QDRO/Decree vesting error

[RSmith]

I have a major QDRO issue. In 2004 I was granted a divorce with a lump sum amount attached of 80k in both the Decree and QDRO going to the Alternate Payee. Only the participant (me) had a attorney at the time of divorce. The pension plan initially rejected the QDRO with the lump sum dollar amount, as I was not vested in a lump sum amount at the time of divorce. The amount should have been in a percentage, with the number of years married taken into consideration. It does not appear the attorney was familiar with the QDRO process, model language or rules. After numerous rejections, as the same QDRO was being presented to the pension plan administrator by the Alternate payee. Also, the attorney did not attempt to rectify the QDRO issue through numerous rejections. In Sep2017 the Alternate Payee hired an attorney and presented a QDRO with a new date of determination of 1/1/2014, which was after the date I turned 50 and now eligible for a lump-sum distribution. I have a new attorney who is familiar with QDRO's. The argument now is that the date of determination is changed from the date the decree was signed to match the dollar amount in the decree. Also, the Alternate Payee's approved QDRO does not state clearly the date in which interest will be accrued from, as it appears the judge may use the (2004) date the decree was signed to accrue interest, which would be contradictory and possibly illegal. I also have a approved QDRO with the correct percentage that was approved in 9/2017. However, the judge has stated that he will only consider the lump sum dollar amount in the decree that matches the QDRO. This is a attempt to take advantage of the pension plan by changing the date of determination and I'm not sure if the complicated process is legal. Also, should the original attorney be held liable for legal malpractice?

[RatherBeGolfing]

I'm going to get the ball rolling here since we have a lot of issues to get through...

1 hour ago, RSmith said:

a lump sum amount attached of 80k in both the Decree and QDRO going to the Alternate Payee. 

What was the AP actually awarded from the plan in the divorce?  It sounds like a flat amount of $80K at the time of the divorce, is that correct? 

1 hour ago, RSmith said:

The amount should have been in a percentage, with the number of years married taken into consideration.

Why?  If the divorce decree said $80K, where is this percentage and years of marriage coming from?

1 hour ago, RSmith said:

 In Sep2017 the Alternate Payee hired an attorney and presented a QDRO with a new date of determination of 1/1/2014, which was after the date I turned 50 and now eligible for a lump-sum distribution.

Presented to who?  Was it issued issued by a state court and approved by the plan?  Or are we talking about a proposed change to the original DRO?

1 hour ago, RSmith said:

Also, the Alternate Payee's approved QDRO does not state clearly the date in which interest will be accrued from, as it appears the judge may use the (2004) date the decree was signed to accrue interest, which would be contradictory and possibly illegal.

Contradictory because of the 2014 date?  Its not really clear to me what you mean by determination date of 2014.  Going back to 2004 for interest/earnings is what I would expect to see since that was when it was awarded.  It makes no sense freeze that benefit for 10 years and then accrue interest from 2014 to now.  Why do you think this would be illegal?

2 hours ago, RSmith said:

I also have a approved QDRO with the correct percentage that was approved in 9/2017. However, the judge has stated that he will only consider the lump sum dollar amount in the decree that matches the QDRO.

Approved by who?  To be a QDRO it has to be issued by the court and approved by the plan.  It sounds like the judge won't issue an order with the  "correct percentage" because that was not what the decree awarded to the AP.  The DRO can't create a right that was not awarded in the decree, even if you disagree with it.

 

[RSmith]

What was the AP actually awarded from the plan in the divorce?  It sounds like a flat amount of $80K at the time of the divorce, is that correct?

Yes, $80k was awarded in the decree in 2004, but the QDRO was denied by the pension plan because I was not vested in a lump sum dollar amount.

Why?  If the divorce decree said $80K, where is this percentage and years of marriage coming from?

Because I was not vested in a lump sum dollar amount because off the number of years I had been working at the time of divorce. Began working in 1985, then married in 1990 and divorced in 2004. According to pension plan rules, I didn't become eligible for lump sum distribution until 2013 when I turned 50yrs old and had 20yrs of service. The language in the decree and QDRO should have awarded a percentage to the AP, since I was not vested in a lump sum amount. The pension plan denied the original QDRO, because it was not in a percentage.

Presented to who?  Was it issued issued by a state court and approved by the plan?  Or are we talking about a proposed change to the original DRO?

The new QDRO was presented to my pension plan administrator for approval by the AP with the previously denied $80K lump sum amount. I became eligible at 50yrs old with 20yrs of service. The date of determination was changed in the new QDRO to 1/2014, as I turned 50yrs old in 2013.

Contradictory because of the 2014 date?  Its not really clear to me what you mean by determination date of 2014.  Going back to 2004 for interest/earnings is what I would expect to see since that was when it was awarded.  It makes no sense freeze that benefit for 10 years and then accrue interest from 2014 to now.  Why do you think this would be illegal?

The original date of determination was the date the decree and QDRO was signed in 2004, however now the new date that has been approved in the AP QDRO is 2014, as stated above. However, the interest accrual date is not clear in the new AP approved by the pension plan QDRO. This is a concern because if this goes to court which it will, the judge could possibly award interest from 2004, when I was not eligible for a lump sum. Actually, I would want interest from the date the judge signs the new AP QDRO.

