If you’ve been around retirement plans for any length time, you’ll know that the acronym QDRO (one of many in the benefit business) stands for Qualified Domestic Relations Order.
It’s 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. That is, it meets the requirements under federal law. It’s a topic I’ve written about before. (See Dividing Retirement Benefits on Divorce, and What ERISA Has To Say About It.)
Steve Rosenberg in his Boston ERISA and Insurance Litigation Blog gives us some insight on the practical application of ERISA’s QDRO rules in his recent post, Doing The QDRO Shuffle. Steve writes
Here’s a great opinion, out of the United States District Court for the District of Rhode Island, on QDROs, their statutory basis, their purpose, and how they should be structured. Notably, the court weighs in a very sensible manner on the never ending question of whether, under ERISA, the divorce decree at issue must comply exactly with the requirements imposed by ERISA to qualify as a QDRO or whether instead, as in horse shoes, close enough counts. In this circuit, close enough is usually good enough, and courts tend to enforce the divorce decree so long as the court is convinced it can accurately ascertain the intent and purpose of the agreement from the decree, regardless of whether the exact detailed requirements that ERISA imposes to qualify as a QDRO have been met.
The opinion he references is Metropolitan Life Ins. Co. v. Drainville, and he provides us the Lexis site for it: 2009 U.S. Dist. LEXIS 63613.
But the view of QDROs from 30,000 feet is a little bit different. The Houston Chronicle reports that Continental Airlines has sued 9 pilots who filed divorce papers. Continental claims nine pilots used sham divorces as part of a scheme to collect their pensions early.
In a recent lawsuit, the Houston-based airline claims the pilots used sham divorces to collect their pensions early. Continental alleges 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 alleges that after they got the money, the couples remarried. Why? Continental suggests 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) is far less than a typical airline pilot pension, i.e., 2009 maximum of $54,000 for a 65-year old.
So now what’s a Plan Administrator to do? According to the report, Continental sent copies of the law suit to the Secretary of Labor and the Secretary of the Treasury.
But it’s nothing new. In 1999, UAL Corp, the parent company of United Airlines, asked the Department of Labor (DOL) how a Plan Administrator should treat domestic relations orders the Plan Administrator has reason to believe are “sham” or “questionable” in nature.
The DOL in Advisory Opinion 1999-13A responded by saying that
… “if the plan administrator has received evidence calling into question the validity of an order relating to marital property rights under State domestic relations law, the plan administrator is not free to ignore that information”.
You can read the entire Advisory Opinion here and the DOL’s publication, The Division of Pensions Through Qualified Domestic Relations Orders.
So what’s the answer in situations in which the QDRO is suspect? Let’s use aviation jargon, and just say, let your attorney be the air traffic controller.
Picture credit: Sandkarx via Flickr of Mauna Kea, top to bottom.