Divorce Decrees and Pension Distributions

[Molgilny89]

Trying to solve for a situation that keeps popping up 

- Cash balance plan 

- Participant with a deferred vested benefit dies. Death certificate indicates the individual was divorced.

- When we are on notice of a divorce through the death certificate, we ask the estate or beneficiary to provide a divorce decree or separation agreement to determine if there is a possible  DRO that was just never presented to the plan. Often times, the divorce was decades prior to the death and the beneficiary is therefore unable to locate any divorce documentation. 

- In these scenarios, does the plan sponsor have a fiduciary obligation to exhaustively seek out divorce documentation before paying benefit to estate/beneficiary? What happens if benefit is distributed to beneficiary and then ex-spouse comes forward with an old DRO. For what it's worth the plan document does not directly address these situations.  

- Would the same be true in scenarios where the participant divorced many years ago, they subsequently got remarried, and the benefit is payable to the new spouse. In these scenarios, the new spouse is almost never able to locate the divorce documentation. 

 

@QDROphile

[Peter Gulia]

Is the plan ERISA-governed?

[Molgilny89]

1 hour ago, Peter Gulia said:

Is the plan ERISA-governed?

Yes    @Peter Gulia

[david rigby]

What is an "old QDRO"?  A DRO becomes a QDRO only when approved by the plan administrator.  Has the PA done all the due diligence to look for a DRO (or QDRO) in one of their old files?  If the AP could have submitted a DRO but did not do so, is it the job of the PA to point out that omission by reviewing the divorce decree (and/or the property settlement)?

[Peter Gulia]

ERISA § 206(d)(3) [29 U.S.C. § 1056(d)(3)] suggests a plan administrator’s responsibility to do something other than or beyond what the plan’s administration otherwise calls for when the administrator has not received a court order does not begin until the administrator has received a court order.

ERISA § 206(d)(3)(H)’s command to separately account for what could become payable to an alternate payee if an order is a qualified order does not begin until the plan receives a domestic-relations order.

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

Yet, in considering what to do in a particular situation, an administrator might read, interpret, and consider carefully, including with the administrator’s lawyers’ advice, the plan’s governing documents, the written QDRO procedures, and alternatives for risk-management steps.

Also, one might carefully search the plan’s and maybe the employer’s records to confirm not only that no court order was received, but also that no plan fiduciary communicated anything a could-be alternate payee might allege one relied on.

When I advise a plan’s administrator about a beneficiary or domestic-relations situation, I sometimes suggest some protections against the possibility that other actors, including courts, often misapply the law.

This is not advice to anyone.

[QDROphile]

This is your first misstep and misunderstanding:

”When we are on notice of a divorce through the death certificate, we ask the estate or beneficiary to provide a divorce decree or separation agreement to determine if there is a possible DRO … .”

Setting aside the mistaken position published by the DOL about being on notice concerning a potential DRO, the plan is not on notice about a potential DRO when the “notice” is of a divorce from a death certificate that is not presented in connection with some other form of notice expressly about an existing or prospective domestic relations order. Divorce, by itself, means nothing under ERISA 206(d)(3) and does not to require the plan to do anything. The plan has to keep an eye out for notice about a prospective domestic relations order that could affect plan interests, and the plan’s written QDRO procedures should address the detail. Shame on the plan documents you are working with.  Don’t go looking for trouble. You will find it in your actions, not in duties that don’t exist.

In particular, if you can ascertain that the divorce is a year or more in the past, you should have complete comfort about proceeding with the normal processing relating to payment of beneficiaries.

Especially in defined benefit plans, the participant’s former spouse is in a race against death and remarriage. I am not suggesting that death of the participant precludes a QDRO, but time works against a would-be alternate payee and the plan is protected against dereliction.

I also think that you are overly concerned that somewhere in ancient history the plan did not attend to a domestic relations order or an acceptable notice about prospects of a domestic relations order. The passage of time will also protect the plan, even in the case of the plan’s dereliction. Would-be alternate payees have an obligation to prosecute their claims to benefits. I would not go too far back in my search for trouble on that account, either.

I am not faulting the goodwill and good intentions of your concerns. However, fiduciaries get into trouble by trying to do too much and going beyond the bounds of their duties and responsibilities while trying to help, especially when there is potential contest over benefits. Unfortunately, bad things like those you fear do happen to alternate payees, usually through the fault of their incompetent lawyers. 

[fmsinc]

Let me start with you last question,  "Would the same be true in scenarios where the participant divorced many years ago, they subsequently got remarried, and the benefit is payable to the new spouse. In these scenarios, the new spouse is almost never able to locate the divorce documentation."  If the Participant retires and has remarried before a QDRO is submitted to the Plan, the former spouse loses all rights to a survivor annuity benefit.  Such benefits vest in the new spouse and the former spouse is SOL.

