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Terry-Lynne Lastovich
Dorsey & Whitney LLP
50 South Sixth Street, Suite 1500
Minneapolis, MN 55402-1498
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2004-02A
ERISA Sec. 206(d)(3)
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Dear Ms. Lastovich:
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This is in response to your request on behalf of
Northwest Airlines, Inc. Retirement Plan for Pilot Employees (the Plan)
for an advisory opinion under section 206(d) of Title I of the Employee
Retirement Income Security Act of 1974 (ERISA). Specifically, you ask
whether a domestic relations order that changes a prior assignment of
benefits to an alternate payee to reduce the amount assigned to the
alternate payee may be a "qualified domestic relations order" (QDRO)
within the meaning of section 206(d)(3) of ERISA.
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You represent that this question arises out of a divorce and property
settlement involving a now-retired employee of Northwest Airlines, Inc. (the
participant) and his former spouse (the alternate payee). The participant
has earned a vested pension benefit under the Plan, which is a defined
benefit pension plan. Northwest Airlines, Inc. (Northwest) sponsors and is
the administrator of the Plan.
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In 1997, while the participant was still actively employed, the Plan
received a domestic relations order, dated April 3, 1997, that assigned to
the alternate payee a percentage of the participant's pension benefits (the
1997 Order). The 1997 Order was issued by the District Court of the First
Judicial District, Family Court Division, County of Dakota, State of
Minnesota. In accordance with its procedures, the Plan reviewed the order,
determined it to be a QDRO, and so informed both the participant and the
alternate payee on August 27, 1997.
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In November 2000, while the participant was still actively employed, the
participant notified the Plan that both he and the alternate payee desired
to modify the assignment reflected in the QDRO to reduce the portion of the
participant's benefits that would be paid in the future to the alternate
payee. The participant sought the Plan's advice on how to make such a
change. The Plan advised the alternate payee and the participant that it
would not consider an order that purported to reduce the assignment already
made under a previously recognized QDRO to be permissible.
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Nonetheless, on June 6, 2002, the participant submitted
to the Plan a second domestic relations order, dated June 4, 2002 (the
2002 Order). The 2002 Order was also issued by the District Court of the
First Judicial District, Family Division, County of Dakota, State of
Minnesota. This order stated that the parties to the divorce were "in
agreement" that the QDRO provisions of the 1997 Order should be
altered and therefore ordered that those 1997 QDRO provisions were
"deleted." The 2002 Order set forth new provisions for a
different (and smaller) assignment to the alternate payee.
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During the course of its review of the 2002 Order, the Plan expressed its
doubts as to whether such a reduction in the amount assigned could be
effected by a QDRO and requested both participant and alternate payee to
provide "a written explanation of why this amended order should or
should not be reviewed as a qualified domestic relations order." These
parties declined to offer argument on this issue and continued to assert
that the 2002 Order expressed their consensus on how the participant's
benefits should be divided between them.
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In September 2002, before the Plan had issued a determination on the
qualified status of the 2002 Order, the participant retired, and Northwest
began paying benefits to both the participant and the alternate payee under
the terms of the 1997 Order.
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On November 15, 2002, the Plan sent a letter to the
participant, setting forth its "decision” that the 2002 Order was
not qualified, based upon its view that a subsequent order cannot reduce
the benefits awarded to an alternate payee under a previous domestic
relations order recognized by the Plan as a QDRO. This letter set forth
the following additional determinations: (1) the 2002 Order is
"provisionally" determined not to be a QDRO; (2) the 1997 Order
continues in full force and effect; (3) the Plan has requested an advisory
opinion from the Department of Labor (the Department) on whether an order
that "takes away" benefits previously assigned to an alternate
payee can be a QDRO; and (4) pending issuance of the advisory opinion, the
Plan will continue to pay out benefits in accordance with the 1997 Order.
