Employee could not redesignate beneficiary of survivor benefits subsequent to retirement

An employee could not, pursuant to a domestic relations order, redesignate his current spouse as the beneficiary of plan survivor’s benefits subsequent to his retirement and the receipt of plan benefits, a federal trial court in the District of Columbia has ruled. Survivor’s benefits vest irrevocably in the beneficiary at the annuity starting date and cannot be reassigned by a QDRO after the retirement of the participant, the court explained.

Upon retirement in 1994, an employee began receiving benefits under his employer pension plan in the form of a joint and 100% survivor annuity. At the time he began receiving benefits, the employee was married and designated his wife as his survivor beneficiary under the plan. Following his subsequent divorce, the employee remarried and sought to substitute his new wife as the survivor beneficiary under the plan through a domestic relations order (DRO).

In entering the order, the state court ruled that the former wife had waived her rights to the survivor annuity pursuant to the divorce decree. The plan approved the DRO as a Qualified Domestic Relations Order (QDRO) and substituted the employee’s current wife as an alternate survivor beneficiary. In 2005, however, the PBGC, as statutory trustee of the plan following termination, found the substitution of the alternate beneficiary to be invalid and reinstated the employee’s ex-wife as the survivor beneficiary. In a further determination rendered in 2009, the PBGC explained that spousal waivers must occur at the participant’s date of retirement. Once the benefit election has been implemented, it cannot be changed or waived after the first payment has been made. Accordingly, the PBGC concluded that the DRO was not a valid QDRO and the former spouse’s purported waiver and disclaimer of the survivor benefits was without effect.

The employee and his current spouse, seeking a reversal of the PBGC’s decision in federal court, alleged claims under ERISA and state law. Alternatively, in the event the PBGC decision was upheld, the employee sought the imposition of a constructive trust under state law on benefits received by the former spouse.

Spousal rights vest upon retirement of participant

Initially, the court explained that the PBGC’s decision was entitled to a “presumption of regularity,” and must be upheld as long as the agency engaged in reasoned decision-making and its decision was adequately explained and supported by the record. The court then noted that the PBGC’s ruling was based on decisions of the 4th, 5th, and 9th Circuit Courts of Appeals, which have found that a survivor’s benefit irrevocably vests in the beneficiary at the annuity starting date/retirement date and cannot be reassigned by a QDRO after the retirement of the participant. Accordingly, the court found the PBGC’s decision to be rationally supported by the record and applicable law, dismissing the employee’s argument that a survivor’s benefit cannot vest in a spouse unless and until the spouse actually survives the participant.

DRO was not a valid QDRO

The PBGC further ruled that the DRO issued by the state court was not a valid QDRO because it would violate ERISA §206(d)(3)(D)(i) by authorizing a type or form of benefit not otherwise provided under the plan. The DRO did not change the amount or timing of the payments, which remained payable for the duration of the ex-spouse’s life. However, the DRO did provide for payment to the current spouse, although the plan did not expressly authorize a survivor’s benefit to be paid to a beneficiary that was based on the remaining lifetime of another individual.

ERISA §206(d)(3)(D) does not clearly define what constitutes a type or form of benefit, or option not otherwise provided under the plan. The employee maintained that the type of benefit was authorized by the plan and was not to be paid in a specific manner or time frame not provided for in the plan. The court, however found the PBGC’s determination that the DRO authorized a benefit not provided for under the plan to be a reasonable and permissible interpretation of ERISA.

Source: Vanderkam v. PBGC (DC DC).

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer’s Benefits Reports.

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