Can Post-Annuity Starting Date QDRO Be Given Retroactive Effect to Annuity Starting Date?

[rocknrolls2]

A married couple were divorced and had agreed that the participant's spouse would share in a portion of benefits otherwise payable to the employee. A QDRO was drafted but was intensely litigated. In the interim, the employee retired and began receiving the agreed upon portion of pension benefits in the form of a straight life annuity. Ten years later, a draft QDRO which appears to be acceptable to both parties to the former marriage was submitted to the plan. If the plan determines that the proposed order is qualified, can payments to the ex-spouse be made retroactively to the annuity starting date? Please note: that there is no issue of a reannuitization here based on the DOL Regulations at 29 CFR Section 2530.206 because it is being paid as an annuity for the life of the employee only. Therefore, when the employee dies, all payments (even to the former spouse who survives the employee) cease.

[Peter Gulia]

For the annuity that began ten years ago, is it grounded on less than the whole of the participant’s (then undivided) benefit?

[rocknrolls2]

Yes, it is. Agreement was reached between the parties of the prrcentage payable to each prior to the annuity starting date and the participant was paid solely his percentage.

[Artie M]

How did the plan treat this as a separate interest when the participant began his benefit as a straight life annuity and from the facts it seems that there was no QDRO in place.  The Plan cant informally treat this as a separate interest because the parties "intended" to share benefits.  Only a QDRO could affirmative create the separate interest and the plan doesn't seem to have a legal position to have recognized the separate interest.  I have never seen a separate interest QDRO applied retroactively... that doesn't mean it is permitted... and haven't seen any authority to permit it.  If a separate interest, it would carve out an actuarial portion of the benefit and allow the AP to commence payments independently.  But I believe that only happens from the date the order is determined to be qualified and doesn't relate back.  Seems like you're saying this is a "de facto separate interest".  Most cases, at least that I recall, where APs have tried to obtain retroactive treatment involve pre-commencement benefits or, even if won at the district level, were lost on appeal.

I haven't researched any of this and am just kinda brain storming....   

[fmsinc]

It depends in part on the source of the obligation to make payments to the Alternate Payee.   In some few states that source is the QDRO itself.  But in most states the obligation to pay the Alternate payee is found in an Agreement of the parties that has been incorporated but not merged in the Judgment of Divorce, or, if there is no Agreement, in the Judgment of Divorce itself.  If the Plan Administrator starts to make payments to the Participant before a QDRO is perfected, the Plan is not going to make retroactive duplicate payments to satisfy the arrears not paid to the Alternate Payee.  But if the obligation is based on the Agreement or  the Judgment of Divorce, the obligation is still there and the Alternate Payee [and if the collection of the Alternate Payee's share is not barred by a statute of limitation or the doctrine of laches] can sue to collect those arrears from the Participant, but not from the Plan itself.  [In FERS and CSRS there is an option of increasing the amount paid to cover arrears.  See 5 CFR 838.234 -  Collection of arrearages.]

But it seems that in your case the Participant retired and began to receive a 'straight line" (that I assume means "single life" annuity) based on the actuarially computed life expectancy of the Participant and with no survivor benefit provisions.  You haven't identified the name of the Plan but I would guess that it is a state, county or municipal plan that does not mandate a survivor annuity benefit for a former spouse.  And I have the feeling that the Court Order is not actually a "QDRO" since it is not pursuant to ERISA.  

You said that the parties "agreed".  Was there a written agreement?  Was it incorporated but not merged in the Decree of Divorce?  Did the Agreement and/or the Decree of Divorce t provide for a survivor annuity?  Is the Participant still alive?   

You cite 29 CFR Section 2530.206 where reannulization is addressed in paragraph (c)(2) -Example 3, and (d)(2) - Example 4.  I don't understand how you case would permit a change from a single life annuity for the life of the Participant to a single life annuity for the life of the Alternate Payee or to a form of Qualified Joint and Survivor Annuity? 

Artie M raises the possibility that the QDRO was perhaps drafted as a separate interest allocation and not a shared interest allocation. But in every case I have seen in the past 40 years you cannot elect a separate interest allocation after the Participant retires.  And in all events there are no survivor benefits in a separate interest allocation.  

DSG 

[QDROphile]

A slightly different point, but reflecting all of the concerns previously noted. I assume an ERISA plan. When the plan started paying the portion of the interest that the participant was supposed to get, I don't see how that is anything but a failure to follow plan terms. The apportionment of the benefit can only be done under the auspices of a QDRO. I infer that what was done was based on the idea of a separate interest division of the benefit. The plan is disqualified. What to do? My best shot would be correction of a plan failure, and that correction would be based on putting the plan and participants and beneficiaries in the position that they would be in if the failure (no appropriate QDRO in place) had not occurred. So get a QDRO in place in the form that was imagined before the payments and then play it out from there. The participant started payment of the assigned interest in a form that was proper (presumably). It would be nice if the Alternate Payee had the ability to elect to start later (such as now), but that would depend on plan terms and I think most plans would require the AP to start when the participant's separate interest payments began. That would mean that the AP would get retroactive payments based on some form of benefit available to the AP (probably a single life annuity), plus earnings because of the failure receive benefits timely. I realize that this s pretty rough and ready, but if all the affected parties agree (Ha! Good luck with the Plan, but it has dirty hands and the prospect of disqualification looming) and execute properly, I would bet the IRS would swallow it, assuming discovery. I think the odds are good either way. Caveat: I have not followed any development in correction procedures, so I may be all wet. I also have the view, borne out by experience, that the IRS is pretty generous about good faith corrections. All that may have changed while I was asleep at the switch. Of course, this is not advice to anyone.

One could argue that the appropriate correction is to recapture all the misbegotten payments to the participant and start over, or reform payments so the participant "catches up" on the payment of the unpaid portion of the benefit, with earnings, that should have been paid to the participant all along. I don't favor that approach, although it might be more technically correct.

Are there any service providers or fiduciaries who may be liable for some contribution toward extrication from this mess?