Breaking up is hard to do – and more complicated when retirement benefits are involved

In the world of ERISA, there are three parties to a divorce: the retirement plan participant, the ex- (called the alternative payee), and the plan administrator. Or, in the proper order: the participant, the administrator, and the ex-. Because the plan administrator is the person in the middle since he or she has to decide whether a domestic relations order that provides for child support or recognizes marital property rights in the participant’s retirement benefits meets the requirement of a qualified domestic relations order (QDRO) under ERISA.

If, in the determination of the administrator, the order is not a QDRO or if there are competing claims, then the order issued by a state court can’t be honored. And that’s where it gets complicated. Steve Rosenberg in his Boston ERISA and Insurance Litigation blog writes about competing claims in his post, ERISA, Interpleader and Qualified Domestic Relations Orders. In the case he discusses, the ex-wife and the girl friend of a deceased participant are both claiming insurance proceeds under an ERISA plan. So what happens now. Steve writes:

And then what happens next of course, is that the plan administrator, quite rightly, files an interpleader action asking the court to figure out which one of the two should get the proceeds. A plan administrator would err if it did anything else, as ERISA preemption and the plan’s terms would suggest that the girlfriend should get the proceeds, but this would be in direct contradiction of a probate court order; there is no reason for the plan and its administrator to be stuck between the rock of the plan and the hard place of the probate court order. And avoiding being stuck in this type of position is exactly why federal law allows interpleader in this situation.

Steve’s post is a reminder that plan administrators must have QDRO procedures in place to determine the qualified status of domestic relations orders and to administer distributions pursuant to qualified orders. Administrators are required to follow the plan’s procedures for making QDRO determinations.

Translated into practical terms, plan administrators should have the phone number handy of a qualified ERISA attorney.