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Appellate Court Affirms Award of 401(k) Plan Benefits Under QDRO Issued After Participant’s Death

EBIA  

EBIA  

Miletello v. RMR Mechanical, Inc., 921 F.3d 493 (5th Cir. 2019)

Available at http://www.ca5.uscourts.gov/opinions/pub/18/18-30942-CV0.pdf

A federal appellate court has upheld a trial court’s determination that a deceased plan participant’s former spouse is entitled to part of the participant’s 401(k) plan benefit, even though the participant had remarried and the qualified domestic relations order (QDRO) assigning benefits to the former spouse was issued after the participant’s death. As part of a divorce settlement, the participant had agreed to assign to the former spouse the lesser of $500,000 of his 401(k) benefits or his account balance. But the state court order (the “judgment of partition”) incorporating that assignment of benefits into the divorce decree was not entered until two days after the participant died in a plane crash, and a QDRO regarding the assignment was not issued until 15 months later. In the meantime, the participant’s surviving spouse filed suit in federal court, claiming that she was entitled to the participant’s entire 401(k) benefit. The trial court rejected her claim, and upheld the former spouse’s right to the assigned benefit. The surviving spouse appealed, arguing that the QDRO was untimely because it was not issued within the 18-month window for determining whether an order is a QDRO and was issued after the participant’s death.

The Fifth Circuit Court of Appeals easily dismissed the first objection, noting that the QDRO was issued within 18 months of the judgment of partition, which the surviving spouse herself had identified as the event that should start the clock for determining any QDRO’s validity. Addressing the second objection, the court noted that Congress had amended ERISA to clarify that a QDRO will not fail based solely on when it is issued. DOL regulations also clarify that QDROs may be issued after the participant’s death, even if no order was issued before the participant’s death. Consequently, the QDRO was enforceable. An earlier Fifth Circuit decision reaching a different result was distinguishable because the facts were so dissimilar and the case predated the clarifying changes to ERISA and the DOL regulations.

EBIA Comment: A 401(k) plan participant’s death results in an automatic benefit to a surviving spouse to the extent that the participant was vested at the time of death. A post-death QDRO, then, seems to present the plan with competing claims. In the past, some courts determined that unless the plan administrator had previous notice of the order, the surviving spouse’s rights vested upon the participant’s death, locking out the alternate payee. In other cases, the courts determined that the post-death order was a QDRO and awarded plan benefits to the alternate payee. This issue has been resolved, however, both in the DOL’s regulations and, as this case illustrates, in the courts. For more information, see EBIA’s 401(k) Plans manual at Section XVII.E (“DOL Regulations on Timing and Order of QDROs”).

Contributing Editors: EBIA Staff.

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