Jump to content

Spousal waiver when there is a Marital Settlement Agreement


Recommended Posts

Husband and wife are getting a divorce and have a signed Marital Settlement Agreement saying they each waive their rights to any retirement plan of the other. Plan has J&S provisions.

My understanding is that the MSA is not enforceable by the plan itself - that is, the plan would have to pay the husband if wife died before their divorce was final (which should be soon so this is a bit of a theoretical question, we hope). Putting it more clearly perhaps, the plan could not recognize a bene designation for anyone other than the husband unless he specifically signed a plan waiver; the plan cannot look at the MSA and say that is a satisfactory waiver.

My "research" (a quick google search) seems to imply that without a plan waiver, the plan would have to pay the husband, but then the estate could seek to recover assets from the husband since he had waived his rights. But the plan itself cannot recognize the MSA. That last part is what I've always thought. 

Getting a little pushback from the attorney and wanted to double-check here; thanks in advance.

Ed Snyder

Link to comment
Share on other sites

I'm sure there are some experts here who have a much better understanding of this than I do, but my understanding is the same as yours.

That is finalize the divorce, or get the spousal consent if you want to remove the spouse as beneficiary before the divorce is final.

It might also be possible to remove him via QDRO but that's above my pay grade.

Link to comment
Share on other sites

I am curious about who the attorney represents and what the pushback is, but don’t bother with extra work just to satisfy my curiosity. If the attorney represents participant, too bad. I assume that you do not represent any individual, so you have no obligation to convince or educate the attorney one way or another. Even if you work for the plan, I don’t think you have any obligation to argue for the correct answer. As a courtesy, you could say that the plan follows its terms, including any beneficiary designations or waivers done in accordance with plan procedures, and will give effect to qualified domestic relations orders. You might go so far as to say that a marital settlement agreement is not something contemplated by the plan or mentioned in the plan’s policies and procedures. 

Link to comment
Share on other sites

Assuming a plan governed by ERISA § 205:

Some lawyers assert that after a plan has paid its benefit, those who would be takers under State law or an agreement external to the plan might have claims against a distributee.

About a beneficiary who is not the participant’s surviving spouse, courts differ about whether ERISA supersedes a State court’s order—made after the ERISA plan has paid or delivered the plan’s benefit—that does not involve the plan or any fiduciary of it.

About a beneficiary who is the participant’s surviving spouse, ERISA supersedes State law, including a State court’s order (other than a QDRO).

For either situation, an ERISA-governed retirement plan’s administrator ignores the divorcing or separated persons’ settlement agreement (unless that agreement is a qualified domestic relations order).

What happens after the retirement plan has paid might be “not my job” for the plan’s administrator.

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

Link to comment
Share on other sites

On 2/9/2024 at 7:30 PM, QDROphile said:

I am curious about who the attorney represents and what the pushback is, but don’t bother with extra work just to satisfy my curiosity. If the attorney represents participant, too bad. I assume that you do not represent any individual, so you have no obligation to convince or educate the attorney one way or another. Even if you work for the plan, I don’t think you have any obligation to argue for the correct answer. As a courtesy, you could say that the plan follows its terms, including any beneficiary designations or waivers done in accordance with plan procedures, and will give effect to qualified domestic relations orders. You might go so far as to say that a marital settlement agreement is not something contemplated by the plan or mentioned in the plan’s policies and procedures. 

Well, the attorney represents the participant (wife), and she (the attorney) basically thinks "the husband signed off in the MSA so why do we have to also get him to sign off on the bene des?" The whole thing started when I got a request from the wife saying "please change all my bene designations to "In trust for my son William XXXX" (yes that is all - no "trust created xx/xx/xxxx" or any kind of details).  Apparently she got that language from the attorney, which was shockingly inadequate. I would think that these family attorneys would have more knowledge of pension law or at least know how to write a bene des since it tends to be such a big part of what they are doing, but I digress.

Thanks for the comments; much appreciated. I learned something in doing the research and from the replies.

Ed Snyder

Link to comment
Share on other sites

Almost a half-century after ERISA and almost 40 years after the Retirement Equity Act of 1984 (which requires a spouse’s consent), we might be disappointed by too many who think too little about the law that governs employee-benefit plans.

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

Link to comment
Share on other sites

I assume the parties are still married and have signed an Marital Settlement Agreement (MSA) with a mutual waiver of retirement AND survivor annuity benefits in ERISA qualified defined benefit plans.  There is no question that the waiver of retirement benefits is valid.  The only relationship the Plan Administrator has with respect to the retirement benefits is to obey a valid QDRO, if there is one.  

