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Brian G. Belisle
Oppenheimer Wolff & Donnelly LLP
Plaza VII
45 South Seventh Street, Suite 3400
Minneapolis, Minnesota 55402-1609
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1999-13A
ERISA Sec. 206(d)(3)
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Dear Mr. Belisle:
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This is in response to your request on behalf of the
UAL Corporation (UAL) and United Air Lines, Inc. (United) for an advisory
opinion. Specifically, you ask how a plan administrator should treat
domestic relations orders the plan administrator has reason to believe are
“sham” or “questionable” in nature.(1)
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UAL is a holding company. Its major wholly-owned subsidiary is United. You
represent that employees of United participate in three pension plans — an
employee stock ownership plan (the ESOP); a 401(k) plan that is a profit
sharing plan qualified under section 401(a) of the Code (the 401(k) Plan);
and a defined benefit pension plan. The ESOP is a combination leveraged ESOP
and non-leveraged stock bonus plan that is qualified under section 401(a) of
the Code. Substantially all of the assets in the ESOP are invested in UAL
stock.
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You represent that the named plan administrator of the ESOP is UAL. UAL has
assigned many of its administrative duties under the ESOP, including the
duty to establish procedures for determining whether a domestic relations
order constitutes a “qualified domestic relations order” (QDRO), to an
ESOP Committee consisting of employees of United. The ESOP Committee has
delegated to United’s Pension Programs Department (Pension Programs) the
responsibility of reviewing and determining whether a domestic relations
order received by the ESOP Committee is a QDRO within the meaning of section
206(d)(3) of ERISA. Appeals of QDRO determinations are made to the ESOP
Committee.
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You further represent that the ESOP permits an alternate payee to request
the immediate lump sum distribution of any benefits under the plan that are
assigned pursuant to the terms of any domestic relations order that the ESOP
Committee determines is a QDRO. The ESOP otherwise permits lump sum
distributions only following a participant’s termination of employment
(including by way of the participant’s death).
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The named plan administrator of the 401(k) Plan is United. United has
delegated the authority to control and manage the administration of the
401(k) Plan, including the duty to establish procedures for determining
whether a domestic relations order constitutes a QDRO, to a Pension and
Welfare Plans Administration Committee (PAWPAC) consisting of employees of
United. PAWPAC in turn has delegated to Pension Programs the responsibility
for reviewing and determining whether a domestic relations order applying to
the 401(k) Plan is a QDRO. Appeals of a QDRO determination are made to
PAWPAC. As with the ESOP, the 401(k) Plan permits the immediate distribution
of benefits under the plan that are assigned pursuant to the terms of a QDRO.
Although an alternate payee may thus receive an immediate lump sum
distribution from the 401(k) Plan, participants or beneficiaries are
entitled to distributions from the 401(k) plan only following termination of
employment (including by way of the participant’s death) or upon financial
hardship.
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You represent that Pension Programs currently has under
review 16 domestic relations orders concerning benefits under the ESOP and
the 401(k) Plan that Pension Programs believes may be “questionable”
or “sham” in nature.(2)
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You detail the grounds for Pension Programs’ suspicions as to the nature
of these domestic relations orders as follows. Pension Programs received
within a very short period of time five domestic relations orders from the
same lawyer (two of the orders were mailed in the same envelope). Each order
related to participants working in United’s maintenance facility located
in Indianapolis, Indiana. Each of the five orders identically provided for
an assignment of 100 percent of the participant’s benefit in the ESOP and
the 401(k) Plan to an alternate payee. Each order made no provision for any
assignment of these participants’ benefits in United’s defined benefit
pension plan. In each of the orders, the alternate payee and participant
were shown as having the same address. Despite its suspicions, Pension
Programs determined that each of the five orders was qualified because they
satisfied the requirements of section 206(d)(3) of ERISA. In Pension
Programs’ view, these orders differed from other domestic relations orders
processed by Pension Programs in that they dealt only with the ESOP and the
401(k) Plan; they provided for assignment of 100 percent of the
participant’s benefit; and they showed the participant and alternate payee
as having the same address.
