Handling qualified domestic relations orders can be difficult in the best of times for retirement plan administrators. However, when a divorced participant or beneficiary seeks to change or maintain pension survivorship rights with a domestic relations order, determining the rightful beneficiary can become even more complex. Two recent federal court decisions indicate that case law may favor the ex-spouse.
Facts of the Case
In VanderKam vs. PBGC, No. 09-cv-01907 (D.D.C. , May 7, 2013), the District Court for the District of Columbia held that, once a survivor benefit is awarded, it remains irrevocably with the beneficiary in place at the annuity’s starting date and cannot be reassigned.
Melissa and John VanderKam were married at the time of his retirement from bicycle maker Huffy Corp., in 1994. When he started receiving pension benefits, he had designated Melissa as his survivor beneficiary under a qualified joint and survivor annuity with the plan. They divorced eight years after his retirement, and John got remarried, to Gaylyn Dieringer, in 2003.
John then sought to substitute Gaylyn as the survivor beneficiary under his retirement plan through a DRO entered in a Texas state court. Melissa opposed John’s efforts, saying she hadn’t disclaimed any interest in the plan as part of their divorce.
The Huffy plan sided with John’s argument that he had been awarded all rights to his pension, qualified the DRO and replaced Melissa with Gaylyn as an alternate payee whom John could substitute for Melissa. Specifically, the DRO directed that spousal survivorship benefits be paid to Gaylyn for the remainder of Melissa’s lifetime.
In 2004, Huffy filed for Chapter 11 bankruptcy protection, and the U.S. Pension Benefit Guaranty Corporation later became the plan’s trustee. In the course of reviewing John’s benefits, PBGC determined that Gaylyn’s substitution as an alternate beneficiary was invalid, and that Melissa remained his survivor beneficiary under the plan. PBGC said that the state-granted DRO would have given a type of benefit “not otherwise provided under the [Huffy pension] plan.”
Gruber v. PPL Case
In a related case, Gruber v. PPL Retirement Plan, No. 12-2123 (3rd Cir., April 9, 2013), an appellate court vacated an earlier decision by the U.S. District Court for the Eastern District of Pennsylvania and ruled in favor of the ex-wife of a participant granted an early-retirement subsidy by his pension plan.
Cheryl Ann Gruber and Bryn Lindenmuth divorced in 2005; he worked at PPL Corp. and participated in its retirement plan until 2009. As part of their divorce, a QDRO was issued that entitled Gruber to part of Lindenmuth’s pension benefits under the PPL plan. The plan administrator approved the QDRO, stating that if Gruber’s ex-husband retired before age 65, the amount payable to her would “be recalculated to include [roughly half] of the value of any employer subsidy for early retirement.”
Lindenmuth in 2009 was forced into early retirement at age 57 as part of company layoffs, and this triggered his early retirement subsidy. He also was eligible for an additional plan benefit granted certain PPL employees with “enhanced pension benefits.” Gruber then asked that her portion of Lindenmuth’s payments by the PPL plan be adjusted to include her share of the additional benefit. The plan denied her request, arguing that the additional benefit was paid because of Lindenmuth’s layoff, not his early retirement. Gruber later sued under ERISA to seek her share of the “enhanced” benefit.
The district court in March 2012 ruled in the PPL plan’s favor, finding that the couple’s QDRO called for her to receive only a portion of an employer subsidy available “because of early retirement,” not a benefit tied to job elimination, even if Lindenmuth left PPL before age 65.
However, the 3rd Circuit disagreed with this reasoning, finding the additional subsidy to be available only to a class of employees who were eligible for early retirement at the time they were laid off. The appellate court overturned the district court ruling keeping Gruber from receiving a portion of the enhanced subsidy.
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