Approved by who?  To be a QDRO it has to be issued by the court and approved by the plan.  It sounds like the judge won't issue an order with the  "correct percentage" because that was not what the decree awarded to the AP.  The DRO can't create a right that was not awarded in the decree, even if you disagree with

Pension Plan Administrator approved the new AP QDRO. The QDRO was approved, then it goes to court for the judge to sign, if he agrees. Then it will go to my company pension for funds distribution to the AP. The judge stated that he would only sign a QDRO that matches the dollar amount in the decree. The AP now has a QDRO that was approved, due to the change in date to when I was eligible for a lump-sum, thus agreeing with the lump sum model language by the plan administrator. How can you change the date of determination in the QDRO to 2014, when the date of divorce was in 2004? Also, this appears to be legal malpractice by the original attorney?

Thanks....

 

 

[david rigby]

What type of plan is this? Defined benefit?  Defined Contribution?  Multiple plans?

Also, let's be careful about terminology: when you say "approved QDRO" do you mean approved by the court?  This is important because the court issues a DRO, but it is reviewed and approved by the plan administrator, at which time it becomes a QDRO. 

[Larry Starr]

Sorry RSmith, but this is just the wrong place to be trying to get an answer to your situation.  Your statement of the facts is very confusing so we really don't have all the information that is needed.  More importantly, you need a competent advisor (whether an ERISA attorney who thoroughly understands QDROs or an attorney who has someone - like me or any other competent QDRO person - in tow to help figure out your situation).  

Whatever is said here, we just don't have the detailed understanding of the situation; free advice is worth ever penny you pay for it, but in this case, you need competent and specific advice and for that, I'm afraid, you are going to have to find competent personal advisors and not an anonymous web site.

Best of luck; QDROs can be quite complicated because of the lawyers and judges involved who just don't know what they are doing when they decide how something should be divided that can't be divided the way they decided to divide it! 

 

[QDRO Group]

RSmith, it sounds like you participate in a traditional defined benefit pension plan (i.e., one that calculates your benefit as a monthly annuity amount beginning at normal retirement age, using a formula that may be similar to 2% X Final Average Salary X Years of Service).  Based on the requirements to be eligible for a lump sum distribution, I'm guessing it is not a cash balance pension plan (i.e., one that expresses your benefit as an account balance, kind of like a 401(k) plan, based on annual pay credits to your account for service/salary and adjusted by interest credits).

Regarding whether your original attorney committed malpractice, I would need to know more details than we have room for here to render an opinion on that.  However, it is my experience that the vast majority of domestic relations attorneys don't really understand how retirement plans work and how to value/divide them - especially defined benefit pension plans.  Any DR attorney who handles these things internally, instead of farming it out to a benefits/QDRO expert, is risking malpractice.  In fact, it is likely that your attorney should have known (by reviewing your plan's summary plan description and QDRO Procedures) that a flat dollar amount assignment would not work at that time.  He/she should have addressed those issues in the settlement agreement or, if you did not reach agreement (and the judge awarded $80k after a hearing) - your attorney should have raised those issues to the judge (and maybe he/she did).

Regarding how the QDRO should have been drafted in 2004, taking into account a flat dollar amount assignment that the plan would not accept, we would normally calculate the present value of your entire pension benefit as of the relevant date in 2004 (i.e., convert the monthly annuity you had earned up to that point into a lump sum dollar amount that, in the annuity market, would be sufficient to purchase an annuity that would pay the same monthly benefit), divide $80K by that present value amount to determine the percentage of your monthly annuity at divorce that should be assigned to your ex, then prepare a QDRO that awards to your ex that percentage of your benefit as of the date of divorce.  For example, if you had earned a $500 monthly annuity (beginning at age 65) as of the date of your divorce, and if the present value of that annuity (as of the date of divorce) was $160,000, then the QDRO would assign 50% ($80K / $160K = 50%) or $250 (50% X $500 = $250) of your monthly annuity to your ex.  This type of calculation and assignment can still be done, and the proper expert could explain the specifics to the judge/attorneys/etc.

If this type of QDRO had been entered in 2004 (or today even), although your ex would still only be entitled to a $250 per month annuity today, the present value of that annuity today would be worth more than the $80K awarded to your ex due to the time value of money (i.e., a dollar in 2004, if invested, would be worth more than that today) - just like the present value of your half of that $500 annuity would be worth more today than it was in 2004.  Think about it, if someone gives you a lump sum of cash in exchange for the promise to pay a lifetime annuity of $250 a month at age 65, the longer you have that lump sum the more you can earn through investments before having to pay the annuity.  You might accept $80K when the person is 40 years old, but require $150K when the person is 50.  It's important to understand that the increase in the present value of your ex's assigned benefit is an actuarial increase (based on mortality table  and interest rate assumptions) that does not take away from your benefit.  If your ex requested a lump sum distribution based on the QDRO I mentioned, the plan would convert the percentage award into a present value lump sum using actuarial assumptions, just like it converts your monthly accrued benefit into a lump sum for that purpose.  So, if the judge in your case awards a larger lump sum to your ex that is effective 10 years after the divorce, and that includes some rate of interest for those 10 years, that does not necessarily mean your ex will get a greater percentage of the $500 per month annuity you had accrued at divorce.  However, you would want a benefits/actuarial/QDRO expert to be involved to ensure the interest rate used does not result in a greater assignment than was intended.

Hopes this helps you understand the issues a little more but, like the others mentioned, this is a complicated matter and you should hire competent counsel to represent you - and insist that he/she hire a qualified QDRO expert.