The recent case of Sanzo v. NYSA-ILA Pension Trust Fund illustrates the perils of a badly drafted qualified domestic relations order (“QDRO”). Although directly applicable only to QDROs of ERISA-covered plans, the principles underlying it would also apply to governmental and church plans that allow for the recognition of domestic relations orders.
From the perspective of plan administration, this case illustrates the importance of reviewing purported QDROs carefully, to make sure that their terms will be clear under any possible future circumstances. Otherwise, the plan runs the risk of ending up in the middle of a court battle to interpret an ambiguous domestic relations order after the death of the participant, at which time the issue cannot be resolved simply by amending the existing QDRO.
After the death of Dominick, Anne obtained an “Amended Domestic Relations Order” (“ADRO”) which ordered that Anne was to be deemed the “alternate payee” and, as such, is to be treated as the “surviving spouse” of Dominick for purposes of a preretirement survivor annuity under the plan.
The plan argued, and the court agreed, that the ADRO was not a QDRO, because it violated the requirement that a QDRO “not require the plan to provide increased benefits (determined on the basis of actuarial value).” The court based its reasoning on the fact that Dominick had already died on the date on which the ADRO was entered. Because Dominick had died unmarried and without entering into a QDRO providing for a preretirement survivor annuity, his death had eliminated any right to a preretirement survivor annuity. Thus, one could not be created after his death.
The court distinguished this situation from that in Files v. Exxon Mobile Pension Plan, 428 F.3d 478 (3d Cir. 2005). In the Files case, the court had held that language granting the ex-wife “one-half of the Exxon pension,” had created a separate interest in the pension for the ex-wife, who could have enforced her right to receive benefits prior to the death of her ex-husband. Thus, the after-death order had not granted any increased benefits (determined on the basis of actuarial value).
In reviewing any purported QDRO presented to a plan, the plan administrator is supposed to determine whether it meets the ERISA requirement that, it must specify “the amount or percentage of the participant’s benefits to be paid by the plan to each such alternate payee, or the manner in which such amount or percentage is to be determined.” It is important that this review encompass not only whether the order is clear as to the division of the pension during life, but also what happens if the participant dies before distribution begins, and whether the alternate payee has any say over the forms of distribution the participant can elect. With a properly drafted QDRO, the dispute is entirely between the spouses, and the plan’s involvement is purely administrative. However, acceptance of an improperly drafted order puts the plan itself at risk of incurring litigation costs merely to determine its obligations.