DB Plan Reduced Participant's Benefit due to Pending QDRO at Annuity Starting Date. QDRO Entered by Court Nearly 11 Years Later, Retroactive to Annuity Starting Date. Is Alternate Payee Entitled to Interest between Annuity Starting Date and Date Payment u

A participant and his spouse become divorced prior to the participant's annuity starting date under a defined benefit plan. Unlike many plans, benefits are paid from current plan assets (instead of from annuity contracts purchased from an insurance company). The participant and his ex-spouse agreed upon a proposed division of his benefit, based upon the fraction of the months in which the couple was married over the participant's entire period of service with the employer. However, no formal QDRO was entered by a court until 11 years after the participant's annuity starting. Nevertheless, the participant commenced receiving reduced pension payments based upon the parties' agreed division as of his annuity starting date, in the form of a ten-year certain and life annuity. The QDRO reaffirms the division between the parties and entitles the ex-spouse to a portion of the participant's total retirement benefit (under the agreed-upon formula) retroactive to his annuity starting date.

Based on DOL Regulations at 29 C.F.R. Section 2530.206, the timing of the entry of the QDRO does not adversely impact its qualification. In addition, the QDRO provides for payment to the ex-spouse for the participant's lifetime (since the 10-year guarantee period has expired), which is a fomr of payment provided under the Plan document. Moreover, case law which is contolling in the circuit in which the Plan is administered and in which the participant and former spouse reside do not compel a different result. 

This is my question: given the eleven-year period that has elapsed since the annuity starting date, is the payment due to the spouse for the period beginning on the annuity starting date and ending on the date on which the first prospective payment begins under the QDRO, permitted to be increased by interest or some other manner of compensatiing the former spouse for the delay in commencing the benefit payments to her? If the benefit had been provided under an annuity contract, I would be inclined to say no. However, since the benefit is provided from the assets of the plan's trust, I am inclined to conclude that some measure of earnings is due to the former spouse. Also, as a corollary to my question, if you agree that the spouse should be entitled to interest or earnings for the period of the delay in commencing payments to her, how should the plan arrive at an appropriate level of interest or measure of earnings?

Thanks in advance!

Has the DRO been qualified (ie, approved) by the plan sponsor?  I'm skeptical that the plan can provide some retroactive payment in this case.

BTW, your second sentence might be backwards:  most DB plans pay from plan assets rather than from annuity contracts.  

Agree with what David said.   

"No formal QDRO was entered by a court until 11 years after the participant's annuity starting... Nevertheless, the participant commenced receiving reduced pension payments based upon the parties' agreed division as of his annuity starting date, in the form of a ten-year certain and life annuity. "

Are you saying the PA withheld the AP's share for 11 years without a DRO? 

David,

I will agree with your statement that most DB plans pay annuities from the plan's assets. As for whether the DRO has been qualified, the plan sponsor has asked us for advice on whether to qualify it and how to pay it, if it is determined to be qualified. According to the DOL regulation I cited, the timing of the issuance of the order does not, by itself, adversely impact the qualification of the order. Since the alternate payee would be receiving payments during the participant's lifetime only, therre is no issue that the plan is being asked to provide for a form of payment not provided under the plan, which would disqualify the order for other reasons. As for the retroactivity of the payment, the order itself provides that it is effective as of the annuity starting and such orders are valid, per the DOL regulation and case law which is controlling in the plan's and parties' circuit.

Effen,

The plan withheld the alternate payee's share, which is the principal reason why I believe that the alternate payee should be compensated by some measure or interest or earnings to compensate her for the delay in commencing payments to her.

You should consult with the plan's ERISA attorney.  My personal non-lawyer opinion is that the inaction of the AP caused the delay and therefore the plan should not provide interest on missed payments.  I would also argue that the PA had no authority to withhold the P's payments for such an extended period of time.  Most QDRO procedures allow a 180 escrow period, after that, if no DRO is presented, the P gests the full payment until the AP provides a DRO.  Therefore, I might be inclined to argue that the majority of the 11 years of retro would go to the P - and maybe they should receive interest on those "lost" payments since PA had no authority to withhold them, but the AP would only potentially get 6 months of retro, and maybe none.

But you asked about qualifying the DRO.  Does this plan have established QDRO procedures?  I agree the timing is no a big problem and the DRO c/b qualified, but if it requires 11 years of retro payments, I would look very hard at those provisions.  

Short answer - you should consult with the ERISA attorney.

