Alternate Payee Can Pursue QDRO After Participant Death

BNA reports that the court ruled that a property settlement agreement between a pension plan participant and his ex-wife constituted a QDRO, even though it was not deemed “qualified” until after the participant’s death, and thus must be recognized by the plan administrator.

In 1998, Ed Rutyna, an ExxonMobil employee, divorced from his wife, Rita Files.   BNA reports that, according to the court document, the property settlement agreement between Rutyna and Files provided that Files would be entitled to 50% of Rutyna’s benefits under ExxonMobil’s defined benefit plan, and 50% of his benefits under ExxonMobil’s thrift savings plan.

In 2000, Files’ attorney advised ExxonMobil of the divorce and requested a sample QDRO.   After Rutyna gave his authorization, ExxonMobil issued the information requested by Files to Rutyna’s attorney. According to the court, Rutyna’s attorney failed to forward the information on to Files.

When Rutyna died in 2001, no QDRO had been given to ExxonMobil.   Files incorrectly requested “survivor benefits” from ExxonMobil.   The plan administrator denied the claim, saying that the property settlement agreement, coupled with Rutyna’s death before the commencement of his pension benefits, precluded Files from receiving any benefits.  

The court said ExxonMobil based its denial of benefits on its determination that Rutyna’s benefits lapsed upon his death in the absence of any designated survivor annuity.   The company believed that any state court domestic relations order providing for payment of benefits to Files that would be presented after Rutyna’s death would result in the plan having to provide increased benefits to Files and thus would be prohibited by ERISA.

After several rounds of administrative appeals on Files’s request, the state court that oversaw the divorce entered a nunc pro tunc order dated Feb. 7, 2002, which provided that the property settlement agreement between Files and Rutyna was a QDRO with an effective date of July 16, 1998.   Once the order was presented to ExxonMobil, the company said it would not accept a QDRO that was entered after Rutyna’s death and Files sued the plan.

The US District Court for the District of New Jersey ruled in favor of ExxonMobil, finding that the property settlement agreement did not meet the requirements of a QDRO.   The district court also agreed with ExxonMobil that the nunc pro tunc order was not a QDRO because it violated ERISA’s prohibition against requiring plans to provide increased benefits “by providing for a survivorship interest in benefits that had lapsed after the participant’s death.” In its decision the district court relied on a previous appeals court decision in Samaroo v. Samaroo in 1999.

The appeals court noted that the previous 1999 ruling did not outright prohibit the entering of nunc pro tunc QDRO orders after the death of a participant.   The court said the ruling in the prior case was limited to the facts in that case and was distinguishable from the current case in that, while the prior case dealt with survivorship benefits, the case at hand involved a “separate interest QDRO.”

The appellate court reversed the lower court’s decision, saying that nothing in ERISA would have required Files to notify the plan of her 50% interest in Rutyna’s pension prior to his death in order for her to engage in the process of qualifying the property settlement agreement as a QDRO.  

The court wrote, “Despite the Pension Plan’s argument that all pension benefits lapsed upon Rutyna’s death because there was no QDRO, Files’s pursuit of a QDRO posthumously comes within the ambit of the ‘qualification’ process contemplated [under ERISA] as she simply seeks to enforce an interest created prior to Rutyna’s death.”    The court added, “Nothing in the statute, or in our precedent, requires that a QDRO be in place prior to the death of a plan participant when the QDRO that is ultimately obtained by engaging the statutory process simply seeks to enforce a separate interest in a pension benefit that existed before the death of the plan participant.”

The case isFiles v. ExxonMobil Pension Plan, 3d Cir., No. 04-2390, 11/2/05.