ERISA DB PA refuses an order for using marital fraction

Anyone ever come across an ERISA DB plan administrator who refuses to qualify QDROs employing a time rule (coverture fraction) division for benefits in pay status? I am dealing with one, first one ever in 30 years of practice. All comments welcome.

Please explain how you envision that this would work and what aspect is troubling the plan .

I think it is fair for the plan to require a “split the payment” approach:

fraction x amount of monthly (?) scheduled payment = amount of monthly (?) payment to alternate payee

The plan can refuse to do the math (apply a verbal formula) to determine the fraction and require the order to state the fraction.

Thanks for your thoughts QDROphile. Courts frequently divide DB benefits by application of a coverture fraction, aka the time rule application to the marital portion of a benefit (X is assigned 50% of the marital portion of Y's benefit). Most folks here are aware that the fraction defines a marital portion of a benefit, the numerator representing a length of a marital period and the denominator representing the entirety of a benefit. A QDRO defines these elements precisely so that a plan can calculate the portion allocated to an alternate payee.

The plan admin could not cite to any plan document provision exempting them from the application of 29 USC § 1056(d)(C)(ii) (manner in which such amount or percentage is to be determined), and I'm not seeing how the application it of creates any kind of problem for an ERISA DB plan. Of course, some plans may not want to do the math, even though that stance costs litigants (both plan beneficiaries) more money, but that does not give them an out from the statute for qualifying an order. You see it differently though, it seems, and I would appreciate your further thoughts on why.

The time rule / coverture fraction exists because parties to a QDRO always know the numerator, but almost never know the denominator. For a benefit in pay status, the denominator is part of the plan's records, and may be known by the participant, but alternate payees and courts almost never know it, and plans are not forthcoming with the data in the absence of participant cooperation. As participants are frequently not around, or have died, that information remains out of an alternate payee's reach, making doing the math impossible for all but the plan.

Are you sure that is the reason for not qualifying it?  I agree that the use of a coverture fraction is very common, so not sure why the PA has an issue with it.  Have they specifically stated the coverture fraction is a problem?  If so, what didn't they like about it?  

If the benefits are already in pay status, only option s/b a shared interest, so just a question of how you split the benefit that is already commenced. 

Hi Effen, yes I am sure. They stated they will not qualify an order using a fraction for any benefit in pay status, they will only consider hard numbers (straight percentage or dollar figures). They had no issue with the architecture of the fraction or its presentment, only that it was in use at all, which is what has me here canvassing for others' thoughts.

As I read § 1056(d)(C)(ii), and of course the plan document, their demand has no legitimacy, but as it is always possible that those here with experience on the PA side of things may have ideas I haven't considered, I'm all ears. The weird part is that these are not small or new or specialized plans. That the sponsor is a quasi-governmental entity, albeit the plans being purely ERISA creatures, may have something to do with it, but the PA must still administer the plans properly.

The PA has no interest in the method of division, but (as @QDROphile correctly states) the PA can "refuse to do the math".  Preferably, this condition is already stipulated in the plan's written QDRO procedures.  You did review those procedures, didn't you?

blguest, are you certain the plan is an ERISA-governed plan?

Might the plan be a governmental plan? If a governmental plan recognizes a domestic-relations order, the plan might require conditions much tighter than ERISA § 206(d)(3) sets. And there can be applicable law beyond the thing that to pension practitioners looks like “the” plan document.

Even if an ERISA-governed plan must recognize, or a non-ERISA plan provides that the plan recognizes, not only an order that specifies “the amount or percentage of the participant’s benefits to be paid by the plan to each such alternate payee” but also an order that specifies “the manner in which such amount or percentage is to be determined”, a plan’s administrator might insist that an order “clearly specifies” that “manner”. ERISA § 206(d)(3)(C).

Further, consider that a Federal court might defer to an administrator’s exercise of discretion about what “clearly specifies” means, unless one’s interpretation of law or finding of facts is too obviously capricious.

For a governmental plan, State law often prescribes in which court and with what special notices and procedures one may sue a governmental actor. And a plan’s administration might be entitled to an attorney general’s or other government-engaged lawyer’s defense with no expense borne by a decision-making official or officer.

This is not advice to anyone.