The letter further advised the participant that, if the Department opined
that the 2002 Order cannot be a QDRO, the Plan's determination would
become "final." The letter further stated that if the Department
opined that the 2002 Order could be a QDRO "even though it 'takes
away' a benefit previously awarded" to the alternate payee, it would
then seek reimbursement of any "overpayments" made to the
alternate payee based on the 1997 Order. If the alternate payee did not
return the "overpayments" the Plan would withhold future
payments to the alternate payee until the "overpayments" were
recovered.
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This request for an advisory opinion ensued. In the context of these facts,
you seek guidance on whether the 2002 Order, which purported to reduce the
amount of the participant's benefits that are assigned to the alternate
payee, could qualify as a QDRO within the meaning of section 206(d)(3) of
ERISA.
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Under section 206(d)(3) of ERISA, the plan
administrator is the party to whom an initial determination of the
qualified status of an order is entrusted. The Department generally does
not provide advisory opinions addressing this question because making such
a determination necessarily requires an interpretation of the specific
provisions of a plan and application of those provisions to specific
facts, including the nature and amount of a participant's pension
benefits. Nonetheless, the Department believes it is appropriate to
provide guidance under section 206(d)(3) on the narrow issue you have
presented of whether a subsequent domestic relations order that alters or
modifies a qualified domestic relations order involving the same
participant and alternate payee may itself be qualified and therefore
supercede the previous order. In providing this guidance, however, the
Department takes no position on whether any particular order described in
this letter is or is not a "qualified domestic relations order"
within the meaning of section 206(d)(3) of ERISA.
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Section 206(d)(1) of ERISA generally requires pension plans covered by Title
I of ERISA to provide that plan benefits may not be assigned or alienated.
Section 206(d)(3)(A) of ERISA states that section 206(d)(1) applies to any
assignment or alienation of benefits made pursuant to a "domestic
relations order," unless the order is determined to be a “qualified
domestic relations order.” Section 206(d)(3)(A) further provides that
pension plans must provide for the payment of benefits in accordance with
the applicable requirements of any order that is determined to be a “qualified
domestic relations order.” The grounds on which the plan administrator
must judge the status of an order that purports to assign benefits are set
forth in the specific subparagraphs of section 206(d)(3).
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Subparagraph (B) of section 206(d)(3) of ERISA defines
the terms "qualified domestic relations order" and
"domestic relations order" for purposes of section 206(d)(3) as
follows:
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(B) For purposes of [section 206(d)(3)] —
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(i) the term "qualified domestic relations
order" means a domestic relations order —
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(I) 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
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(II) with respect to which the requirements of
subparagraphs (C) and (D) are met, and
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(ii) the term "domestic relations order"
means any judgment, decree, or order (including approval of a property
settlement agreement) which —
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(I) relates to the provision of child support, alimony
payments, or marital property rights to a spouse, former spouse, child, or
other dependent of a participant, and
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(II) is made pursuant to a State domestic relations law
(including a community property law).
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Subparagraphs (C) and (D) of section 206(d)(3) of ERISA
contain both positive and negative requirements for qualification of a
domestic relations order. Subparagraph (C) specifies that, in order for a
domestic relations order to be qualified, such order must clearly specify
(i) the name and the last known mailing address (if any) of the
participant and the name and mailing address of each alternate payee
covered by the order; (ii) the amount or percentage of the participant's
benefits to be paid by the plan to each such alternate payee, or the
manner in which such amount or percentage is to be determined; (iii) the
number of payments or period to which such order applies; and (iv) each
plan to which the order applies.
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Subparagraph (D) provides that an order cannot be
qualified if it either (i) requires the plan to provide any type of
benefit, or any option, not otherwise provided by the plan; (ii) requires
the plan to provide increased benefits (determined on the basis of
actuarial value); or (iii) requires the plan to pay benefits to an
alternate payee that are required to be paid to another alternate payee
under another order previously determined to be a qualified domestic
relations order.
