Trust Examination Manual
ERISA Sec. 206(d)(3)
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 within the meaning
of section 206(d)(3) of ERISA.
Dorsey & Whitney LLP
50 South Sixth Street, Suite 1500
Minneapolis, MN 55402-1498
Dear Ms. Lastovich:
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.
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.
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,
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.
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.
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.
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.
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.
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.
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.
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).
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:
(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
(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
(II) is made pursuant to a State domestic relations law (including a community
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.
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.
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.
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.
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)
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
Chief, Division of Fiduciary Interpretations
Office of Regulations and Interpretations
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.
- 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 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.