From the facts described above, it looks like a delay in beginning payments to the might-become alternate payee does not result from the plan administrator’s breach of its responsibility to administer the plan.

Unlike an individual-account (defined-contribution) plan that provides no assurance of the amount of a benefit, a defined-benefit plan promises a specified benefit. A participant (including alternate payees when one or more shares in the participant’s benefit) is entitled to no more than the benefit promised, applying the documents governing the plan.

The plan’s administrator might want its lawyer’s advice about whether the court order now submitted is a DRO and, if it is a DRO, whether it is a QDRO.

Prudence might suggest getting that advice from a lawyer who is independent of anyone involved in previous advice or decision-making.

Further, the plan’s administrator might, in some circumstances, want two distinct lawyers—one to advise the administrator about how to administer the plan now; another for advice about the administrator’s past conduct. Under a doctrine some label the “fiduciary exception”, communications about how a fiduciary administers the plan will lack a useful evidence-law privilege for lawyer-client communications. But confidential communications to advise the administrator personally about how one defends against claims grounded on the fiduciary’s past conduct might get the lawyer-client communications privilege. And even if the administrator wants no evidence-law privilege, it might be imprudent for a fiduciary to rely on advice from a lawyer who faces conflicting, or even potentially conflicting, interests.

Does the court order specify that its alternate payee gets interest on what would have been her payments had a QDRO been approved before the annuity starting date? If not, why would the pension plan’s administrator provide something beyond what the relevant court order calls for?

Does the plan provide interest or another time-value-of-money adjustment on a missed payment? If not, wouldn’t a DRO that specifies interest be not a QDRO because it attempts to specify a benefit the plan does not provide?

In what other ways might the court order be consistent with, or contrary to, the construct that a QDRO cannot specify a benefit not otherwise provided under the plan?

Consider, a QDRO specifies an alternate payee’s portion as an amount or as a percentage of the participant’s benefit. ERISA § 206(d)(3)(C)(ii).

Consider, ERISA § 206(d)(3)(H)(i) segregates amounts only during a period that begins when the plan’s administrator has received a DRO and ends when the administrator decides whether the DRO is (or is not) a QDRO. And § 206(d)(3)(H)(ii) provides interest on an alternate payee’s portion only to the extent of the amounts segregated during that period.

Congress specified a situation for which interest is provided. Does that mean interest is not provided for other situations? At least not if the plan doesn’t provide it?

ERISA § 206 (29 U.S.C. § 1056), https://www.govinfo.gov/content/pkg/USCODE-2024-title29/html/USCODE-2024-title29-chap18-subchapI-subtitleB-part2-sec1056.htm.

This is not advice to anyone.

A participant and his spouse become divorced prior to the participant's annuity starting date under a defined benefit plan. I ASSUME THIS IS AN ERISA QUALIFIED PLAN AND THAT UNLESS WAIVED BY THE ALTERNATE PAYEE THE WIFE BECAME ENTITLED TO QJSA AND A QPSA, AND THAT THE ANNUITY PAID TO THE PARTICIPANT WAS REDUCED TO PAY THE COST OF THE QJSA AND QPSA. Unlike many plans, benefits are paid from current plan assets (instead of from annuity contracts purchased from an insurance company). I DON'T SEE WHY THIS MATTERS. The participant and his ex-spouse agreed upon a proposed division of his benefit, based upon the fraction of the months in which the couple was married over the participant's entire period of service with the employer. WHERE WAS THIS AGREEMENT LOCATED?  IN A MARITAL SETTLEMENT AGREEMENT OR IN THE JUDGMENT OF DIVORCE ON IN THE 11 YEARS LATE QDRO?   However, no formal QDRO was entered by a court until 11 years after the participant's annuity starting. THE PLAN IS NOT REQUIRED TO MAKE ANY PAYMENTS UNTIL IT RECEIVES AND HAS QUALIFIED A QDRO.  Nevertheless, the participant commenced receiving reduced pension payments based upon the parties' agreed division as of his annuity starting date, in the form of a ten-year certain and life annuity. SO ARE YOU SAYING THAT THE WIFE WAIVED A QJSA AND A QPSA AND AGREED TO A TEN YEAR CERTAIN AND LIFE ANNUITY?   The QDRO reaffirms the division between the parties and entitles the ex-spouse to a portion of the participant's total retirement benefit (under the agreed-upon formula) retroactive to his annuity starting date.  AT SOME POINT THE PARTICIPANT MUST HAVE APPLIED FOR HIS RETIREMENT BENEFITS.  WHAT DOES THAT DOCUMENT HAVE TO SAY ABOUT THE OPTIONS THAT WERE AVAILABLE AND SELECTED?   IN THE 40 YEARS THAT I HAVE BEEN PREPARING QDROS I HAVE NEVER SEEN A PLAN MAKE RETROACTIVE PAYMENTS TO THE ALTERNATE PAYEE WHEN THE PAYMENTS WERE ALREADY PAID OUT TO THE PARTICIPANT.  