@david rigby, I always review a plan's procedures. In this case, while I requested the plans' procedures, the PA did not provide them and instead provided the plans' model order for a benefit in pay status (identical for both plans). The plans' model does not explicitly prohibit fractions, it instead has fields for amount or percentage. Please help me understand under what authority do you (and QDROphile and Peter) see an ERISA plan being able to circumvent § 1056(d)(C)(ii) by refusing to do the math required by the statute's explicit grant of "manner in which such amount or percentage is to be determined", as long as that manner is clear?

Yes to @Peter Gulia, these are definitely ERISA plans and their 5500s are in order. Are you thinking here that § 1056(d)(C)'s "clearly" negates its own subsection (ii)'s explicit grant of methodology when that methodology is clearly defined, and executed in the present orders, as a matter of longstanding industry practice? 

If you are an attorney or lawyer for the would-be alternate payee, consider evaluating (and then advising your client) on some possibilities and probabilities about whether getting discovery so a domestic-relations order would state a percentage might be less expensive and more effective than trying to persuade the plan’s administrator to approve an order that states a time-rule formula. You might consider this even if you have no doubt that the plan’s administrator is wrong.

I won’t speculate about what ERISA § 206(d)(3)(C) means, what a Federal court might say it means, or what might persuade a Federal court to not defer to a plan administrator’s interpretation. Rather, my practical point is that challenging the plan’s administrator could be an uphill fight.

And even if a plaintiff wins an ERISA litigation, that does not assure an award of attorneys’ fees. Under ERISA § 502(g)(1), a court may, not must, award attorneys’ fees. And it’s in the court’s discretion. A Federal judge might wonder why a plaintiff pursued litigation when a little discovery could have accomplished what the alternate payee needed, without bothering the Federal court’s attention. (I have met judges who would think that way.)

This is not advice to anyone.

I had Fidelity pull that on me with respect to an ERISA qualified defined benefit plan.  Their model order (that they consider sacrosanct) required that the Alternate Payee's share be ___________% or $______________.  No option for what we call in Maryland, the Bangs formula:  50% of the gross annuity multiplied by a fraction where the numerator is the number of months during the marriage that the Participant accrued creditable service toward retirement, and the demoninator of which is the total number of month of creditable service at the time of retirement = equals the amount due to the Alternate Payee.

I wrote to them and patiently explained that 26 USC 414(p)(1)(B)(2) [IRS equivalent of 1056(d)(C)(ii)] provided --- 

“(2) Order must clearly specify certain facts - A domestic relations order meets the requirements of this paragraph only if such order clearly specifies—

            “(A) the name and the last known mailing address (if any) of the participant and the name and mailing address of each alternate payee covered by the order,

            “(B) the amount or percentage of the participant’s benefits to be paid by the plan to each such alternate payee, or the manner in which such amount or percentage is to be determined,

            “(C) the number of payments or period to which such order applies, and

            “(D) each plan to which such order applies."

...and suggested that neither they nor the Plan Sponsor nor the in house Plan Administrator had to right reject a simple formula that has been adopted almost universally in the USA. 

They went through a few layers and it finally got to their attorneys you approved my language.  But it took almost a year and my pointed out to them that they have a fiduciary duty to the Participant and the Alternate Payee and BTW who is your resident agent for service of process.   

On the other hand I can see where a Plan would not accept a coverture fraction QDRO if the allocation was in the form of a separate interest and was already in pay status.  I am pretty sure that you can only use a coverture fraction with a shared interest allocation. 

There may be another wrinkle since ERISA plans don't require a divorce in order to transfer pension and retirement plan benefits so long as the parties a "legally separated" pursuant to a Court Order.  In the absence of a divorce how do you compute the numerator of the coverture fraction or do they use the date of the legal separation.  In South Carolina they use the date the Court approved the Marital Settlement Agreement even though it may another period of time that they have to wait until the divorce becomes final.  

Go to:

https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/publications/division-of-retirement-benefits-through-qualified-domestic-relations-orders.pdf

and find Q 1-8: Must a domestic relations order be issued as part of a divorce proceeding to be a QDRO?

