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QDRO entered after the AP's death


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Hello everyone,

I have a case in which the Wife had a 401K account.  Husband was awarded a 50% interest in the 401K in the divorce decree entered on 2/26/21.  Husband then died on 10/5/21 before a QDRO was entered.  The state court then entered a DRO on 1/5/24 designating the Husband's estate as the alternate payee.  The plan administrator determined that the DRO was not qualified, because a spouse's estate is not among the list of acceptable alternate payees under IRC § 414(p)(8).  A second DRO was then entered by the state court on 2/29/24, this time designating the parties' adult daughter as the alternate payee.  (The adult daughter was appointed as administrator of Husband's estate on 3/24/23 and is the sole heir).  The plan administrator again found that the DRO was not qualified, because the DRO indicated that the child could not be listed as alternate payee based on marital property rights, only based on child support obligations.

I have seen posts here indicating that a DRO is not unqualified merely because the Participant died before entry of the DRO, but I cannot find any information on whether a DRO entered after the alternate payee's death is qualified.

I suppose I could just get an order from the state court requiring Wife to liquidate the portion of the 401K awarded to the Husband and pay the proceeds net of taxes to the adult daughter, but the daughter would rather not liquidate the entire account at one time, to reduce tax liability.

Any thoughts would be greatly appreciated!

Roger Madison

Olympia, Washington

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First, if you were a lawyer who advised the could-be alternate payee not to object to a divorce decree entered before he had obtained payment from the participant’s retirement plan or at least had obtained the plan administrator’s approval of an order as a qualified domestic relations order, you might your lawyer’s advice about your professional conduct. Also, you might want your liability insurer’s guidance about what steps to take or avoid to not prejudice your defenses against claims.

If the could-be alternate payee’s divorce lawyer was someone else, you might consider whether the scope of your engagement includes or omits evaluating your client’s claims against that lawyer. If it’s omitted, consider some writing to inform your client that it’s omitted, and to suggest that your client get that advice from another lawyer.

About a repair, consider seeking a court’s order that names as the alternate payee the former spouse (using only that person’s name), and recites that the order relates to the former spouse’s marital property rights.

But consider this after considering the advice and guidance from the preceding steps.

This discussion is not advice to anyone.

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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My understanding is that a QDRO awarding benefits to a deceased individual is acceptable, so long as they are a spouse, former spouse, child or dependent of the participant.  But since the individual is deceased, their account would then be paid to the individual/entity provided under plan terms. For example, the plan may provide that if no beneficiary is designated (as would be the case with pre-deceasing spouse), then benefits would be payable to the default beneficiary under plan terms. Perhaps you could reach out to the person conducting the QDRO review to see what in particular they're looking for. 

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"The plan administrator again found that the DRO was not qualified, because the DRO indicated that the child could not be listed as alternate payee based on marital property rights, only based on child support obligations." If the problem is that the DRO was internally contradictory, you could just rewrite it to be internally consistent. 

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    POST MORTEM/POSTHUMOUS QDROS--
    In most case the need for a post mortem QDRO arises in cases where the Participant has died.  I don't know for sure whether the same law applies when it’s the Alternate Payee who has predeceased the entry of a QDRO. 

Start at -
 https://www.law.cornell.edu/cfr/text/29/2530.206
29 CFR 2530.206 - Time and order of issuance of domestic relations orders
        (a) Scope. This section implements section 1001 of the Pension Protection Act of 2006 by clarifying certain timing issues with respect to domestic relations orders and qualified domestic relations orders under the Employee Retirement Income Security Act of 1974, as amended (ERISA), 29 U.S.C. 1001 et seq.
        * * * * *
        (c) Timing. 

            (1) Subject to paragraph (d)(1) of this section, a domestic relations order shall not fail to be treated as a qualified domestic relations order solely because of the time at which it is issued.

            (2) The rule described in paragraph (c)(1) of this section is illustrated by the following examples:

                Example 1. Orders issued after death. Participant and Spouse divorce, and the administrator of Participant's plan receives a domestic relations order, but the administrator finds the order deficient and determines that it is not a QDRO. Shortly thereafter, Participant dies while actively employed. A second domestic relations order correcting the defects in the first order is subsequently submitted to the plan. The second order does not fail to be treated as a QDRO solely because it is issued after the death of the Participant."  (Emphasis supplied.)

