Determination of Shared Interest for Prospective DRO in DB Plan Based on Marital Settlement Agreement

A married couple divorces. They reoch a marital settlement agreement  providing for the entry of a shared interest QDRO under a defined benefit plan. Based solely upon the terms of the settlement agreement, the plan's administrator proposes to implement a deternination of the shared interests of the parties, which is driven by the fact that the partidcipant is about to retire. May the plan's administrator appropriately determine the separate interests of the parties prior to the court's entry of the DRO and the plan administrator's determination that such order is qualified?

What do you mean by “determine”? The PA might be able to give a very accurate estimate. The plan can’t determine anything except on the basis of a DRO. Is the settlement agreement the DRO? The plan can advise if the order appears to satisfy the formal requirements for qualification.

For this purpose, "determine" is synonymous with "calculate.' No DRO has, as yet, been presented. Perhaps that could justify the triggering of the 18-month period to at least wall off the portion of the benefit that would not be payable to theparticpant pending the presentation of the DRO. Otherwise, the plan would commence payment of the participant's full benefit payment notwithstanding the presentation of the DRO after payments commenced. 

The pension plan’s administrator might re-read carefully and thoughtfully consider the administrator’s procedure about domestic-relations orders.

Some administrators are “strict constructionists” and do little or nothing until the administrator has received a court’s order.

Other administrators provide some help to a domestic-relations litigant’s lawyer before a court makes an order.

(I would not suggest that help unless the plan’s risks of harm from inept domestic-relations practice outweigh the risks from helping, and the administrator gets a deeply knowledgeable lawyer to design the procedure.)

A prudent administrator usually prefers to follow its domestic-relations-order procedure and its claims procedure.

If a procedure needs a redesign, do it before handling a particular situation.

This is not advice to anyone.

You began by saying this was to be a shared interest allocation of benefits.  You then ask about determining a separate interest.  And NOBODY noticed?   

Just to be clear with respect to shared......

The alternate payee's portion of the participant's defined benefit plan cannot be determining until the participant retires.   The formula for a shared interest is, for example:  

"The alternate payee shall be entitled to receive as her share of the participant's retirement annuity benefit, an amount computed by taking fifty percent (50%) of the unreduced* amount of each monthly payment, if, as and when payable to the participant, multiplied by a fraction, the numerator of which is the number of months during the marriage of the parties that the participant accrued creditable service toward retirement, and the denominator of which is  the total number of months of creditable service accrued by the participant at the time of the participant's entry into pay status."

*by the actuarial reduction in the retirement annuity required to fund survivor annuity benefits for the alternate payee

Computing the alternate payee's share prior to the time set forth above may be interesting, but has no practical use. 

The parties normally have the power to AGREE to change from and shared to a separate interest allocation, especially when the parties or their attorneys for the trial court have failed  to properly articulate the proper formula for a shared interest allocation.  

Note that I did not mention pre- and post-retirement survivor annuity benefits except at * above.  Separate interest allocations don't have survivor annuity benefits.  

If the Plan Administrator ("PA") has "actual notice" of the pendency of a QDRO and acts contrary to that information, then the PA has breached his/her/its  fiduciary duty to both the participant and the alternate payee.  Refer them to me and I will be happy to sue in U.S. District Court for  damages and my legal fees and expert witness fees.

Attached is a Memo re: shared v. separate. Shared v. Separate - 12-31-2024.pdf  

David