"No. A domestic relations order that provides for child support or recognizes marital property rights may be a QDRO, without regard to the existence of a divorce proceeding. Such an order, however, must be issued pursuant to state domestic relations law and create or recognize the rights of an individual who is an “alternate payee” (spouse, former spouse, child, or other dependent of a participant).
    And see -
https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/publications/qdros.pdf
[Reference: ERISA § 206(d)(3)(B); IRC § 414(p)(1); Advisory Opinion 90-46A*; see Egelhoff v. Egelhoff 121 S. Ct. 1322, 149 L. Ed. 2d 264 (2001); see Boggs v. Boggs, No. 97-79 (S. Ct. June 2, 1997), see Boggs v. Boggs, 520 U.S. 833, 117 S. Ct. 1754 (1997)]

*You can find this at -
https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/advisory-opinions/1990-46a.pdf

David Goldberg

301-947-0500

@Peter Gulia  I have met those judges too Peter. The question remains though, can you or any neighbors here think of any authority that permits an ERISA plan administrator to reject DB orders using a coverture fraction, without providing any justification whatever, other than they just won't do it? If anyone can think of such authority, I am open to learning what it is.

I agree that less expensive and more effective means are usually preferable (particularly in the current political climate), and certainly there are never any guarantees in litigation. However, it seems to me that forced means are not limited to subverting parties' rights, a plan administrator's 'meh' undermining many states' domestic relations schemes without any authority is a problem much larger than one QDRO. 

@fmsinc Thanks for relaying your experience David. Like you, I push back, and in this case already requested they escalate the matter to plan counsel. We'll see what that individual has to say.

I did not read all of the posts in the thread but the OP states that payments are "in pay status".  Maybe one of the posts stated that benefits are not in pay status... if so, disregard my post. 

This is because I view a coverture fraction only helpful when benefits are not "in pay status", i.e., benefits are going to start at a later date.  Like you said, it is used because you know the numerator but do not know the denominator.  The fraction allows for adjustments for the participant's additional service time post-divorce for which the alternate payee should not receive a benefit.   For example, QDRO issued in YR 1 awards 50% of the coverture fraction.  QDRO states at divorce the participant has 10 years of service and the alternate payee and participant were married for all of those years.  When the participant retires in YR 21, they would have an additional 20 years of service.    Benefits begin to be paid, so the alternate payee's portion of the monthly benefit payment would be 50% x 10/30 of the monthly benefit.  The coverture fraction is needed to ensure the alternate payee does not benefit from the additional service when the payment start.

If, as stated in the OP, payments are already started, I don't see a problem with amending the QDRO to do the math... using the example... the QDRO would simply state that the alternate payee should receive 16.67% of the monthly benefit.  I am not saying the plan administrator is correct, I am just saying, practically speaking, amending the QDRO would be easier than arguing with the plan administrator or taking them to court.

You would be right @Artie M that amending a QDRO would be easier, assuming the numbers are available to an alternate payee with which to do the math. The problem arises when the denominator is not available to an alternate payee. The numbers for a benefit in pay status are always available to a PA though, in this case one who refuses to cite any authority for rejecting a coverture fraction, making writing a QDRO that carries out a garden-variety property division impossible for such an alternate payee. Do you know of any authority permitting an ERISA plan administrator to reject DB orders using such a fraction, without citing any justification other than they just won't do it?

If you want to look for courts’ decisions that might help support or attack an interpretation, consider:

Mark W. Dundee, Qualified Domestic Relations Answer Book https://law-store.wolterskluwer.com/s/product/qualified-domestic-relations-order-qdro-answer-bk-pen-3-mo-subvitallaw-3r/01t0f00000J3FByAAN?srsltid=AfmBOoqOrI9sEYDQdNBQKGeaMsNfmf1vqBytfIqS2U9Ir2r27Y6QV2bE.

There are not many appeals opinions. A Federal district court’s opinion is not a binding precedent anywhere, not even in the same district or even with the same judge. E.g., Camreta v. Greene, 563 U.S. 692, 709 n. 7 (2011) (“A decision of a federal district court judge is not binding precedent in either a different judicial district, the same judicial district, or even upon the same judge in a different case.”, quoting Moore’s Federal Practice § 134.02[1][d] (3d ed. 2011). See also Bryan A. Garner et al., The Law of Judicial Precedent § 3 (Horizontal Precedents) at page 40 (2016) (collecting citations and quotations).