  In  Eller v. Bolton, 168 Md.App. 96, 895 A.2d 382 (2006) -https://scholar.google.com/scholar_case?case=14971316948354987133&q=ELLER+V.+BOLTON&hl=en&as_sdt=4,21

 the Maryland Court of Special Appeals held that it was permissible for the trial court to enter a post-mortem QDRO following the death of the Alternate Payee.  The new QDRO was required to clarify and correct the original defective QDRO.  The facts of this case are so convoluted that it is doubtful that it can be relied upon in a case where the Participant dies before a valid QDRO is entered.  Note that the parties went through Federal Court and then through the Maryland trial court and to the CSA.  The CSA in in Eller relied upon the holding of the U.S. Court of Appeals for the Tenth Circuit in Patton v. Denver Post Corp., 326 F.3d 1148 (10th Cir.2003) and  concluded that a domestic relations order entered nunc pro tunc to cure an omission of relevant information is proper.

Note:  There should be language in the Plan Documents that  set forth what happen in the Alternate Payee dies prior to the entry of the QDRO.   

Note:  Keep in mind that if the Agreement of the parties and/or the Judgment  of Divorce contains everything mandated by 26 USC 414(p)(2), it will likely constitute a QDRO and a separate Order will not be required.  https://www.law.cornell.edu/uscode/text/26/414

Note: Perhaps the most important fact is that The obligation to share a pension benefit exists whether or not a QDRO is ever entered. The QDRO is merely an enforcement tool for the court to implement the Agreement of the parties incorporated into the Judgment of Divorce, or  the Judgment of Divorce if no Agreement was executed.  The QDRO is not the source of the obligation.  Sue the Participant. 

The same issue was raised in 2019 re: this issue.  Here was my response.

"If the husband's estate will be asking the Plan to make retroactive payments to an Alternate Payee's estate that have already been paid out to the Participant,  I don't think that can happen.  See Patterson v. Chrysler Group, LLC, 2016 U.S. Dist. LEXIS 18862 (E.D. Mich. Feb. 17, 2016), holding that a nunc pro tunc QDRO entered by a State court trumps ruling of Plan Administrator that the “QDRO” submitted did not satisfy ERISA requirements so as to make it acceptable as a valid QDRO that the Plan was required to implement during the lifetime of the Participant.  The Participant had retired, elected a single life annuity, received his retirement benefits during his lifetime, and died before any QDRO was approved by the Plan Administrator. Three DROs were submitted to the Plan Administrator, the last one “nunc pro tunc”, seven years after his death.   All were rejected as being not “qualified” under ERISA.  Nothing was ever paid to the Alternate Payee.  The District Court decided that even though the Participant received everything he was entitled to under his “single life annuity” election and there was nothing left for the Alternate Payee, nevertheless the third nunc pro tunc  (to the date of retirement) QDRO, entered post mortem, was valid and that the Plan owed the Alternate Payee her marital share of the deceased Participant’s already paid out benefits.  This is not a Pension Protection Act of 2006 situation that would permit a post mortem QDRO.  Given the many cases dealing with Federal preemption, I don’t see how this ruling can survive an appeal.   Some of the cases were cited by the Court  as follows:

“In other words, the dispositive issue is whether a state court's designation of a DRO as a nunc pro tunc order must be given effect when evaluating whether the DRO meets ERISA's qualification requirements. Neither the Sixth Circuit nor the Supreme Court has resolved this issue. Persuasive authority on the issue is split.  Compare Payne v. GM/UAW Pension Plan, No. CIV.A. 95-CV-73554DT, 1996 WL 943424, at (E.D. Mich. May 7, 1996) (unpublished) (holding nunc pro tunc DRO qualified); Patton v. Denver Post Corp., 326 F.3d 1148, 1152 (10th Cir. 2003) (finding Payne persuasive on validity of state court use of the nunc pro tunc doctrine to render DRO compliant with ERISA's qualification requirements); Yale-New Haven Hosp. v. Nicholls, 788 F.3d 79, 86 (2d Cir. 2015) (holding nunc pro tunc DROs qualified because, under the nunc pro tunc fiction, they assigned benefits to plaintiff before those benefits vested in someone else), with Samaroo v. Samaroo, 193 F.3d 185, 191 (3d Cir. 1999) (declining to follow Payne, stating that the facts in Payne serve as an example of potential abuse of a nunc pro tunc DRO, and holding that a DRO's effect on an ERISA plan was a matter of federal law and thus not affected by the state court designating it nunc pro tunc); Yale-New Haven Hosp., 788 F.3d at 92 (Wesley, J., concurring and dissenting) ("I am aware of no legal authority that permits a state court to issue an order and adopt a legal fiction about the order's existence earlier in time such that the state order so easily thwarts the intricate federal statutory scheme surrounding the antialienation of pension benefits.").”


