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QDRO after Alternate Payee's death before distributions began


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I have a highly specific question about QDROs and Defined Benefit plans, that I am hoping there is an expert that could speak to this. In the state of Virginia, for reference.
 
I am not a lawyer. I am trying to help someone get a grasp on this, as she is trying to ascertain whether pursuing this legally would be worthwhile. She is very short on liquid funds, and I am would like to know if this is a wild goose chase for her.
 
I know the rules on Defined Benefit Plans are determined by the DOL, and that can be ever changing. I also realize that the verbiage in the QDRO is important, but that there are certain things that can make a QDRO invalid in the eyes of the plan administration, and I'm really hoping that is the case in this situation.
 
I am going to be as non-specific as possible for confidentiality purposes, and I will change some specifics.
 
The Divorce was in 2014. The divorce decree gave the ex 50% of her future pension. She is just now looking to retire, 10 years later, and her pension is significantly larger than it would have been at the time of the QDRO. Alternate Payee never received any payments on the pension, and the plan administrator is calculating that alternate payee would be entitled to 50% of the payments as of the date payments start, not as of the QDRO date. I may be wrong, but I think that that means that that, by default, means this was a "shared payment" QDRO. 
 
Here's the big question: The Alternate payee died in 2018. The plan administrator is interpreting the QDRO to pay the Alternate Payee's survivor (a nephew) the payment instead of "reverting it" back to her, the participant. (Technically it isn't reverting since it was never paid to him to begin with, but that's the best term I can think of.) Can a "shared payment" QDRO on a DBP even do that? I thought only "Separate interest" allowed for a survivor.
 
This is a standard pension, with the usual payout options: Single Life, Joint and Survivor 50%, 100%, and a 5 and 10 year life certain option. This pension doesn't even have an option where if the participant herself died her own non-spouse beneficiary could get anything beyond the 10 year life certain option, so how in the heck is the nephew going to be allowed to collect for the rest of the participant's life? I just can't wrap my head around that.
 
The pension amount is enough to make a significant difference in this poor lady's retirement. She will be extremely stretched without it, and she is nearly 70 years old. Her first payment is supposed to be March 31st, and I *think* that she may be out of luck if she doesn't pursue this before then, but does she even have a basis to pursue this?
 
Obviously, an attorney will need to handle it, but I guess what I'm asking is whether it is worth the resources to consult with an attorney to try to fight this. So my big question is whether benefits administration is interpreting this correctly.
 
I did review the SDP and there is nothing specific to this type of situation, I'm assuming there are internal QDRO procedures that I am not privy to.
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Dianna912, if other efforts (including some Effen suggests) don’t result in clarifying the participant’s benefit to her satisfaction, and you seek to help your friend evaluate her potential courses of action:

Consider whether the circumstances you describe suggest enough potential for clarifying (and so improving) the participant’s benefit that it could be worthwhile to pay for at least an initial consultation with a knowledgeable employee-benefits lawyer.

If the pension plan is ERISA-governed:

One possible interpretation of ERISA § 206(d)(3) is that a qualified domestic relations order—to the extent (if any) that an order may provide for a successor-in-interest to an original alternate payee—may so provide only if the order restricts such an alternate payee to a spouse, former spouse, child, or other dependent of the participant. (I’m imagining that the deceased’s nephew is not the participant’s dependent.) See, for example, In re Marriage of Janet D. & Gene T. Shelstead, 66 Cal. App. 4th 893, 78 Cal. Rptr. 2d 365, 22 Empl. Benefits Cas. (BL) 1906 (Cal. Ct. App. Sept. 15, 1998) (interpreting ERISA § 206(d)(3), and applying ERISA § 206(d)(3)(K)). But recognize that this decision is no precedent. One might use it in an effort to persuade a decision-maker—whether the pension plan’s administrator or a reviewing court—that an order is not a QDRO.

A further possible interpretation of ERISA § 206(d)(3) is that a qualified domestic relations order cannot designate an alternate payee’s successor-in-interest if, under the pension plan’s provisions, a participant cannot designate the participant’s successor-in-interest. That also might be so if there is no remaining interest to dispose of after the relevant person’s death.

Recognize that the pension plan’s provisions might matter greatly.

Consider that the participant might use the pension plan’s DRO and claims procedures to question the administrator’s interpretation, and to request the participant’s interpretation. (Some courts might say one must exhaust the plan’s procedures before asking a court to declare that a domestic-relations court’s order is not a QDRO.) Using the plan’s internal procedures might be less burdensome than litigation in a Federal court.

None of this is legal advice to anyone.

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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This is amazing, thank you so much to the both of you.

