not a QDRO - no action?

[AlbanyConsultant]

There's a deceased participant ("wife") whose estate is producing an executed Separation and Settlement Agreement that says, after going on at length about the husband's State retirement benefits and how that will be split, that "each party hereby waives any legal or equitable interest which he or she has or may have in and to the value of any Retirement Plan owned by the other party.  The term "Retirement Plan", as used herein, shall include, but not be limited to, any Pension Plan, Profit Sharing Plan, Keogh Plan, 401(k) Plan, deferred compensation plan, or Individual Retirement Account titled in the name of either party.  Upon the execution of this Agreement, any such Retirement Plan shall become the separate property of the party in whose name the Plan is titled."  This was executed in 2019 (the deceased had been a participant since 2000), and it was signed by a Notary Public (two, in fact).  Fine, this is a 403(b) plan, but I'm willing to say that falls under the "not be limited to" provision (though, really, she had been there for 19 years at that point - they couldn't have added that in or gotten that right?).

So... does this count for plan purposes?  It's not a typical QDRO, and it was never submitted to the plan sponsor before.  Can the plan honor this?  Does this remove the separated husband as the deceased wife's beneficiary under the plan?

[MoJo]

We routinely receive separation agreements in lieu of a DRO - and put it through the same process as a DRO.  Some (very few) actually meet the criteria for it to be a "Q"DRO.  Start with, was the Separation Agreement incorporated into an order of the court?  If not, sorry, it's not an "O"rder even making it a DR"O" and that is a big part of the problem we find with these things.  Other issues may also prevent if from being a DRO.  One has to look at it in it's entirety (including reading who gets the Weber grill and custody of Scruffy the pet dog....) 😁

[AlbanyConsultant]

One of my colleagues looked it over and pointed out that since the separation agreement didn't ask for any of the plan benefits to be segregated, did it actually have to meet QDRO standards?  It's not trying to award plan benefits to anyone... it's (in theory) taking away the rights of the husband to be the beneficiary, apparently with his agreement.

There is a partial beneficiary form on file from years ago (pre-separation agreement) with the husband listed as the beneficiary - it's not signed, of course - and nothing was ever updated.

Not being an attorney, I'm not fully comfortable with anything beyond "you have a beneficiary form that says the husband is the beneficiary, so you have to follow that".  If they want anything different than that, I think they may want to get an attorney's opinion.  I suspect that the husband believes that he's not entitled to this money, but what he thinks and what is legally accurate might be two different things.

[MoJo]

18 minutes ago, AlbanyConsultant said:

I'm not fully comfortable with anything beyond "you have a beneficiary form that says the husband is the beneficiary, so you have to follow that".  If they want anything different than that, I think they may want to get an attorney's opinion.  I suspect that the husband believes that he's not entitled to this money, but what he thinks and what is legally accurate might be two different things.

Certainly, the absence of a QDRO means the plan need do nothing - unless they have knowledge that a DRO may be forthcoming (and based on the Sep Agr it appears that one won't be).

However, naming the husband as beneficiary *may* no longer be effective, as in some jurisdictions (and per some plan documents), a divorce invalidates a bene form naming the spouse (nee "former spouse") as the bene.  It would be wise to guide the participant to take stock of their affairs and update the bene form ASAP to give effect to their wishes.  Even if they want the ex to get the benefits (it's been known to happen), the current ben form may still be ineffective unless revised post-divorce again naming him as the bene.  Otherwise, the default per the plan documents (and/or state law) will govern, and the benefits may go elsewhere.

[AlbanyConsultant]

The participant has ceased to be.  She has expired, passed on, etc.  Which makes this all a little trickier.

[QDROphile]

This response is invalid because it does not take into account all circumstances and plan terms. If the plan is subject to ERISA, which it might be, then plan terms, including whatever beneficiary designation is on file, controls. A separation agreement, unless incorporated into some sort of domestic relations order, is ineffective.  If the plan is not subject to ERISA, then controlling law may provide for a different outcome.

[Peter Gulia]

And beyond others’ suggestions and observations:

Has anyone submitted a claim for a benefit?  If not and the plan’s terms do not compel an involuntary distribution (whether because of a small account balance, for a required minimum distribution, or under another provision), the plan’s administrator might prefer not to solve a question that is not yet raised.

And when it is time to decide, did the marriage end before the decedent’s death, or is the husband the decedent’s surviving spouse?  If he is a surviving spouse, what rights does the plan provide?

 

[AlbanyConsultant]

This is an ERISA 403b plan.
The deceased participant's sister, who is acting as the executor, is making a claim that the benefit be paid to the estate.
The divorce was never finalized.

I have suggested that they take this to legal counsel, and the plan sponsor agreed.

[Luke Bailey]

8 hours ago, AlbanyConsultant said:

I have suggested that they take this to legal counsel, and the plan sponsor agreed.

Definitely the right move, AlbanyConsultant.

Note that there is case law dealing with situations where, as part of a divorce settlement, one spouse says he or she will have no interest in the other's benefit, and where no QDRO is served precisely because the nonparticipant spouse is not claiming an interest in the participant's benefit. In at least one such case, the spouse who had previously renounced any right to the deceased participant's benefit was still named as beneficiary in an old beneficiary designation and claimed the benefit after the participant's death, contrary to the agreement that had been reached as part of the divorce. The court held that the plan could pay to the ex-spouse under Egelhoff Supreme Court case interpreting ERISA, but allowed kids to sue former spouse in state court to impose a constructive trust on the funds after she had received them from the plan, enforcing the former spouse's agreement in state court at the time of the dissolution proceeding to not claim an portion of the decedent's benefit.

[JM]

Footnote 10 in Kennedy v. Dupon (2009) 129 S. Ct. 865; 172 L. Ed. 2nd may be of interest as well.

[Luke Bailey]

19 hours ago, JM said:

Footnote 10 in Kennedy v. Dupon (2009) 129 S. Ct. 865; 172 L. Ed. 2nd may be of interest as well.

JM, yes. I believe that this footnote was cited in and a significant part of the rationale for the case(s) I was describing. Thanks. It makes complete sense because while the state law-governed agreements among the family members are preempted by ERISA as respects the plan, and it would be inconsistent with the goals of ERISA to burden the plan administrator with having to deal with them (including becoming knowledgeable about them), the state-law governed agreements are not nullified and can take effect once the money is out of the plan.

In a previous exchange on a similar topic someone mentioned doing a "zero QDRO." I have no personal experience with that technique, but I suppose it could eliminate the problem.

[Peter Gulia]

An administrator of an ERISA-governed plan must obey the plan’s provisions (unless the plan states a provision ERISA’s title I forbids, or fails to state a provision ERISA’s title I commands).

In doing so, an administrator ignores a participant’s separation agreement, even if made a part of a court’s order, unless the order is a qualified domestic relations order.

Even if a plan might provide that a separation agreement undoes a participant’s beneficiary designation, a separation agreement without a divorce does not change a person’s status as a spouse, who later might have a surviving spouse’s survivor-annuity or other rights under the plan’s provision that meet ERISA § 205.

For what happens after an ERISA-governed plan has paid its benefit, some courts’ decisions recognize a disappointed person’s remedies under State law.  But the plan’s administrator need not be involved in those disputes.