PPA of 2006 - Time of entry of QDRO

[fmsinc]

 29 CFR Section 2530.206(c) states that 

"(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."  We all know what this means or do we.  It certainly means that a QDRO can be entered for the benefit of the Alternate Payee if the Participant had died before a QDRO is approved. But does it also mean that the estate of the Alternate Payee can obtain a QDRO if the Alternate Payee dies before a QDRO has been entered? 

We know this means that, with respect to defined benefit an defined contribution plans, a QDRO can be entered in favor of an Alternate Payee if the Participant has died before the QDRO was approved. 

But can the Alternate Payee's estate obtain a QDRO when it is the Alternate Payee that has died before the QDRO has been entered and you are dealing with a ERISA qualified defined contribution plan? 

Thanks,

David

[david rigby]

IMHO, yes.  However, that does not automatically mean the resulting DRO will be qualified by the PA.  Just an opinion.

[Peter Gulia]

DSG, for an analysis of some (not all) of the issues, read or re-read 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. Super. Ct. 1998).

Interpreting ERISA § 206(d)(3) and applying § 206(d)(3)(K), the 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.

While a California court’s opinion sets no precedent for any Federal court, some judges might adopt or adapt Shelstead’s reasoning.

Some plans’ administrators might follow Shelstead’s, or even harsher, reasoning regarding a would-be alternate payee who died before the order one hopes is a QDRO is made.

For an order directed to an individual-account (defined-contribution) retirement plan, a plan’s administrator might be less likely to deny QDRO treatment if the order, instead of providing for a payment to some named person other than the decedent, provides that a separate interest not paid or distributed before the alternate payee’s death is distributable to the alternate payee’s estate.

This is not advice to anyone.

[fmsinc]

Peter Gulia:  

Gulp. I have struggled with this issue for quite some time.  See two Memos I have in my files. 

TRANSFERRING THE ALTERNATE PAYEE'S ERISA PENSION AND RETIREMENT.pdfBoggs and Terminable Interest Etc.pdf

 

The variables are: (i) the PPA of 2006; (ii) defined benefit plan vs. defined contribution plan; (iii) Federal preemption of state law or agreement of the parties or Judgment of Divorce. 

I seem to be in the minority in thinking that Boggs doesn't mean what everybody else thinks it means. 

Thanks for your input. 

David

 

 

[blguest]

Hi David, I think you are right that you are in the minority on this. Your notes in the files you attached ask the question whether a plan has the right to limit the benefits awarded pursuant to state law, and it appears the focus of your inquiry turns on your reading of 1056(d)(3)(B)(ii)(II).  The statute provides “domestic relations order” means any judgment, decree, or order made pursuant to a State domestic relations law, and it does not include a carve-out for estate proceedings. You may be focusing on state domestic relations law as driving the boat, but neglecting to factor the federal nautical chart and industry currents.

A central theme in Boggs is that a would-be-QDRO issued in a non-domestic-relations context such as an estate matter does not fall within the definition of 1056(d)(3)(B)(ii)(II), because such an order is not made pursuant to domestic relations, but to devise and descent, even if the expectation originated in an earlier domestic relations matter. This is why most plans will not qualify an order for a would-be alternate payee who predeceases qualification. Also, most states' devise and descent laws have at least some treatment of the kinds of property that may inure to an estate, and expired expectations are not usually among them.

Just my 2 cents, fwiw.