With regard to the survivor benefit that I assume are QPSA and QJSA, the law mandates that a former spouse be named to receive those benefits, but I have seen many hundreds of cases where the prospective Alternate Payee waives those benefits in an MSA and where the QDRO affirmative states that the survivor annuity benefits are waived.  But what if there is no QDRO because, as in this case, the parties have waived both retirement and survivor annuity benefits?  The answer is that the Participant notifies the Plan Administrator of the waiver language in the MSA providing whatever proof is required by the Plan documents. 

What you seem to be talking about is where there is a waiver but the Participant fails to change the beneficiary.  If you are talking above a defined contribution  plan there is a potential beneficiary but it's not a QPSA or a QJSA unless the defined contribution plan has an option for an annutized payout.  If you are talking about a defined benefit plan then there is no "beneficiary" there is only an Alternate Payee who will in most all cases be a new spouse.

 https://www.law.cornell.edu/cfr/text/26/1.401(a)-20

So that gets is to  Kari E.  Kennedy, Executrix v.  Plan Administrator for Dupont Savings and Investment Plan, 129 S.Ct. 865, 555 U.S. 285 (2009) which you can find at -
https://scholar.google.com/scholar_case?case=16253581861885772265&q=Kari+E.++Kennedy,+Executrix+v.++Plan+Administrator+for+Dupont+Savings+and+Investment+Plan,+129+S.Ct.+865+(2009)&hl=en&as_sdt=20000003

where the plan in question sounds very much like a defined contribution plan: 

"The SIP [Savings and Investment Plan) is an ERISA "`employee pension benefit plan,'" 497 F.3d 426, 427 (C.A.5 2007); 29 U.S.C. § 1002(2), and the parties do not dispute that the plan satisfies ERISA's antialienation provision, § 1056(d)(1), which requires it to "provide that benefits provided under the plan may 869*869 not be assigned or alienated."[1] The plan does, however, permit a beneficiary to submit a "qualified disclaimer" of benefits as defined under the Tax Code, see 26 U.S.C. § 2518, which has the effect of switching the beneficiary to an "alternate ... determined according to a valid beneficiary designation made by the deceased."  (Emphasis supplied.)

In Kennedy the Judgment of Divorce stated that the wife,  "is ... divested of all right, title, interest, and claim in and to ... [a]ny and all sums ... the proceeds [from], and any other rights related to any ... retirement plan, pension plan, or like benefit program existing by reason of [William's] past or present or future employment."  Unfortunately the husband never executed a new beneficiary designation and at his death the Plan paid over the benefits to wife.  

The Supreme Court held that the Plan was required to pay the benefits to the named beneficiary.  But in Footnote 10 they said: 
        "Nor do we express any view as to whether the Estate could have brought an action in state or federal court against Liv to obtain the benefits after they were distributed. Compare Boggs v. Boggs, 520 U.S. 833, 853, 117 S.Ct. 1754, 138 L.Ed.2d 45 (1997) ("If state law is not preempted, the diversion of retirement benefits will occur regardless of whether the interest in the pension plan is enforced against the plan or the recipient of the pension benefit"), with Sweebe v. Sweebe, 474 Mich. 151, 156-159, 712 N.W.2d 708, 712-713 (2006) (distinguishing Boggs and holding that "while a plan administrator must pay benefits to the named beneficiary as required by ERISA," after the benefits are distributed "the consensual terms of a prior contractual agreement may prevent the named beneficiary from retaining those proceeds"); Pardee v. Pardee, 2005 OK CIV APP. 27, ¶¶ 20, 27, 112 P.3d 308, 313-314, 315-316 (2004) (distinguishing Boggs and holding that ERISA did not preempt enforcement of allocation of ERISA benefits in state-court divorce decree as "the pension plan funds were no longer entitled to ERISA protection once the plan funds were distributed")." (Emphasis supplied.)   

Since the Kennedy case there have been many dozens of cases permitting post-distribution suits under various theories such as breach of contract, unjust enrichment, and constructive trust.  In Andochick v. Byrd, 709 F.3d 296 (2013), a case originating in Maryland, the United States Court of Appeals, Fourth Circuit, answered the question left open in the Kennedy case, this is, whether an action could be brought against the recipient of life insurance proceeds (or retirement benefits) by reason of having been the named beneficiary of a company plan covered by ERISA, and restore those benefits to the person who equitably should have received such benefits.  The issue was stated by the Court as follows:

        “Scott Andochick brought this declaratory judgment action, asserting that ERISA preempted a state court order requiring him to turn over benefits received under ERISA retirement and life insurance plans owned by his deceased ex-wife, Erika Byrd. ERISA obligates a plan administrator to pay plan proceeds to the named beneficiary, here Andochick. The only question before us is whether ERISA prohibits a state court from ordering Andochick, who had previously waived his right to those benefits, to relinquish them to the administrators of Erika's estate.