Based on DOL Regulations at 29 C.F.R. Section 2530.206, the timing of the entry of the QDRO does not adversely impact its qualification. YOU ARE MISREADING 29 C.F.R. Section 2530.206 THAT ADDRESSES AND RESTATES THE PENSION PROTECTION ACT OF 2006.  HERE ARE SOME CASES TO REVIEW: 

Thomas v. Sutherland at
https://scholar.google.com/scholar_case?case=1601430218420084129&q=Thomas+v.+Sutherland+&hl=en&as_sdt=20006 where the U.S. District Court in Utah held:

        "Although there is no case law precisely on point, the supporting material suggests that this is the appropriate result.  The Code of Federal Regulations provides that a DRO does not fail to be treated as a QDRO solely because of the time at which it is issued. 29 C.F.R. 2530.206(c)(1). This includes orders issued after the participant's death, and occasions where a divorced spouse no longer meets the technical definition of a "surviving spouse" under the terms of the plan. 29 C.F.R. 2530.206(c)(1)(ex. 1 & 2). In addition, the Eighth Circuit has found that a domestic relations order can be qualified posthumously if notice is given and the order is filed during the eighteen-month period permitted under ERISA to secure a QDRO. Hogan v. Raytheon, 302 F.3d 854, 857 (8th Cir. 2002). Although different than the case at hand, the trend has been to enforce the terms of an otherwise valid QDRO as it was intended to be enforced, so long as notice was given and the order was filed during the period permitted under ERISA."  (Emphasis supplied.)

    See also, Yale-New Haven Hospital v. Nicholls, 788 F.3d 79, 85 (2d Cir. 2015) where the Court held that two nunc pro tunc Orders issued after the death of the Participant were valid QDROs.  Said the Court: 

        “Domestic relations orders entered after the death of the plan participant can be QDROs. In the Pension Protection Act of 2006, Congress made clear that a QDRO will not fail solely because of the time at which it is issued, see Pub. L. No. 109-280, § 1001, 120 Stat. 780 (2006), although several of our sister circuits had already reached that conclusion, see, e.g., Files v. Exxon Mobil Pension Plan, 428 F.3d 478, 490-91 (3d Cir. 2005) (finding that a posthumous order constituted a QDRO), cert. denied, 547 U.S. 1160 (2006); Patton v. Denver Post Corp., 326 F.3d 1148, 1153-54 (10th Cir. 2003) (same); Hogan v. Raytheon Co., 302 F.3d 854, 857 (8th Cir. 2002) (same); Trs. of Dirs. Guild of Am.-Producer Pension Benefits Plans v. Tise, 234 F.3d 415, 421-23 (9th Cir. 2000) (same).”

    Miletello v. R M R Mechanical Inc., 921 F.3d 493 (USCA 5th Cir. 2019) cited Yale-New Haven Hospital v. Nicholls, supra.    

I AM NOT AWARE OF ANY CASE WHERE THE PPA WAS CITED AS AUTHORITY FOR THE PROPOSITION THAT A PLAN THAT A PLAN MUST PAY ARREARS TO AN ALTERNATE PAYEE THAT HAVE ALREADY BEEN PAID TO THE PARTICIPANT.  THE SURVIVOR ANNUITY IS ANOTHER MATTER SINCE THE ALTERNATE PAYEE MUST BE ALIVE IN ORDER TO RECEIVE THAT FUTURE BENEFIT. 

 In addition, the QDRO provides for payment to the ex-spouse for the participant's lifetime (since the 10-year guarantee period has expired), which is a fomr of payment provided under the Plan document. Moreover, case law which is contolling in the circuit in which the Plan is administered and in which the participant and former spouse reside do not compel a different result. 

This is my question: given the eleven-year period that has elapsed since the annuity starting date, is the payment due to the spouse for the period beginning on the annuity starting date and ending on the date on which the first prospective payment begins under the QDRO, permitted to be increased by interest or some other manner of compensatiing the former spouse for the delay in commencing the benefit payments to her? If the benefit had been provided under an annuity contract, I would be inclined to say no. However, since the benefit is provided from the assets of the plan's trust, I am inclined to conclude that some measure of earnings is due to the former spouse. Also, as a corollary to my question, if you agree that the spouse should be entitled to interest or earnings for the period of the delay in commencing payments to her, how should the plan arrive at an appropriate level of interest or measure of earnings?

