FILES v. EXXONMOBIL PENSION PLAN, 428 F.3d 478 (3rd Cir. 2005):

This case involves the pursuit of benefits from a Pension Plan by the ex-wife of a now-deceased Pension Plan participant. The principal issue is whether either the Property Settlement Agreement (“PSA”) entered by the Superior Court of New Jersey, prior to the ex-husband’s death, or an order nunc pro tunc obtained from that same court subsequent to the ex-husband’s death, constitutes a Qualified Domestic Relations Order (“QDRO”) pursuant to the Employee Retirement Income Security Act of 1974 (“ERISA”), as amended by the Retirement Equity Act of 1984 (“REA”), see 29 U.S.C. § 1056(d)(3).

ERISA’s anti-alienation provision states that “[e]ach pension plan shall provide that benefits provided under the plan may not be assigned or alienated.” 29 U.S.C. § 1056(d)(1). The REA amended that anti-alienation provision by setting forth a process to give effect to divorce decrees and state-court orders that pertain to ERISA regulated plans if the order is determined to be a QDRO. See Boggs v. Boggs, 520 U.S. 833, 847, 117 S.Ct. 1754, 138 L.Ed.2d 45 (1997); McGowan v. NJR Service Corp., 423 F.3d 241, 249 (3d Cir.2005); 29 U.S.C. § 1056(d)(3)(A). “QDRO” is defined as a “domestic relations order . . . which creates or recognizes the existence of an alternate payee’s right to, or assigns to an alternate payee the right to, receive all or a portion of the benefits payable with respect to a participant under a plan,” and which meets certain statutory requirements, which are set forth in 29 U.S.C. § 1056(d)(3)(C)(i)-(iv). 29 U.S.C. § 1056(d)(3)(B)(i); see infra at n. 7. “[D]omestic relations order means any judgment, decree, or order . . . which. . . relates to the provision of . . . marital property rights. . . made pursuant to a State domestic relations law. . . .” 29 U.S.C. § 1056(d)(3)(B)(ii). An “`alternate payee’ is `any spouse, former spouse, child, or other dependent of a participant who is recognized by a domestic relations order as having a right to receive all, or a portion of, the benefits payable under a plan with respect to such participant.’” 29 U.S.C. § 1056(d)(3)(K).

In Samaroo v. Samaroo, 193 F.3d 185 (3d Cir.1999), cert. denied, 529 U.S. 1062, 120 S.Ct. 1573, 146 L.Ed.2d 475 (2000), the court held, limited to the facts in that case, that a nunc pro tunc state court order entered after the death of a pension plan participant and which awarded survivor benefits to the deceased participant’s ex-wife was not a QDRO because an entitlement to survivor benefits under a pension plan must be determined as of the date of the plan participant’s death. Otherwise, given that the plan’s pension obligations to its participant lapsed upon his death, a grant of survivor benefits nunc pro tunc made posthumously would result in increased benefit obligations to the plan. 193 F.3d at 190 and n. 3.

Nothing in ERISA requires that the Pension Plan must have been notified of spouse’s interest in fifty percent of an employee’s pension prior to his death in order for the spouse to engage in the process, contemplated by ERISA, of “qualifying” the PSA as a QDRO to enforce her already-existing property interest. See Trs. of Directors Guild of Am. Producer Pension Benefits Plans v. Tise, 234 F.3d 415, 421, as amended upon denial of reh’g, 255 F.3d 661 (9th Cir.2000) (where child support order was converted to a QDRO nunc pro tunc after the death of plan participant, court reasoned there was nothing in ERISA requiring that a QDRO must be finalized before benefits become payable). As was recognized by the United States Court of Appeals for the Ninth Circuit in Tise, the detailed QDRO requirements set forth in ERISA are devoid of any requirement that a QDRO be in place before plan benefits reach pay status under the plan. Id. at 421. Nor do the QDRO provisions of ERISA suggest that the alternate payee has no interest in plan benefits until she obtains a QDRO; rather, they merely prevent enforcement of that already-existing interest until the QDRO is obtained. Id. (citing In re Gendreau, 122 F.3d 815, 819 (9th Cir.1997), cert. denied, 523 U.S. 1005, 118 S.Ct. 1187, 140 L.Ed.2d 318 (9th Cir.1998)). In Gendreau, the Ninth Circuit considered whether the husband/plan participant could, by filing for bankruptcy, prevent his ex-wife from obtaining a QDRO giving effect to a divorce decree that awarded her fifty percent of his pension. The court concluded that the ex-wife’s interest was created upon entry of the state order, which thereby also limited the husband’s interest. These respective interests in the plan were not altered merely because the divorce decree did not meet the statutory requirements for a QDRO. 122 F.3d at 819. What was required was for the ex-wife to obtain a revised state court order that met the QDRO requirements in order to enforce the property interest conferred upon her by the divorce decree; the QDRO only related to enforcement of an already defined interest. Id. The court further recognized that it was precisely because obtaining a QDRO is a time-consuming process that ERISA recognizes periods where the status of a QDRO is at issue. Id. Similarly, we conclude that nothing in the statutory language precluded Files from pursuing a QDRO after Rutyna’s death to enforce her previously existing fifty percent interest in Rutyna’s pension. 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 within 29 U.S.C. § 1056(d) as she simply seeks to enforce an interest created prior to Rutyna’s death.

