On a clear day, you can see ... a QDRO?
That’s the album cover of the original Broadway cast recording of the 1965 musical, On a Clear Day You Can See Forever (which subsequently went on to become a movie starring Barbara Streisand in 1970 and which will be returning to Broadway starring Harry Connick, Jr. this Fall).
It’s the story of clairvoyant Daisy Gamble who attends a class taught by a psychiatrist for help in kicking her smoking habit. While undergoing hypnosis, it is discovered she had a past life in late 18th century England. And until the recent Appellate Court decision in Brown v. Continental, she might have had a future as a Plan Administrator dealing with QDROs.
That’s the acronym for Qualified Domestic Relations Orders which is a court order that creates a right for an alternative payee to receive some or all of a participant’s benefits in a qualified retirement plan. It’s one of those exceptions to the Internal Revenue Code’s general rule that prohibits benefits in a qualified retirement from being assigned or alienated.
And it’s up to the Plan Administrator to determine whether a DRO (another one of those acronyms) or Domestic Relations Order issued by a judge pursuant to a state domestic relations law is, in fact, a QDRO.
Maybe Daisy could have helped two years ago when Continental Airlines claimed that nine pilots used sham divorces to collect their pensions early, a situation about which I blogged, QDROs:The View From 30,000 Feet.
Continental went on to sue those pilots alleging that the pilots filed divorce papers but continued to live with their spouses and didn’t tell anyone – including their children. Once the divorces were final, the former spouses received rights to the pilots’ pensions and applied for lump-sum distributions, which Continental said were worth as much as $900,000 apiece. Continental also alleged that after they got the money, the couples remarried.
Continental claimed that the pilots were concerned about losing significant parts of their pensions because of the financial difficulties the airline industry was encountering, and that the maximum annual pension guaranteed by the Pension Benefit Guaranty Corp. (PBGC) was less than a typical airline pilot pension.
But now, in the aforementioned Brown v. Continental case, The United States Court of Appeals for the Fifth Circuit agreed with the District Court (Southern District of Texas) decision that ERISA does not does not authorize a Plan Administrator to investigate or even consider the good faith, or lack thereof, underlying a divorce.
So what are the takeaways here.
... the Court is promoting simplicity for administrators. Look at the court order, confirm that it complies with the criteria for a QDRO set forth in Section 206(d)(3)(D), and then stop. Don’t out-think yourself.
From a moral standpoint, you're on your own.