See the 1997 decision of the US Court of Appeals, 4th Circuit,  in  Hopkins v. AT&T Global Information Solutions, 105 F.3d 153 (USCA 4th Cir. 1997) at
http://scholar.google.com/scholar_case?case=9954117838131396049&q=hopkins+at%26T+global&hl=en&as_sdt=2,9
followed by the 5th Circuit in Rivers v. Central and South West Corporation, 186 F.3d 681 (United States Court of Appeals, 5th Cir. 1999) at-
http://scholar.google.com/scholar_case?case=2296953953561556363&q=rivers+central+and+south+west&hl=en&as_sdt=2,9:

        "This Circuit agrees with the Fourth Circuit's decision in Hopkins and adopts its rationale. Rivers failed to protect her rights in Franklin's pension plan by neglecting to obtain a QDRO prior to Franklin's retirement date. Consequently, Franklin's pension benefits irrevocably vested in Mrs. Franklin on the date of his retirement and Rivers is forever barred from acquiring an interest in Franklin's pension plan."

    To the same effect see Dahl v. Aerospace Employees' Retirement Plan, a 2015 case from the U.S. District Court for the Eastern District of Virginia (and cases cited therein) - 
https://scholar.google.com/scholar_case?case=3487596170773082469&q=dahl+v.+aerospace&hl=en&lr=lang_en&as_sdt=20000003&as_vis=1

    Other cases following Hopkins are collected at:
https://scholar.google.com/scholar?start=0&q="Hopkins+v.+AT%26T"&hl=en&as_sdt=20000006

    See also Vanderkam v. PBGC, 943 F. Supp.2d, 130 (2013) setting forth a thorough discussion of this issue.  

As far as actual notice is concerned, here are some reading materials:

Two DoL Advisory Opinions making it clear that the Plan need look behind QDROs it receives to see it it conforms to State law or is for any reason irregular. Their only focus is to determine whether or not it's a QDRO under ERISA.  

Brown v. Continental Airlines, Inc., 647 F.3d 221, 223 (5th Cir. 2011) (“[ERISA § 206(d)(3)(D)(I)] does not authorize an administrator to consider or investigate the subjective intentions or good faith underlying a divorce.”) - https://casetext.com/case/brown-v-continental-airlines-inc.

See also Blue v. UAL Corp., 160 F.3d 383, 385 (7th Cir. 1998) (“ERISA does not require, or even permit, a [retirement plan] to look beneath the surface of the order. Compliance with a QDRO is obligatory[.]”) -
https://casetext.com/case/blue-v-ual-corporation#p385.

And see Matthew v. E.I. Dupont, 3rd Cir. 2017, citing Blue and Brown: “Additionally, DuPont's interpretation subverts the deference owed to state-court QDROs by ERISA plan administrators. Our sister circuits have explained that "ERISA does not require, or even permit, a pension fund to look beneath the surface of the order." Brown v. Cont'l Airlines, Inc., 647 F.3d 221,227 (5th Cir. 2011) (citations omitted); see also Blue, 160 F.3d at 385. Here, the terms of the QDRO support Matthews' interpretation.”

The point is that if a plan is not required or even permitted to look behind an actual QDRO that they have in hand, it would make no logical sense for the Plan to be required to engage in a search for a (potentially) missing QDRO.   The estate or the new beneficiary can search the court files, contact the lawyers for the parties in the state court proceeding, see if they can find a Marital Settlement Agreement (MSA) incorporated into a Judgment of Divorce (JoD), or, if there was no MSA, whether or not the JoD itself addressed the allocation of pension benefits, and if a QDRO was ever entered by the Court and if anyone asked for a certified copy and sent it to the Plan.  All of this is not the Plan's problem.  In some states, like my home state, Maryland, if the MSA for the JAD do not specifically address and award survivor benefits the Alternate Payee does not get them no matter what is in the MSA or the JoD.   

I have had this sort of happen with both ERISA and non-ERISA plans.  Federal employees who divorce will cancel the health insurance for their former spouses and that's enough for OPM to generate a letter asking for a copy of the MSA when the employee files his Application for Retirement, or the JoD, or the Court Order Acceptable for Processing.  This is despite the fact that OPM acts pursuant to rules similar to those discussed above. For example:

Rosato v. OPM, 165 F.3d 1377 (U.S.C.A. Federal Circuit 1999), in holding that: 

        "Federal law thus provides the method whereby divorcing spouses may divide their entitlements to federal employee benefits. The statute and rules are clear: OPM will not look behind a state court divorce decree or property settlement order to ascertain the intent of the parties. So long as the decree or order complies with the specificity requirements of the regulations, which implement the statutory requirement that the decree or order "expressly" direct payment to another than the employee, OPM will follow its prescriptions. An order lacking the requisite specificity will be rejected by OPM, with an opportunity for the applicant to cure any indicated error." 