Indeed, the statutory QDRO requirements expressly contemplate a “qualification” process by which plans, once on notice of a state court DRO, will determine whether a state court DRO is sufficient to alter existing plan obligations. See 29 U.S.C. §§ 1056(d)(3)(H)(i)-(v). This “qualification” process commences with a plan’s notice of the DRO. The statute expressly states that once a plan receives a DRO, within “a reasonable period,” the administrator shall determine whether that order is a QDRO, see 29 U.S.C. § 1056(d)(3)(G)(i)(II), and that each plan shall establish reasonable procedures to determine the qualified status of domestic relations orders, see 29 U.S.C. §§ 1056(d)(3)(G)(ii)(I)-(III). Thus, the statute contemplates and the plan establishes the “process” by which a DRO is “qualified.” Essential to this “qualification” process is the statutory requirement that the plan take steps to ensure the preservation of benefits that are otherwise payable while the determination of QDRO status is undertaken. See Tise, 234 F.3d at 421-22; 29 U.S.C. § 1056(d)(3)(H)(i) (“[d]uring any period in which the issue of whether a domestic relations order is a . . . [QDRO] . . . the plan administrator shall separately account for the amounts . . . which would otherwise have been payable to the alternate payee. . . .”). In that regard, during the first eighteen months after which benefits become payable, the plan must segregate the benefits potentially payable to the alternate payee. 29 U.S.C. § 1056(d)(3)(H)(v). Moreover, ERISA contemplates further state court proceedings during the eighteen-month QDRO determination period in which the alternate payee can cure defects in the original DRO by obtaining modification to the original DRO in order to enforce it as a QDRO. Tise, 234 F.3d at 422 (citing 29 U.S.C. § 1056(d)(3)(H)(ii) (“[i]f within the 18-month period . . . the order (or modification thereof) is determined to be a . . . [QDRO]. . . .”)). It is only after this eighteen-month period has expired that the putative alternate payee loses the right to uphold payment of plan proceeds to a designated beneficiary. Id. (citing 29 U.S.C. § 1056(d)(3)(H)). And even then, if the DRO ultimately is “qualified” as a QDRO, the obligations thereunder shall be applied prospectively. See 29 U.S.C. § 1056(d)(3)(H)(iv).

Nothing in the statute, or in 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. See Tise, 234 F.3d at 421; Patton v. Denver Post Corp., 326 F.3d 1148, 1153-54 (10th Cir.2003) (upholding a nunc pro tunc DRO issued eleven years after a divorce decree pertaining to plan benefits from a plan not known about at the time of the divorce, and declining to infer that the plan must have been notified of the interest prior to the death of the participant); Hogan v. Raytheon Co., 302 F.3d 854, 857 (8th Cir.2002) (permitting posthumous qualification of a DRO because during husband-participant’s life, plan was provided with a copy of divorce decree awarding ex-wife fifty percent of husband-participant’s present retirement funds, and DRO obtained subsequent to husband-participant’s death designating ex-wife as alternate payee for purposes of survivorship benefits was done within the eighteen month period permitted to secure a QDRO).

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