WITH THE BENEFIT OF AI: 

29 CFR § 2530.206 is a Department of Labor regulation that clarifies the timing and order of issuance of Domestic Relations Orders (DROs) under ERISA. It specifically implements section 1001 of the Pension Protection Act of 2006 (PPA) to ensure that a DRO does not fail to be a Qualified Domestic Relations Order (QDRO) simply because of when it was issued.  

When applied to "retroactive" payments or look-back periods, the interaction between 29 CFR § 2530.206 and ERISA's broader QDRO rules (specifically ERISA § 206(d)(3)) dictates how a plan administrator handles benefits that accumulated or were paid out before the QDRO was finalized.

Here is a breakdown of how the regulation impacts retroactive rights and payments.

1. Timing Does Not Disqualify Retroactive Orders
The core purpose of § 2530.206 is to protect an alternate payee’s right to secure a QDRO even after major lifecycle or plan milestones have passed.

Under § 2530.206(c), an order will not fail to be a QDRO solely because it is issued:  

After the participant's Annuity Starting Date (when retirement payments have already commenced).

After the participant’s death.  

After a divorce has already been finalized (revising or establishing rights post-decree).

Because the regulation explicitly validates post-event orders, courts can draft domestic relations orders that look backward to assign benefits that accrued or should have been paid from an earlier date (e.g., the date of separation or divorce), even if the participant is already retired or deceased.

2. The 18-Month Segregation Period & Retroactivity
When a plan administrator receives a DRO, ERISA section 206(d)(3)(H) establishes a strict framework for preserving retroactive amounts while the plan evaluates whether the order qualifies as a QDRO:

Segregation of Funds: The plan administrator must separately account for or segregate the amounts that would have been payable to the alternate payee during the determination period if the order had been treated as a QDRO from day one.  

The 18-Month Window: The plan has up to 18 months (beginning on the date the first payment would be bumpy under the order) to resolve the order's status.

Retroactive Payout: If the order is determined to be a QDRO within that 18-month window, the plan administrator must pay the segregated amounts (plus interest) retroactively to the alternate payee.  

Expiration of the Window: If the 18 months expire without a QDRO determination, the administrator must release the segregated funds to the person who would have received them otherwise (usually the participant). If the order is qualified after the 18 months, the QDRO only applies prospectively, meaning the alternate payee loses the right to recover those specific segregated historical payments directly from the plan.  

3. Crucial Limitations on "Retroactive" Plan Demands
While § 2530.206 permits an order to be issued late, it does not override ERISA’s fundamental prohibitions on altering a plan's structural or actuarial obligations. An order seeking retroactive payments will fail to be a QDRO if it violates the following:

No Increased Actuarial Value
A retroactive order cannot force a plan to pay out more total money than it would have under the participant's original benefit structure. If a participant has been drawing a single-life annuity for five years, a retroactive QDRO cannot force the plan to recalculate past distributions in a way that increases the plan's total financial liability.

No Re-Annuitization of Past Payments
If an order is issued after the annuity starting date, it generally can only allocate a portion of the ongoing monthly annuity payments currently being made to the participant.

An order can state that an alternate payee is entitled to a percentage of the participant's future monthly checks.  

However, if the order attempts to completely recalculate past payments or change the fundamental form of the benefit (e.g., converting a participant's active single-life annuity into a joint and survivor annuity based on the alternate payee's life expectancy), it will be rejected under ERISA § 206(d)(3)(D) because it requires a "type or form of benefit" not otherwise provided.

Summary for Drafting and Enforcement
If a domestic relations order seeks to capture "retroactive" amounts (e.g., past pension payments that the participant pocketed entirely during a lengthy divorce dispute), the plan itself may not be legally allowed to claw back those funds from the participant to pay the alternate payee.

Instead, the remedy for true retroactive payments typically follows one of two paths:

Prospective Offsets: The QDRO is structured to give the alternate payee an increased share of the participant's future monthly payments until the past arrearage is mathematically satisfied.

Direct Judgment: The domestic relations court enters a separate money judgment directly against the participant for the past-due amounts, rather than trying to force the pension plan to pay retroactively outside of the 18-month segregation rule.

Thanks in advance!