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After its determination that these five domestic relations orders were QDROs,
Pension Programs received and reviewed 16 other orders that had unusual
characteristics similar to those of the original five orders. These 16
orders similarly provided for a 100 percent assignment of benefits payable
under the ESOP and/or the 401(k) Plan, made no mention of the defined
benefit pension plan, and specified in most cases that the alternate payee
and participant shared the same address. You represent that Pension Programs
performed additional investigation in its review of these 16 domestic
relations orders to determine whether they were qualified.(3)
While these orders were pending review with Pension Programs, two
participants from the Indiana facility called at different times to
determine the status of the review of their orders. You indicate that,
during those conversations, each participant asserted that his order was not
one of the “fraudulent QDROs.” You represent that these statements led
Pension Programs to heighten its scrutiny of the 16 orders assigning 100
percent of the participant’s right to the ESOP and 401(k) benefits.
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You further represent that, after beginning its investigation of the 16
domestic relations orders in question, Pension Programs learned of a
pamphlet entitled “Retirement Liberation Handbook” that was being
distributed by at least one United employee in the Indianapolis, Indiana
area.(4) The pamphlet advocated, as a
method of acquiring a distribution of pension plan benefits before reaching
retirement age, that participants and their spouses obtain a divorce for the
sole purpose of securing a court order assigning pension plan benefits and
then remarry. Such a sham divorce, according to the Liberation Handbook,
would enable the participant to obtain direct control over the investment of
the participant’s pension benefit. The Liberation Handbook also suggested
that single employees could go through a sham marriage and subsequent
divorce, by paying an individual a percentage of the anticipated pension
distribution as compensation for acting as spouse, or could instead quit
employment in order to obtain a similar early distribution and later get
rehired. The Handbook described in some detail how distributions from
pension plans are handled for tax purposes and discussed various options for
distributions and investments of the distributions.
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After reviewing the Liberation Handbook, Pension Programs determined that
all of the 16 orders in question, as well as the original five orders it had
previously deemed qualified, had significant similarities to the specific
format promoted by the Liberation Handbook. For example, two of the initial
five orders requested that distribution be made to an inappropriate account
named in the Liberation Handbook.
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In addition, all of the orders identified by Pension Programs as
questionable relate to the ESOP and 401(k) benefits of employees who, at the
time of the order, resided in the Indianapolis area and were in related work
groups, and all had a number of common characteristics not typically seen in
Pension Programs’ review of domestic relations orders. Included in these
were rapid remarriage and continued use by the putative alternate payee of
United’s no-cost travel for spouses.
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You represent that Pension Programs engaged local counsel in Indiana to
determine whether and to what extent the questionable domestic relations
orders might be valid under Indiana law. Indiana counsel opined that, if the
orders had been obtained as promoted by the Liberation Handbook, (i) the
participant and alternate payee would have committed perjury; (ii) the
parties would be in contempt of court; (iii) the order would have been
fraudulently obtained; and (iv) if the foregoing could be established to the
satisfaction of a judge, the order likely would be vacated by the court.
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You have asked for an advisory opinion as to whether, and if so when, a plan
administrator may investigate or question a domestic relations order
submitted for review to determine whether it is a valid “domestic
relations order” under State law for purposes of section 206(d)(3)(B) 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 an assignment or alienation of benefits pursuant to a
“domestic relations order” unless the order is determined to be a
“qualified domestic relations order” (QDRO). Section 206(d)(3)(A)
further provides that pension plans must provide for payment of benefits
in accordance with the applicable requirements of any QDRO.
Section 206(d)(3)(B) of ERISA defines the terms
“qualified domestic relations order” and “domestic relations
order” for purposes of section 206(d)(3) as follows:
(B) For purposes of [section 206(d)(3)] —
(i) the term “qualified domestic relations
order” means a domestic relations order —
(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
(II) with respect to which the requirements of
subparagraphs (C) and (D) are met, and
(ii) the term “domestic relations order” means
any judgment, decree, or order (including approval of a property
settlement agreement) which —
(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
(II) is made pursuant to a State domestic
relations law (including a community property law).
