single life annuity or use the original calculation but just pay over the life of the participant? I suspect that no payments would be made to the "spouse" if it was discovered that there was never a marriage.

[My 2 cents]

Many plans contain language making a benefit election irrevocable once it commences.

Most plans (not all) that permit the election of a joint annuity option do not require that the joint annuitant be the participant's spouse (but do require spousal consent if there is a spouse). Is there any question as to whether the annulment predated the annuity commencement? If it was granted later, nothing needs to be changed.

If the plan contains any language indicating that form of payment elections are irrevocable once payments start, the plan administrator could presumably deny the request and be on solid ground. Anything that happens subsequent to benefit commencement (death of joint annuitant or annulment) cannot change irrevocable to revocable.