The Court held: 
    
        “Finally, as the Third Circuit recently explained when addressing facts nearly identical to those at hand, “the goal of ensuring that beneficiaries ‘get what's coming quickly’ refers to the expeditious distribution of funds from plan administrators, not to some sort of rule providing continued shelter from contractual liability to beneficiaries who have already received plan proceeds.” Estate of Kensinger v. URL Pharma, Inc., 674 F.3d 131, 136 (3d Cir.2012). Permitting a post-distribution suit against a plan beneficiary based on his pre-distribution waiver does not prevent the beneficiary from “get[ting] what's coming quickly.” Rather, as the district court noted, it merely prevents him from keeping what he “quickly” received. Thus, we conclude that permitting post-distribution suits accords with the ERISA objectives discussed in Kennedy.”  (Emphasis supplied.)

A 2014 case out of Texas summarized the law on this issue in detail. Hennig v. DIDYK, Tex: Court of Appeals, 5th Dist., No. 05-13-00656-CV, 438 S.W.3d 177 (2014).  See -
https://scholar.google.com/scholar_case?case=1419348984792461652&q=Hennig+v.+DIDYK,+&hl=en&scisbd=2&as_sdt=4,44

It is worth reading. 

I am not sure about the history of this: 

https://www.taxnotes.com/research/federal/irs-guidance/notices/irs-provides-sample-language-on-spouses-rights-to-survivor-annuities/1fs5c

See - https://qdrohelper.com/waiver-qdro/

and - https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/advisory-opinions/2000-09a

That's about all I can tell you without know more of the facts and a timeline.  

David

Link to comment
Share on other sites

16 hours ago, fmsinc said:

What you seem to be talking about is where there is a waiver but the Participant fails to change the beneficiary.

Well, no. I was trying to say that the wife/participant (actually the attorney) does not want to have to ask the husband to sign a waiver naming someone else as the beneficiary. Or the husband refuses.

Ed Snyder

Link to comment
Share on other sites

Some (not all) plan administrators will record a beneficiary designation that now would be ineffective—because it lack’s the spouse’s consent, on the plan’s form and notarized—but could become effective—because the spouse later might die, become divorced, or otherwise become no longer the participant’s spouse.

If the administrator allows this, one might intensify a warning that naming a beneficiary other than the spouse will have the hoped-for effect only if the current spouse becomes no longer the participant’s spouse before the entitlement to the plan’s death benefit occurs.

If it would be difficult or burdensome to obtain the spouse’s consent in a form the plan’s administrator would accepts as valid under ERISA § 205 and the plan’s governing documents, a participant might assume a risk about whether the marriage ends before the participant’s death.

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

Link to comment
Share on other sites

I am quite curious about “could become effective”. Do you have any authority under ERISA for giving an effect to an act that is ineffective (not just not effective) when performed? Please exclude acts that authorize something and designate future effective dates, such as plan amendments. I would not be confident that an ineffective act would be given later effect because of interim events that, if they had occurred prior to the ineffective act, would have allowed the act to be effective.

Link to comment
Share on other sites

A common restraint on a participant naming a beneficiary other than her spouse is that a plan, following ERISA § 205(b)(1)(C), provides its death benefit to the participant’s surviving spouse, absent the spouse’s consent.

But if there is no surviving spouse when the participant dies, a plan may provide the death benefit to the participant’s designated beneficiary. See ERISA § 205(b)(1)(C)(i).

The situation Bird describes suggests the spouses are not yet divorced, but perhaps relatively soon might be.

Imagine a beneficiary designation, made today, naming the participant’s child. Imagine the court issues the anticipated divorce order on February 29, and the order is legally effective as of the moment it is issued. Imagine the participant dies on March 1. If the plan’s provisions restrain no more than is needed to meet ERISA § 205(b)(1)(C), the beneficiary designation that would have been ineffective for a February death becomes applicable for a March death.

A participant who finds it would be difficult or burdensome to obtain the spouse’s consent in a form the plan’s administrator would accept and believes the anticipated divorce will process in a few months might risk that the participant lives long enough for the spouse to be no longer a spouse.

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
×
×
  • Create New...