My prediction about the survival of this decision was correct, but for the wrong reasons.  On January 11, 2017, the U.S. Court of Appeals for the 6th Circuit, in Case No. 16-1365, reversed the District Court’s decision on statute of limitations grounds.  The opinion is worth reading.  You can find it at:
https://caselaw.findlaw.com/us-6th-circuit/1765406.html 

Part of the opinion was as follows:

“As in other states, Michigan court orders issued nunc pro tunc do not retroactively modify substantive rights declared in older court orders. See Sleboede v. Sleboede, 184 N.W.2d 923, 925 (Mich. 1971). Rather, they merely "make [the court's] records speak the truth—to record that which was actually done, but omitted to be recorded." Id. at 925 n.6. That is, nunc pro tunc orders fix clerical mistakes in old orders. Nunc pro tunc orders do not revise the substance of what has transpired, backdate events, or give rise to new substantive rights, including resetting the statute of limitations. Crangle v. Kelly, 838 F.3d 673, 680 (6th Cir. 2016) (finding that Ohio nunc pro tunc orders "merely correct[] . . . record to accurately reflect the court's actions . . . not . . . reset[] the statute of limitations . . . ."); Glynne v. Wilmed Healthcare, 699 F.3d 380, 383-84 (4th Cir. 2012) (holding that nunc pro tunc orders "correct mistakes or omissions in the record so that the record properly reflects the events that actually took place. [They] may not be used to retroactively record an event that never occurred or have the record reflect a fact that never existed."); W.N.J. v. Yocom, 257 F.3d 1171, 1172 (10th Cir. 2001) (holding nunc pro tunc orders cannot be used to rewrite history); Central Laborers' Pension, Welfare and Annuity Fund v. Griffee, 198 F.3d 642, 644 (7th Cir. 1999) ("[T]he only proper office of a nunc pro tunc order is to correct a mistake in the records; it cannot be used to rewrite history."); Walls v. United States, No. 2:06-CV-12441, 2006 U.S. Dist. Lexis 93850, at *1 (E.D. Mich. Dec. 29, 2006) (same).
“Furthermore, accepting the district court's view would create an untenable situation regarding submission of domestic-relations orders to pension plans. Under this view, no matter how long ago a plan denied a domestic-relations order, the denied claimant could circumvent the statute of limitations and revive his cause of action by obtaining and submitting a nunc pro tunc version of the denied order to the pension plan, force the plan to reiterate its denial, and effectively reset the statute of limitations. In such a world, no claim would ever truly be time barred, but merely waiting for a nunc pro tunc order to issue. Such a system defeats the clearly understood policy goals of statutes of limitations. See Order of R.R. Telegraphers v. Ry. Express Agency, Inc., 321 U.S. 342, 348-49, (1944) (noting that statutes of limitation are designed "to promote justice by preventing surprises through the revival of claims that have been allowed to slumber until evidence has been lost, memories have faded, and witnesses have disappeared."); Carey v. Int'l Bhd. of Elec. Workers Local 363 Pension Plan, 201 F.3d 44, 47 (2d Cir. 1999) (stating that statutes of limitation serve to encourage "rapid resolution of disputes").

“Therefore, we reverse and hold that the nunc pro tunc  Order did not give rise to a new cause of action, or reset the statute of limitations.”

The fact that the Plan Administrator had already paid out 100% of the Participant’s entitlement by the time the QDRO was presented was not a factor.   Or maybe the Court of Appeals was just looking for a way to dodge the issue.  Suppose the Participant selected a life annuity and died after 3 years, that is, before the expiration of the Statute of Limitations.  The Court would have had to deal with the question of whether or not the nunc pro tunc Order issued by the State Court trumped ERISA.   They had a back door out of this question in this case.  Let’s see what happens in the next case.

Back to the case presented,  the Alternate Payee's estate should be able to go directly against the Participant.  As I said above, the obligation to share a pension benefit exists whether or not a QDRO is ever entered.  The QDRO is merely an enforcement tool for the court to implement its Judgment of Divorce.  But you still have to worry about such defenses such as res judicata (finality) and laches (delay in protecting one's rights).   And the deceased Alternate Payee's claim may have abated on his death under State law.  Interesting situation."