Thanks Peter, I have an earlier edition of that, and also Shulman's handbook, both of which are helpful but neither of which provide much insight on this issue. I also haven't had any luck with searching similar cases on Fastcase or even Google scholar. I think that of PA's who want to insist on particular benefit division formats, most of which are reasonable, they do not get much pushback precisely because they are reasonable, and if one makes the point that under some circumstance or another that accommodation needs to made, most are reasonably accommodating. It is only in this case among the thousands of others I have come across that the PA's position is unsupportable.

As none of our neighbors here have identified any authority that might support the PA's position either, I think what happens next is, if the plan's counsel wants to back the PA's decision, a judge will qualify the order, which will then be served, prequalified, on the plan. The plan will then either do the calculation or continue to refuse, prompting a formal claim for benefits, which the PA may also refuse, at which point the remaining option is federal court. My experience with federal courts is that they tend to read the federal statutes strictly, though of course past experience doesn't guarantee future results. A strict reading of § 206(d)(3)(C)'s subsection (ii), with its multiple "or"s, and a lack of published legal interpretation supporting the PA's refusal, could be helpful, but hopefully it won't get that far if the PA wants to avoid litigation. Sigh.

Thank you all for your input and insights, and if you think of anything else, I'll be grateful to hear it, even if critical.

Okay.  How do you make those nice blue stickers with, for example, @artie m?  

Thanks,

David

49 minutes ago, fmsinc said:

Okay.  How do you make those nice blue stickers with, for example, @artie m?  

Thanks,

David

They should pop up if you slowly type the start of a user's name here in the comment space.  @fmsinc Yours came up first on the list after I typed the @ and the f - I was given a pop-up menu of several BL users to choose from. 

@Bri  Fantastic.  How easy was that.  Many thanks.

    WHO CAN SUE UNDER ERISA
    A plaintiff has standing to bring a claim under ERISA if he/she is a plan participant, beneficiary, or fiduciary. Caples v. U.S. Foodservice, Inc., 444 F. App'x 49, 52 (5th Cir. 2011) (citing 29 U.S.C. § 1132(a)); Cobb, 461 F.3d at 634; Coleman v. Champion Int'l Corp., 992 F.2d 530, 533 (5th Cir. 1993).  A "participant" under ERISA is an "employee or former employee" of an employer offering an employee benefit plan. 29 U.S.C. § 1002(7). A "fiduciary" is someone who (1) exercises "discretionary authority . . . respecting management of such plan or . . . disposition of its assets," (2) "renders investment advice for . . . compensation . . . with respect to any moneys or other property of such plan," or (3) "has any discretionary authority or . . . responsibility in the administration of such plan," Id. § 1002(21)(A).  A "beneficiary" is defined as "a person designated by a participant, or by the terms of an employee benefit plan, who is or may become entitled to a benefit thereunder." Id. § 1002(8). In order to qualify as a beneficiary, an individual must have "a reasonable or colorable claim to benefits." Crawford v. Roane, 53 F.3d 750, 754 (6th Cir. 1995); see also Cobb, 461 F.3d at 635-36 (holding that to have standing as a beneficiary under ERISA, a plaintiff must show both that he or she was designated as such by the participant or terms of the plan, and that he or she has a colorable entitlement to benefits under the plan).

In Parsons v.  Board of Trustees of the Boilermaker-Blacksmith National Pension Trust,  Civil Action No. 2:20-cv-00132, USDC (S.D. WV 2020) that you can find at -
https://scholar.google.com/scholar_case?case=12166270204191846086&hl=en&lr=lang_en&as_sdt=20006&as_vis=1&oi=scholaralrt&hist=bY5nDLcAAAAJ:14880692104701005079:AAGBfm2qi1_JaXLJvydb4f3quYTnTlLkbA,
the Court set forth a good summary of the rights of potential Alternate Payees to sue a pension plan for benefits claimed to be payable by reason of a QDRO.  At issue in this case was whether or not the language of the QDRO was broad enough to include survivor annuity benefits.  Said the Court - 