A hearty apology, I just spoke to the participant again and got additional information. What she told me originally was not exactly correct. 

For context, I'm a financial advisor who frequently works with people from this employer. I know their pension plan extremely well, because I work with many of the employees approaching retirement. This particular scenario was just out of left field for me. Unfortunately, their plan is one in which it is nearly impossible to speak with the plan directly. We have to call, they have to submit a ticket for a callback to the participant, and, of course, by the time that happens, I'm not with the participant anymore which makes it difficult. I wouldn't normally get this in depth into something like this, but I felt really bad for her. 

From what she has now shared with me, it sounds like it likely was actually a "separate interest" QDRO. I asked her to tell me, as close as she could, what the pension plan told her. She told me that they actually said they couldn't give her information about the "$500" (significantly less than 45% of her current benefit amount) and who it was going to. This wasn't how she explained it the first time we talked, but it makes much more sense now. It sounds like the benefit actually did start paying out immediately after the QDRO was approved, and then changed to the decedent AP's beneficiary once the AP died, but she isn't certain because they didn't confirm. 

It may be that the AP opted for the 10 year certain. The plan does allow for anyone as beneficiary on the 5 and 10 year certain options. 

This has certainly prompted me to pursue my CDFA, so I can be more knowledgeable and helpful in these situations, before things are finalized. 

Thank you both again for your help and the wisdom you have shared. 
 

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Effen and Peter, as you see, provide excellent input and your subsequent attainment of the facts now give sense to the situation. The plan could certainly have allowed a life annuity with period certain for the AP and allow the AP to name a beneficiary for any remaining guaranteed payments after his death. The plan could not have provided for a survivor life annuity to AP's beneficiary (i.e., APs cannot elect a J&S with a new spouse or other beneficiary).

Kenneth M. Prell, CEBS, ERPA

Vice President, BPAS Actuarial & Pension Services

kprell@bpas.com

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Agree.  All makes sense now.  

The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.

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Dianna912:  

There are about 40,000 defined benefit plans (pensions) in the US. Most are covered by ERISA.  They do not all work the same was.  Every plan has a Plan Document setting forth what they can and cannot do.  They must comply with ERISA. State laws governing the allocation of pension benefits are not uniform and a state court cannot order the Plan Administrator to do anything that is not permitted by ERISA or by the Plan Document.   Federal law preempts State law.  People sign Marital Settlement Agreements ("MSA") and agree on various allocations of benefits.  In the absence of an MSA the Court will issue a Judgment of Absolute Divorce ("JAD") and allocate the pension normally based on what the Judge deems to be equitable. 

In order to provide you with a valid and intelligent response to your questions, a competent attorney who specialized in QDRO matters need to know/see:

1.  The exact name of the Plan.  You cannot simply say "Lockheed Martin" since that company has dozens of pension plans for different classes of employees and for many companies that it has acquired or with which it has merges over the last decades.     

2. A copy of the MSA if any. 

3. A copy the JAD.

4. A copy of the QDRO.

5.  All correspondence with the Plan Administrator.  

Unfortunately you may have misstated the identity of the parties. 

If in fact is was a separate interest allocation, then the Participant (who you said died some years ago) would have the right to name a new spouse to receive a survivor annuity benefit with respect to that portion of his retirement annuity that was not transferred to the Alternate Payee as the Alternate Payee's separate interest. 

But in most separate interest allocations the Plan documents do not permit the Alternate Payee to name a survivor annuity benefit for a new spouse when she dies.  The normal language you will see in the QDRO will say something like this with respect to the Alternate Payee's receipt of her separate interest in the Participant's retirement annuity:

"The Alternate Payee may elect to receive his or her vested benefit in any optional form permitted for Alternate Payees by the Plan in effect at the Alternate Payee’s commencement except that the Alternate Payee may not elect to receive: (i) a level income annuity option or, (ii) a qualified joint and survivor annuity with a subsequent spouse." 

A separate interest allocation severs the relationship between the parties.  The Alternate Payee can start to draw his/her separate interest even if the Participant had not retired, subject however to what we cal the age 50 rule, that is, the Participant must be over age 50 and be eligible to retire and that normally takes place at age 55. 

So the bottom line is that the Alternate Payee in your case is not entitled to any survivor benefits that are payable as a result of the Participant's death unless the Participant named the Alternate Payee to receive them.  However many property drafted QDRO will negate that possibility by expressly saying that any previous elect of the Alternate Payee (the former spouse) is void.  It often happens that people forget to change beneficiaries of their retirement plans and life insurance and that can lead to expensive litigation. 

DSG

01-18-24  

    

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