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What about the child being named not as P's beneficiary or as the child of P/AP in a child support QDRO (which is something totally different), but rather as a "successor alternate payee" (also called a "contingent alternate payee") to the deceased alternate payee?

 

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From Roger Madison’s originating post: “The plan administrator determined that the [order] was not qualified, because a spouse’s estate is not among the list of acceptable alternate payees under IRC § 414(p)(8) [ERISA § 206(d)(3)(K)]. A second [order] was then entered by the state court on 2/29/24, this time designating the [former spouses’] adult daughter as the alternate payee.  . . . .  The plan administrator again found that the [order] was not qualified, because . . . the child could not be listed as alternate payee based on marital property rights, only based on child support obligations.”

What Roger Madison describes involves a possible interpretation of ERISA § 206(d)(3).

For an ERISA-governed retirement plan:

“The term ‘alternate payee’ means any spouse, former spouse, child, or other dependent of a participant who is recognized by a domestic relations order as having a right to receive all, or a portion of, the benefits payable under a plan with respect to such participant.”

ERISA § 206(d)(3)(K), 29 U.S.C. § 1056(d)(3)(K).

“[T]he term ‘domestic relations order’ means any judgment, decree, or order (including approval of a property settlement agreement) which— (I) relates to the provision of child support, alimony payments, or marital property rights to a spouse, former spouse, child, or other dependent of a participant, and (II) is made pursuant to a State or Tribal domestic relations law (including a community property law).”

ERISA § 206(d)(3)(B)(ii), 29 U.S.C. § 1056(d)(3)(B)(ii).

http://uscode.house.gov/view.xhtml?req=(title:29%20section:1056%20edition:prelim)%20OR%20(granuleid:USC-prelim-title29-section1056)&f=treesort&edition=prelim&num=0&jumpTo=true

One court reasoned that an order can be a QDRO only if it restricts its alternate payee—including a successor-in-interest to an original alternate payee—to a spouse, former spouse, child, or other dependent of the participant. 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. 1998) (interpreting ERISA § 206(d)(3), and applying ERISA § 206(d)(3)(K).

Recognizing that something like that might be the plan administrator’s finding, my earlier post suggests a potential path of least resistance—seeking a court’s order that names as the alternate payee the former spouse (using only that person’s name), and recites that the order relates to the former spouse’s marital property rights.

(I recognize that this path might trade difficulty with the retirement plan’s administrator for difficulty with a bank if it questions the decedent’s estate’s administrator’s deposit of a check payable to the decedent.)

If what Roger Madison describes is more than a mere clerical reaction and rather is the administrator’s considered decision (after a claimant exhausts reviews under the plan’s QDRO and claims procedures), getting the plan’s check payable to the former spouse might be less expensive than asking a court—likely a Federal court if the plan administrator is not subject to personal jurisdiction in the State court, or wins removal to Federal court—to countermand the plan administrator’s interpretation.

Getting a court to countermand an ERISA-governed plan’s administrator’s finding might be difficult. That’s especially so if the court reasons that an arbitrary-and-capricious standard of review applies. Usually, a court finds an interpretation capricious if it could not have resulted from reasoning. But if an administrator’s finding follows the logic in a court’s reasoned opinion, how would the finding—even if the court thinks the finding is incorrect—be so lacking in reasoning that it must be capricious?

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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All, thank you for your comments.  I am on vacation in Mexico until the 1st and will read everything in detail and will respond at that time.

In response to Peter Gulia's post from March 21, the now-deceased husband was self-represented in the divorce.

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So, consider seeking a court’s order that names as the alternate payee the former spouse (using only that person’s name), and recites that the order relates to the former spouse’s marital property rights.

Your client will want your advice about an executor's, administrator's, or other personal representative's powers to negotiate such a payment.

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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All,

Thank you all for your comments.  I think it is important to remember that the retirement account is a defined contribution (401K) account, not a defined benefit account.  So, we're not seeking check(s) for benefits paid.  Rather, we are seeking an order pursuant to which the plan administrator (Fidelity) will transfer the husband's share of the account into his name.

After reading the comments, I think we will be seeking a DRO entered nunc pro tunc effective as of the date of dissolution.  Then, my hope is that the PA will qualify the order and create a new account for the now-deceased husband, so that his heir (daughter) can access the funds.

Again, thank you all.

 

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