        “ERISA was enacted to protect employees and their beneficiaries by ensuring the proper administration of employee benefit plans. Boggs v. Boggs, 520 U.S. 833, 839 (1997). The Retirement Equity Act of 1984 (REA) amended ERISA with respect to surviving spouses in two important ways. REA requires pension plans to provide automatic benefits to surviving spouses. Id. at 843; 29 U.S.C. § 1055(a). Additionally, while ERISA generally prohibits assignment or alienation of benefits under a pension plan, REA provides for a Qualified Domestic Relation Order (QDRO) exception wherein a former spouse or children of a previous marriage may be designated as an alternate payee and thereby "receive all or a portion of the benefits payable with respect to a participant under the plan." 29 U.S.C. § 1056(d)(3)(B)(i)(l).

        “A domestic relations order is any judgment, decree, or property settlement that "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 "is made pursuant to a State domestic relations law." Id. at § 1056(d)(3)(B)(ii).  However, in order for a domestic relations order to qualify as a QDRO, it must meet the following requirements: (1) the order must specify the name and mailing address of the alternate payee and the affected plan participant, (2) the amount or percentage of the participant's benefits to be paid or the means by which that amount will be determined, (3) the number of payments or time period to which the order applies, and (4) each plan to which the order applies. Id. at § 1056(d)(3)(C). Moreover, a QDRO cannot (1) require the plan to provide any type of benefit not otherwise provided, (2) require the plan to provide increased benefits, or (3) require benefits to be paid to an alternate payee which must be paid to another alternate payee under the QDRO. Id. at § 1056(d)(3)(D).

        “A plan administrator generally has discretion to determine whether a domestic relations order constitutes a QDRO, but such determinations are reviewable by courts.  Dorn v. Int'l Bhd. of Elec. Workers, 211 F.3d 938, 946 (5th Cir. 2000). In determining whether a domestic relations order is a QDRO, courts have required substantial compliance with the drafting requirements. Hamilton v. Washington State Plumbing & Pipefitting Indus. Pension Plan, 433 F.3d 1091, 1097 (9th Cir. 2006). The "pivotal question is whether the dissolution order `clearly contains the information specified in the statute that a plan administrator would need to make an informed decision.'" Id. (quoting Stewart v. Thorpe Holding Co. Profit Sharing Plan, 207 F.3d 1143, 1154 (9th Cir. 2000)).

        “If a domestic relations order qualifies as a QDRO, then "any spouse, former spouse, child, or other dependent of a participant" that is designated as an alternate payee shall be considered a "beneficiary under the plan." Id. at §§ 1056(d)(3)(J)-(K). Thereby, a former spouse can obtain a secured interest in benefits merely by obtaining a QDRO. Id. at 1056(d)(3)(A); Metro. Life Ins. Co. v. Pettit, 164 F.3d 857, 864 (4th Cir. 1998); Hopkins v. AT&T Global Info. Solutions Co., 105 F.3d 153, 157 (4th Cir. 1997).

        “As noted above, ERISA requires pension plans to provide automatic survivor benefits to retiring participants. Dorn, 211 F.3d at 943. A Qualified Q Annuity (QJ&SA) is the principal mechanism for providing such survivor benefits. Id. "[A] QJ&SA comprises two separate and distinct benefits: (1) An annuity for the life of the participant, and (2) a succeeding annuity for the life of the surviving spouse (if there is one) of not less than 50% of the participant annuity." Id. Generally, in order for one to qualify as a surviving spouse in the context of a QJ&SA they must be married to the participant "(1) during the applicable election period, (2) on the annuity starting date, or (3) at [the participant's] death." Id. at 947 (internal quotation marks omitted).

        “Former spouses, however, can also receive surviving spouse benefits under certain circumstances. "To the extent provided in any qualified domestic relations order ... the former spouse of a participant shall be treated as a surviving spouse of such participant." 29 U.S.C. § 1056(d)(3)(F)(i) (emphasis added). Federal courts have held that, in order for a former spouse to be entitled to surviving spouse rights, "any assignment of surviving spouse rights in a QDRO must be explicit, rather than implicit." Hamilton, 433 F.3d at 1099; Hopkins, 105 F.3d at 155; Dorn, 211 F.3d at 947. Moreover, where a QDRO is silent as to surviving spouse rights, a designation of alternate payee or beneficiary does not elevate one to the status of a surviving spouse entitled to a survivor annuity under a QJ&SA. Dorn, 211 F.3d at 947.

