Cost of QJSA in an ERISA Qualified Plan

[fmsinc]

In an ERISA Qualified Plan the Participant retired during the marriage of the parties and elected a 50% QJSA for his then current wife as he was required to do by law by Federal law. ERISA § 205(a)-(d), 29 U.S.C. § 1055(a)-(d)  

Now, 6 years later, cometh the divorce, and the Participant wants his now ex-wife, the Alternate Payee, to pay the cost of the QJSA election, that is, the actuarially deduction from his retirement annuity to fund the survivor annuity and achieve actuarial equivalence pursuant to ERISA §§ 205(d)(1)(B), (d)(2)(A)(ii), 29 U.S.C. §§ 1055(d)(1)(B), (d)(2)(A)(ii) and ERISA § 204(c)(3), 29 U.S.C. § 1054(c)(3).

Problem 1 - the Plan Administrators, like most Plan Administrators I have dealt with, have refused to allocate the cost to the ex-wife and to deduct that cost from the ex-wife's share of the retirement annuity.  

Problem 2 - I cannot find any authority to confirm that ERISA permits the parties to agree, on the courts to compel,  the cost of the survivor annuity to be paid by an Alternate Payee.  The sections of ERISA require the Participant to elect a QJSA, but is silent about the "cost". 

Any ideas?

Thanks.  

[david rigby]

If this proposal constitutes a form of payment that is not in the plan, the PA will refuse to qualify the DRO.   If this is "horse trading", where the participant wants to pay less to the AP, the PA will be indifferent to what label is attached by the participant and AP.

[C. B. Zeller]

With regard to question #2, I don't know of a specific authority in ERISA, however this kind of modification was specifically contemplated in IRS regulations and is one of the permitted exceptions to the general rule that annuity payments may not increase once they have begun.

Quote

1.401(a)(9)-6(o)(1) General rules. Notwithstanding the general rule under paragraph (a)(1) of this section prohibiting increases in annuity payments, the following increases in annuity payments are permitted—

...

(iv) An increase eliminating some or all of the reduction in the amount of the employee's payments to provide for a survivor benefit, but only if there is no longer a survivor benefit because the beneficiary whose life was being used to determine the period described in section 401(a)(9)(A)(ii) over which payments were being made dies or is no longer the employee's beneficiary pursuant to a qualified domestic relations order within the meaning of section 414(p);

 

[Peter Gulia]

Is the plan a defined-benefit pension plan or an individual-account retirement plan?

[JM]

There are no regs on who pays the cost in a QDRO for the QJSA elected at retirement and I think it's more of a state issue, not federal.  For example, in CA an election made at retirement that includes a survivorship cost is not deemed a gift from participant to alternate payee upon divorce.  So if the plan is an ERISA plan in which a reversion is required (if AP dies first they cannot name a beneficiary and must revert back to P), then we have the parties split the survivorship cost which balances the fact that the AP is getting a survivor benefit but also that P is getting the "quasi" survivor benefit (the reversion).  Actuarially speaking it's approximately equal if the parties elected the 50% J&S and are somewhat close in age.   If non-ERISA and a public DB plan then we can assign the full cost of the survivorship to the former spouse and also say they can name a beneficiary if they predecease the P (no reversion).

[fmsinc]

Let me further clarify my thoughts.   I am thinking when ERISA requires a married and retiring Participant to elect a QJSA, that election is already "net" of the cost of the QJSA, and that election survives the divorce (unlike FERS and CSRS and Military elections).  See Vanderkam v. Vanderkam, 776 F.3d 883, 892 (D.C. Cir. 2015), and the excellent District Court opinion at Vanderkam v. PBGC, 943 F.Supp.2d 130 (USDC - DC Cir. 2014), and a well written case Setzer v. Michelin Retirement Plan  - C.A. No. 3:13-cv-00192-MGL -  https://scholar.google.com/scholar_case?case=4368934987489954107&q=Setzer+v.+Michelin+Retirement+Plan&hl=en&scisbd=2&as_sdt=3,110,125

If the Court can reallocate the cost to the Alternate Payee, that will reduce the Alternate Payee's share of the retirement annuity, and in my humble opinion violates the intention of Congress that the Alternate receive a QJSA with the costs already deducted.  How then can a local state judge reduce the Alternate Payee's share without violating the intention of ERISA?  

