In many divorce cases, one of the primary considerations that must be made concerns retirement benefits – whether that be through a typical 401k or a pension or through federal Social Security benefits.
The Employee Retirement Income Security Act of 1974 (ERISA) is a federal statute that sets the minimum standards for most voluntarily-established health plans and pensions in private industry, and it’s intended to protect those enrolled.
Under this law, many plans allow for a survivor annuity, meaning if the recipient of the retirement funds dies, the surviving spouse will continue to receive benefits under the plan.
Of course, the person designated as one’s survivor at the time the plan is formed may not be the same person to whom you are married when you die. In the event of a divorce, litigants need to carefully consider the necessary steps to either preserve their access to this benefit or remove the other spouse as a named beneficiary. Many times, a simple declaration in a divorce settlement is not enough. What may be needed is a qualified domestic relations order (QDRO), and even then, there may be certain stipulations.
Our Highland divorce attorneys recognize these factors need to be carefully parsed prior to the finalization of the divorce agreement, or else there is risk the outcome may be unfairly skewed against one spouse or the other.
In the recent divorce case of Vanderkam v. Vanderkam, before the U.S. Court of Appeals for the District of Columbia, it was failure to follow rigid protocol that caused one man to lose out on the opportunity to transfer the survivor annuity from his ex-wife to his new spouse.
Under ERISA, the ex-wife had a survivor annuity under the old plan. However, claimant/ex-husband argues state law – including a divorce decree – required a declaratory judgment indicated that, after his death, those annuity payments be placed in a constructive trust for his estate. District court rejected this claim, finding ERISA preempted any state law or state-court decree that might defeat a spouse’s annuity. That decision was later affirmed by the federal appellate court.
This case presented a conflict between state community property law and ERISA. The question was whether, after the survivor annuity is vested and without a QDRO, the plan holder could use state law to wrestle control of the former spouse’s benefit.
According to court records, the pair married in 1984. Husband worked at a corporation and enrolled in the firm’s retirement plan, designating his wife as the beneficiary of a 100 percent qualified joint and survivor annuity. Husband retired in 1994, at which time the survivor annuity became irrevocably vested in his wife. He began receiving monthly benefits.
Eight years later, the pair divorced. According to the divorce decree, husband was to be awarded all benefits existing by reason of his past, present or future employment.
The following year, husband re-married and wanted to designate his new wife as the beneficiary of the survivor annuity.
A representative with the pension plan indicated it would be allowed if it was carried out pursuant to a QDRO and, in alignment with ERISA, didn’t require an increase of benefits beyond he and his ex-wife’s actuarial estimates for life expectancy.
To further this cause, ex-husband filed a motion in state court to modify the divorce decree such that his new wife would be named the beneficiary of the annuity and calculating those benefits based on the life expectancy of his ex-wife. However, ex-wife opposed the motion, asserting she consented to the divorce decree allowing him retirement benefits because she believed the survivor benefits would be separate and go to her. She indicated the agreement had been a trade-off, especially considering the retirement funds he earned included “quite a large sum.” She also noted she was not a beneficiary on his life insurance policy, and should he die, the annuity would be her only mean’s of providing for the couple’s son.
State court rejected ex-wife’s assertions and entered a “purported” QDRO stripping her of all interest in the retirement fund – including the annuity.
Pending appeal, the company terminated its pension plan and the Pension Benefit Guaranty Corporation became the statutory trustee. After reviewing this case file, PBGC ruled the state-issued QDRO wasn’t valid because it would have required payment of benefits in a form or option not otherwise provided in the existing language. Essentially, if his new wife survived him, she would get benefits for the remainder of her life rather than the remainder of his ex-wife’s life, which would, the agency argued, result in a “bizarre, hybrid” benefit that was otherwise unavailable. Besides that, the survivor annuity as irrevocably vested in the ex-wife within 90 days of the time it started (in this case, when he retired). Thus, the order couldn’t be transferred to the new wife.
Ex-husband then filed a lawsuit in federal court, challenging the finding. The district court upheld the PBGC’s findings, and that decision was later affirmed by the appellate court.
Family Law Attorney Burton A. Padove handles divorce and child custody matters throughout northern Indiana, including Gary and Hammond.
Additional Resources:
Vanderkam v. Vanderkam, Jan. 20, 2015, U.S. Court of Appeals for the District of Columbia
More Blog Entries:
George v. George – Divorcing an Abusive Spouse, Jan. 20, 2015, Highland Divorce Lawyer Blog