And in Hayward v. OPM, 578 F.3d 1337 (U.S.F.C 2009), where the issue was whether or not the parties intended to include survivor annuity benefits for the former spouse:

        "We recognize that "OPM is neither qualified nor obligated to resolve disputes about the import of state divorce decrees ... OPM's task is 'purely ministerial' with respect to court ordered property settlements." Perry v. Office of Pers. Mgmt., 243 F.3d 1337, 1341 (Fed. Cir. 2001) (quoting Snyder, 136 F.3d at 1477); see also 5 C.F.R. § 838.101(a)(2). We also recognize that "neither we nor the Board is permitted by the terms of 5 U.S.C. § 8341(h) to rewrite or equitably reform state court divorce decrees or settlement agreements that do not unambiguously provide for a CSRS annuity." Fox, 100 F.3d at 145. Thus, the intent to award a CSRS survivor annuity must be clear."

and see Beckstead v. Office of Personnel Management, 842 F. App'x 578 (USCA Fed Cir 2021) -
https://scholar.google.com/scholar_case?case=13223774605474473561&q=beckstead+v.+opm\&hl=en&as_sdt=3,29

So I would give them a finite period of time (not the inapplicable 18 months) to produce evidence that a QDRO exists. If they cannot, then that's the end of it.

Under the Pension Protection Act of 2006 it became possible for a court to enter a posthumous (post mortem) QDRO.  BUT, many state will not enter such orders if the request is not made within a certain period of time (ex: 30 day appeal time), or within the time set forth in the applicable statute of limitations. In the Federal system they have the draconian "1st Order Rule" - 5 CFR §838.806 provides that OPM will not enforce a court order awarding survivor annuity benefits if the order is issued after the date of retirement or death of the Employee/Retiree AND seeks to amend or replace the first order dividing marital property between the Employee/Retiree and the Former Spouse. An order that seeks to award or eliminate a survivor annuity benefit, or to increase or reduce the amount therefor, or to explain, interpret or clarify the foregoing, must be issued on a day prior to the death or retirement of the Employee, or it must be the first order dividing marital property of the Employee/Retiree and the Former Spouse.  Usually it is NOT the first order. The first order is the JoD.  

David

   
 

Advisory Opinion 1992-17A - duty of Plan Admin.pdf Advisory Opinion 1999-13A _ U.S - Sham Divorces.pdf

[QDROphile]

Proofreader’s correction: 

“Two DoL Advisory Opinions making it clear that the Plan need NOT look behind QDROs it receives to see it it conforms to State law or is for any reason irregular. Their only focus is to determine whether or not it's a QDRO under ERISA.”

I did not read the entire text carefully. This just jumped out at me.

[QDROphile]

fmsinc’s post illuminates a separate question that is lurking inside the original post and needs to be disentangled. When a plan “learns” that a deceased participant is divorced when the plan records reflect that the participant is married, the plan does need some reasonable basis for paying another beneficiary, assuming that a non-spouse beneficiary is permissible under the plan. I offer nothing by way of identifying who is responsible for determining the marital status or what is satisfactory for determination. Good written administrative procedures are always helpful.

[Gina Alsdorf]

I don't think that this problem can be totally avoided. Are you operating as a 3(16), do you have procedures that direct when you should pay out? Does the sponsor sign anything saying they never received a QDRO? 

[Peter Gulia]

BenefitsLink neighbors, what do you think about this:

Should an ERISA-governed pension plan’s (whether defined-benefit or individual-account) administrator make and keep a record of every receipt of a court order?

Would an evidence-law presumption of regularity help show that an absence of such a record means there is no order that could impair or impede what the plan otherwise provides?

[Paul I]

The plan administrator receives a DRO and is tasked with determining if the DRO is a QDRO.  One would expect there to be some documentation of the decision to approve or disapprove the DRO (e.g. committee minutes) and some formal communication (e.g. letters to the participant and alternate payee) of that decision.  It would seem that best practice would be to keep a copy of this documentation with the participant's beneficiary elections.

 

[Gina Alsdorf]

I think most administrators keep check sheets showing the QDRO determination if they do it in house. It seems like these are outsourced more and more but yes, letters and communication all part of the process.