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Section 206(d)(3)(C) requires 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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Section 206(d)(3)(D) specifies that a domestic
relations order is qualified only if such order does not require (i) the
plan to provide any type of benefit, or any option, not otherwise provided
by the plan; (ii) the plan to provide increased benefits (determined on
the basis of actuarial value); and (iii) the payment of 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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Section 206(d)(3)(G) of ERISA requires the plan
administrator to determine the qualified status of domestic relations
orders received by the plan and to administer distributions under such
qualified orders, pursuant to reasonable procedures established by the
plan. In administering QDROs, plan administrators must follow the plan’s
reasonable procedures, as required under section 206(d)(3)(G), and must
assure that the plan pays only reasonable expenses of administering the
plan, as required by sections 403(c)(1) and 404(a)(1)(A) of ERISA. In this
regard, plan fiduciaries must take appropriate steps to ensure that plan
procedures are designed to be cost effective and to minimize expenses
associated with the administration of domestic relations orders. See
Advisory Opinion 94-32A (Aug. 4, 1994).
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When a pension plan receives an order requiring that
all or a part of the benefits payable with respect to a participant be
paid to an alternate payee, the plan administrator must determine that the
judgment, decree or order is a “domestic relations order” within the
meaning of section 206(d)(3)(B)(ii) of ERISA — i.e., that it relates to
the provision of child support, alimony payments, or marital property
rights to a spouse, former spouse, child or other dependent of the
participant and that it is made pursuant to State domestic relations law
by a State authority with jurisdiction over such matters. Additionally,
the plan administrator must determine that the order is qualified under
the requirements of section 206(d)(3) of ERISA. It is the view of the
Department that the plan administrator is not required by section
206(d)(3) or any other provision of Title I to review the correctness of a
determination by a competent State authority pursuant to State domestic
relations law that the parties are entitled to a judgment of divorce. See
Advisory Opinion 92-17A (Aug. 21, 1992). Nevertheless, a plan
administrator who has received a document purporting to be a domestic
relations order must carry out his or her responsibilities under section
206(d)(3) in a manner consistent with the general fiduciary duties in part
4 of title I of ERISA.
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For example, if the plan administrator has received
evidence calling into question the validity of an order relating to
marital property rights under State domestic relations law, the plan
administrator is not free to ignore that information. Information
indicating that an order was fraudulently obtained calls into question
whether the order was issued pursuant to State domestic relations law, and
therefore whether the order is a “domestic relations order” under
section 206(d)(3)(C). When made aware of such evidence, the administrator
must take reasonable steps to determine its credibility. If the
administrator determines that the evidence is credible, the administrator
must decide how best to resolve the question of the validity of the order
without inappropriately spending plan assets or inappropriately involving
the plan in the State domestic relations proceeding. The appropriate
course of action will depend on the actual facts and circumstances of the
particular case and may vary depending on the fiduciary’s exercise of
discretion. However, in these circumstances, we note that appropriate
action could include relaying the evidence of invalidity to the State
court or agency that issued the order and informing the court or agency
that its resolution of the matter may affect the administrator’s
determination of whether the order is a QDRO under ERISA.(5)
The plan administrator’s ultimate treatment of the order could then be
guided by the State court or agency’s response as to the validity of the
order under State law. If, however, the administrator is unable to obtain
a response from the court or agency within a reasonable time, the
administrator may not independently determine that the order is not valid
under State law and therefore is not a “domestic relations order”
under section 206(d)(3)(C), but should rather proceed with the
determination of whether the order is a QDRO.
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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,
Susan G. Lahne
Acting Chief, Division of Fiduciary Interpretations
Office of Regulations and Interpretations
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You do not ask and we do not opine
as to whether any of the individual domestic relations orders at issue
is “qualified” pursuant to section 206(d)(3) of the Employee
Retirement Income Security Act of 1974, as amended (ERISA) and section
414(p) of the Internal Revenue Code (Code).
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Pension Programs processes between
approximately 200 and 300 domestic relations orders per year for all
of its qualified retirement plans.
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You represent that United pays all
expenses related to the administration of domestic relations orders
and QDROs, including all of the investigative efforts relating to any
questionable QDROs and all legal expenses. You state that no plan
assets of either the ESOP or the 401(k) Plan have been used directly
or indirectly to pay for the expenses of investigating the QDROs at
issue here.
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The Liberation Handbook apparently
first appeared in the classified section of a local advertising
exchange.
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Appropriate action could take other
forms, depending on the circumstances and the fiduciary’s assessment
of the relative costs and benefits, including actual intervention in
or initiation of legal proceedings in State court.
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