Limits on DB Plan Allocation Options

Two things in life are ubiquitous.  First, yellow taxis in Manhattan.  Second, the use of the time rule formula for allocating an ERISA qualified defined benefit plan for an employee who is still working, using a "shared" formula, a/k/a "Bangs/Pleasant" formula in Maryland, a/k/a "Brown Formula" in California, a/k/a pro-rata formula re: FERS and CSRS - 5 CFR § 838.621. 

Thus, your standard shared interest allocation for a defined benefit plan:

"The Alternate Payee is hereby awarded 50% of the "marital share" of the Participant's retirement annuity benefit if, as and when paid to the Participant.  The "marital share" is determined by a fraction, the numerator of which is the number of  months during the marriage that the Participant accrued creditable service in the plan, and the denominator is the number of months that the Participant accrued creditable service in the plan at the time of his commencement of benefits."

Now we have Fidelity on it's website, setting forth 10 Northrop Grumman defined benefit plans with respect to which they offer only two allocation options: See page 40, line 3 of the attached. 

" ______% (insert percentage) of each of the Participant’s monthly benefit payments from the Plan.
$_____ (insert dollar amount) of each of the Participant’s monthly benefit payments from the Plan."

Note the absence of a time rule option for defining the amount to be paid to the Alternate Payee.  

I now have another attorney telling me that I cannot change the model QDRO to insert a time rule option AND must wait until the Participant actually retires to prepare and submit the QDRO - likely about 20 years in the future. Say what? 

26 IRC Section 414(p)(2) sets forth everything needed for a valid DRO:

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

 BUT, hold on, if the Participant remarries and  then retires,  his new wife becomes irrevocably vested in the survivor annuity and the intended Alternate Payee can never get it....PERIOD.    

See the 1997 decision of the US Court of Appeals, 4th Circuit,  in  Hopkins v. AT&T Global Information Solutions at
http://scholar.google.com/scholar_case?case=9954117838131396049&q=hopkins+at%26T+global&hl=en&as_sdt=2,9

followed by the 5th Circuit in 1999  Rivers v. Central and South West Corporation at   http://scholar.google.com/scholar_case?case=2296953953561556363&q=rivers+central+and+south+west&hl=en&as_sdt=2,9:

“This Circuit agrees with the Fourth Circuit's decision in Hopkins and adopts its rationale. Rivers failed to protect her rights in Franklin's pension plan by neglecting to obtain a QDRO prior to Franklin's retirement date. Consequently, Franklin's pension benefits irrevocably vested in Mrs. Franklin on the date of his retirement and Rivers is forever barred from acquiring an interest in Franklin's pension plan.”

To the same effect see Dahl v. Aerospace Employees’ Retirement Plan, a 2015 case from the U.S. District Court for the Eastern District of Virginia (and cases cited therein) -
https://scholar.google.com/scholar_case?case=3487596170773082469&q=dahl+v.+aerospace&hl=en&lr=lang_en&as_sdt=20000003&as_vis=1

Other cases following Hopkins are collected at:
https://scholar.google.com/scholar?start=0&q="Hopkins+v.+AT%26T"&hl=en&as_sdt=20000006
 
I have changed Fidelity forms like this many times and inserted a time rule formula and it was accepted by the Plan.  

Can anybody cite an IRC/ERISA code provision, or a case decision, or any treatise, that would be contrary to my universal experience that time-rule formulas are acceptable as a method if defining the amount of the Alternate Payee's defined benefit annuity, and that a Plan Administrator/TPA cannot limit the options available?   

Thanks for your insight.   

David 

N-G Shared QDRO Package 42 pages 2019.pdf

This is why it is called "shared interest". The Alternate Payee will get her benefits only when a participant retires or dies before retirement (subject to proper election). If you want to segregate the AP's benefits and allow AP to retire at earliest retirement date, you should use the Separate Interest model.

Easy one; you are right and Fidelity is wrong (sort of).  If you present a well drafted QDRO that has that language, the plan HAS to accept it or give reasons for why it is deficient.  Go ahead and submit your own QDRO (or use their sample but modify; you don't have to use their model you know).  Fidelity is providing an automated method to produce a QDRO but it is not the only way to do it.  Look at page 1, #2 on the attached form. You can plainly submit a manually drafted document if their "samples" don't work for you.

Good luck; you will probably have to be persistent. 

Fidelity is used to strong-arming plans and participants to fit its system rather that create a system that is compliant with QDRO rules.  I have had to protect clients with end-around policies and procedures even in DC plans.  I never had a client willing to take on Fidelity or fire Fidelity over it.  I agree with Larry Starr -- this does not even look like a system fault, only a form of order preference.  You should at least force Fidelity's hand at round one.

Thanks for your comments.  I regularly lecture my colleagues about the dangers of using model QDROs and send them excerpts from Gary Shulman's treatises.

The lawyer on the other side is a very well regarded QDRO practitioner who actually creates pension plans and acts a TPA for some of them.  She ought to know better.  When she speaks I usually listen.  I thought I was going crazy.  And while that may be true in other contexts....not this time.  

The problem is the cost of taking the Plan and/or Fidelity to Court.  

Thanks to all of you.  

David