District Court: QDRO Cannot Change Existing Beneficiary of Joint and Survivor Annuity (Posted on June 11, 2013 by )

US District Court of the District of ColumbiaIt’s a plan administrator’s nightmare: John is married to Melissa, and designates her as beneficiary of his qualified joint and survivor annuity (QJSA). John and Melissa then get divorced, and the divorce decree says that John is awarded “as his sole and separate property” all rights “related to any . . . pension plan . . . existing by reason of [his] past, present, or future employment.” John marries Gaylyn. John then goes to court, and based on that language in the divorce decree, gets a purported qualified domestic relations order (QDRO) substituting Gaylyn for Melissa as the beneficiary under the QJSA. Who is now the beneficiary: Melissa or Gaylyn?

And the winner is… Melissa, according to the District Court for the District of Columbia. The court held that a survivor benefit irrevocably vests in the beneficiary at the annuity starting date and cannot be reassigned thereafter by a domestic relations order. In so holding, it stated that even if “Melissa had the authority to disclaim the Plan’s survivor benefit, that benefit cannot be reassigned to Gaylyn through a QDRO.”

The court rejected John and Gaylyn’s argument that a QDRO could change the beneficiary of a QJSA notwithstanding Treas. Reg. § 1.401(a)-20, Q&A-25(b)(3), which states that:

If a participant dies after the annuity starting date, the spouse to whom the participant was married on the annuity starting date is entitled to the QJSA protection under the plan. The spouse is entitled to this protection (unless waived and consented to by such spouse) even if the participant and spouse are not married on the date of the participant’s death, except as provided in a QDRO.

The court held that this provision meant that a QDRO could change the beneficiary of a QJSA only if the QDRO were secured prior to the participant’s retirement.

And what of Melissa’s waiver of the QJSA? Not only was this found ineffective against the plan, but the court held that ERISA would preempt any attempt to impose a constructive trust under Texas common law on any survivor benefits received by Melissa under the Plan.

For plan administrators of plans covered by ERISA, this decision highlights the importance of reviewing a purported QDRO carefully to make sure it is in accordance with the plan’s terms and the requirements of ERISA. Otherwise, there is the risk that benefits will be paid to one beneficiary, and that another beneficiary (even one who has purportedly waived benefits) will later be in a position to sue the plan for unpaid benefits.

For administrators of plans not covered by ERISA (such as government and church plans), the decision highlights the need to be very clear as to what domestic relations orders will be accepted. A plan administrator must have clear guidance as to whom to pay benefits.

1. VanderKam v. PBGC, No. 09-cv-01907 (D.D.C. May 7, 2013)
VanderKam v. PBGC, No. 09-cv-01907 (D.D.C. May 7, 2013)