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A plan administrator may determine that an order is not
qualified only on the basis of the requirements set forth in section
206(d)(3) of ERISA. In our view, nothing in section 206(d)(3) suggests
that a State court (or other appropriate State agency or instrumentality)
may not alter or modify a previous domestic relations order involving the
same participant and alternate payee, as long as the new domestic
relations order itself meets the statutory requirements. Indeed, the
purpose of section 206(d)(3) is to permit the division of marital property
on divorce in accordance with the directions of the State authority with
jurisdiction to achieve the appropriate disposition of property upon the
dissolution of a marriage. Where a State authority reasserts jurisdiction
over a marital dissolution and issues an order changing a previously
established property allocation, it would appear contrary to this purpose
to create additional requirements, beyond what is specified in section
206(d)(3) of ERISA, that would thwart the exercise of that authority.
Accordingly, provided that a domestic relations order otherwise meets the
requirements of section 206(d)(3) of ERISA, a plan administrator may not
fail to qualify the domestic relations order merely because the order
changes a prior assignment to the same alternate payee.(1)
Thus, it is the Department's view that a plan administrator may determine,
consistent with the requirements of section 206(d)(3), that a domestic
relations order is qualified even if it would supersede or amend a
pre-existing QDRO assigning the same participant's benefits to the same
alternate payee.
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The plan administrator in this case has made apparent
its intention to seek repayments from, or to withhold future payments to,
the alternate payee of amounts paid out in accordance with the 1997 Order.
We do not believe that, under these facts, the plan administrator would
have the authority to do so. As a general matter, a plan administrator
making QDRO determinations has fiduciary duties applicable to the
determination process. The administrator has a duty under section
206(d)(3)(G) of ERISA to determine whether a domestic relations order is a
QDRO within a reasonable time after receipt and to promptly notify the
participant and each alternate payee of the determination. The
administrator has a duty under section 404(a)(1) of ERISA to act prudently
and solely in the interests of the plan's participants and beneficiaries,
and to follow the plan's QDRO procedures unless they conflict with the
provisions of ERISA.
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Because, in this case, the plan administrator had
previously determined the 1997 Order to be a QDRO, the plan was required
to make benefit payments in accordance with the 1997 Order. The plan
administrator took no steps to preserve the amounts that would be affected
by the 2002 Order during its consideration of that order's qualified
status, but continued to make the payments required by the 1997 Order.
Subparagraph (I) of section 206(d)(3) of ERISA provides that, if a plan
fiduciary, acting in accordance with its fiduciary duties, treats a
domestic relations order as being qualified, and pays out benefits in
accordance with its determination and the 18-month segregation rules of
subparagraph (H), the plan's obligations to the participant and any
alternate payee are discharged with respect to such payments.(2)
Accordingly, under these circumstances it is appropriate to treat
the 2002 Order as prospective only. There does not appear to be grounds on
which the plan could seek repayment from the alternate payee of the
benefits paid out in accordance with the 1997 Order.(3)
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This letter constitutes an advisory opinion under ERISA
Procedure 76-1, 41 Fed. Reg. 36281 (1976). Accordingly, this letter
is issued subject to the provisions of that procedure, including section
10 thereof, relating to the effect of advisory opinions.
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Sincerely,
Louis Campagna
Chief, Division of Fiduciary Interpretations
Office of Regulations and Interpretations
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Section 206(d)(3)(D)(iii), which
provides that a domestic relations order may be qualified only if it
does not require the payment of benefits to an alternate payee that
are required to be paid to another alternate payee under a
pre-existing QDRO, does not apply here, where there is only one
alternate payee.
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Although § 206(d)(3)(H) requires an
administrator to segregate amounts that would be payable to an
alternate payee under an order for 18 months pending determination of
the order's qualified status, that section does not require
segregation of amounts that would be transferred from the alternate
payee (per a previously recognized QDRO) to the participant.
Nonetheless, the administrator may have been able, under these facts,
to arrange a voluntary escrow of the amounts in question, since both
the participant and the alternate payee apparently sought the change
in assignment.
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Nothing in this letter is intended
to alter or have any effect on the federal tax consequences under the
Internal Revenue Code (the Code) to the participant and alternative
payee of distributions under either the 1997 Order or the 2002 Order.
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