        “The detailed requirements for drafting a QDRO have been characterized as a "drafting morass for the lawyer." Hamilton, 433 F.3d at 1096. The Court recognizes "the concern expressed by courts and commentators that the failure of domestic relations lawyers to `navigate the treacherous shoals' of ERISA may harm potential beneficiaries." Id. (quoting Metro. Life Ins. Co. v. Wheaton, 42 F.3d 1080 (7th Cir. 1994)). Nevertheless, "Congress required that QDROs be specific and clear because it was concerned with reducing the expense to plan providers and protecting them from suits for making improper payments." Id. at 1096-97 (quoting In re Gendreau, 122 F.3d 815, 817-18 (9th Cir. 1997)) (internal quotation marks omitted).

        As an initial matter, the Plaintiff argues that the Court should not consider the QDRO or the Plan Document, because review of such documents is premature at the motion to dismiss stage and would instead convert this motion into one for summary judgment. This argument is without merit. For purposes of a motion to dismiss, "a court may consider official public records, documents central to the plaintiff's claim, and documents sufficiently referred to in the complaint so long as the authenticity of these documents is not disputed." Witthohn v. Fed. Ins. Co., 164 Fed. Appx. 395, 396 (4th Cir. 2006). A court may also consider pension plan documents for a motion to dismiss when a plaintiff relies on such documents in the complaint. Stewart v. Pension Trust of Bethlehem Steel Corp., 12 Fed. Appx. 174, 176 (4th Cir. 2001). Both the QDRO and the Plan Document fall under this umbrella and may be considered in light of the motion to dismiss.” 

    ERISA § 404(a)(1) sets forth the primary duties of an ERISA fiduciary, providing that a fiduciary must: (1) act solely in the interest of plan participants and beneficiaries for the exclusive purpose of providing benefits to participants and their beneficiaries; (2) act with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in like capacity and familiar with such matters would use in the conduct of an enterprise of like character and with like aims; (3) diversify the investments of a plan so as to minimize the risk of large losses; and (4) act in accordance with the documents and instruments governing the plan insofar as they are consistent with the provisions of Titles I and IV of ERISA. 29 U.S.C. § 1104. A fiduciary may be personally liable for, and removed as a fiduciary as a result of, any breaches of the responsibilities, obligations, and duties imposed by the statute while acting as a fiduciary under ERISA. ERISA § 409. 29 U.S.C. § 1109. Generally, to state a claim for breach of fiduciary duty under ERISA, a plaintiff must allege that: (1) the defendant was a fiduciary of an ERISA plan who, (2) acting within his capacity as a fiduciary, (3) engaged in conduct constituting a breach of his fiduciary duty. 

    A good case discussing breach of fiduciary duty is Volz v. General Motors, Civil Action No. 22-cv-3471, United States District Court, E.D. Pennsylvania (October 5, 2023)-
https://scholar.google.com/scholar_case?case=10217039916663686201&hl=en&lr=lang_en&as_sdt=20006&as_vis=1&oi=scholaralrt&hist=bY5nDLcAAAAJ:17102308171145443235:AFWwaea94w7XgMVkZLP-Q4RdIOLK&html=&pos=1&folt=kw

    See also, 29 U.S.C. § 1104(a)(1) (duty of loyalty) and 29 U.S.C. § 1104(a)(1)(B) (duty of prudence).  See Barker v. Am. Mobil Power Corp., 64 F.3d 1397, 1403 (9th Cir. 1995) (ERISA's duty to act in the best interests of the plan participants and beneficiaries includes a duty to investigate suspicions that one has concerning the plan); see also Patterson v. Reliance Standard Life Ins. Co., 986 F. Supp. 2d 1140, 1150 (C.D. Cal. 2013).

See cases citing Barker at - 
https://scholar.google.com/scholar?hl=en&as_sdt=20000006&q="Barker+v.+Am.+Mobil+Power+Corp."+"64+F.3d+1397"+"duty"+"investigate"+'"fiduciary"&btnG=

 AND THREATEN TO SUE AND ASK FOR LEGAL FEES