 

BTW, I cannot find any statutory law in my home state, Maryland, that gives the court the authority to allocate the cost in a way different from "off the top".  And I am not aware of any Plan that addresses the issue other that to "just say no", we don't allocate.  

Nor I cannot find anything in ERISA or REA that mentions the cost. The SCOTUS decisions in Carmona and Engelhoff and New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co. and Kennedy, among others, are pretty firm when it comes to preemption.  The rules of statutory interpretation are that the legislative body says what it means and means what it says, and if it don't say something it intended not to say it, and it is presumed to act with knowledge of how its enactments will impact all other existing laws. 

 

In my neck of the woods, the DC Metro Area, we have hundreds of thousands of Federal Employees and Retirees and everybody knows that OPM will allocate the cost of the survivor annuity in any manner directed by the parties.  And everybody knows that even though DFAS will not allocate the cost of SBP benefits, there if an Excel program created by Marshal Willick that can be used to to so via the back door.  See attached.   

I have been in touch with Brett Turner of "Equitable Distribution of Property" by Thomson Reuters and he referred me to Section 6:46  of this treatise and he doesn't know where the authority comes from to allocate the cost other than, perhaps, the assumption that there is no preemption in this area. It seems to me that from a dollars and cents point of view it's a big enough issue that it should have been addressed....but it wasn't.

 

Check with your Plan Administrator clients and see is any of them have a written protocol for handling a situation where the parties (or the trial judge) wants to allocate the cost of the QJSA to the Alternate Payee?  And what is their legal rationale for that protocol.

 

Sorry, but I love being the provocateur.  

 

David 

Press-Release-for-SBP-Premium-Calculator (1).pdf Universal-SBP-Premium-Shifting-Calculator-in-Excel.xls

[Peter Gulia]

If an ERISA-governed pension plan does not provide that a participant may change an annuity that began, the plan does not recognize as a QDRO an order that tries to change the annuity.

“If a participant dies after the annuity starting date, the spouse to whom the participant was married on the annuity starting date is entitled to the QJSA protection under the plan. The spouse is entitled to this protection . . . even if the participant and spouse are not married on the date of the participant’s death, except as provided in a QDRO.” 26 C.F.R. § 1.401(a)-20/Q&A-25(b)(3) https://www.ecfr.gov/current/title-26/section-1.401(a)-20.

See also, for example, Jordan v. Federal Express Corp., 116 F.3d 1005, 1009 (3d Cir. June 19, 1997) (“In response [to a domestic-relations order], Federal Express canceled Linda Jordan’s [who was the participant’s spouse as at the annuity starting date] right to receive the [survivor] benefits under the plans without either increasing [participant John Paul] Jordan’s monthly benefits or designating Patricia Jordan [the participant’s current spouse] as the new beneficiary [survivor annuitant].”) (emphasis added).

DSG, consider (perhaps turning on which one, if either, is your client or your client’s client) whether the divorcing parties might negotiate and adjust property interests other than the commenced pension annuity to reflect that the husband’s pension annuity was lessened by providing a survivor portion (or that the nonparticipant obtained a survivor annuity). Likewise, consider how much or how little value the then-wife puts on her survivor annuity. Her personal sense of its value could be more than or less than what an actuary, economist, financial planner, or other adviser says the or a value is. And one might consider the creditworthiness of the pension obligor.

This is not advice to anyone.

[Gina Alsdorf]

Super interesting.  Makes sense, but it is nothing I have ever thought about.