Designating Successors - DD

Designating Successors


A California appellate court has ruled on whether a non-participant spouse can transfer their community property interest in undistributed retirement benefits to a third party pursuant to a Qualified Domestic Relations Order (QDRO). In re Marriage of Shelstead (1998) 66 Cal.App.4th.


The trial court’s order in 1994 included the language “The share payable to (Janet) shall continue to be paid to (Janet), or her designated successor in interest should (Janet) predecease (Gene), until terminated by (Gene’s) death.” The pension plan administrators, Carpenter’s Pension Trust of Southern California, would not approve the Order. Janet’s attorney went to Court seeking another Order directing Carpenters to comply. The trial court granted the Order against Carpenters, finding that the order was an appropriate QDRO and also awarded attorneys fees against Carpenter of $2,000.00.


On appeal, the appellate court determined that the Shelstead Order was not a QDRO and it violated the Employee Retirement Income Security Act of 1974 (ERISA) (29 U.S.C. §1001). The court explained that it was not a QDRO because a successor in interest is not an “alternate payee” within the meaning of ERISA, which defines “alternate payee” as “any spouse, former spouse, child or other dependent of a participant.” (29 U.S.A. §1056(d)(3)(K). ERISA does not permit a third party the right to receive pension benefits unless that person falls within ERISA’s statutory definition of a beneficiary or alternate payee.


ERISA is a comprehensive federal statutory scheme designed to protect the interests of employees and their beneficiaries in benefit plans. ERISA’s broad preemption clause provides that ERISA provisions preempt any state law relating to an employee benefit plan. It also contains an anti-alienation or spendthrift provision, stating each pension plan shall provide that benefits provided under the plan may not be assigned or alienaged. Congress included the spendthrift provision to protect employees and their dependents from the participant’s financial improvidence and to ensure benefits were available upon retirement.


The recent Supreme Court’s ruling in Boggs v. Boggs (1997) 520 U.S. 833, held that ERISA preempted the state’s community property law, thereby preventing a deceased non-participant spouse from transferring her community property share of undistributed retirement benefits to her children. (Boggs involved a testamentary transfer however and not a dissolution).


Shelstead did not allow the transfer of a non-participant spouse’s community property share of undistributed retirement benefits to a third party, however it was due to an invalid QDRO. Here’s the reasoning. Under ERISA, the transfer of pension benefits between spouses in the context of a dissolution is prohibited unless made pursuant to a QDRO. A domestic relations order is qualified if it creates or recognizes the existence of an alternate payee’s rights to, or assigns to an alternate payee the right to receive all or a portion of the benefits payable with respect to the participant under a plan. As stated, an alternate payee is the spouse, former spouse, child, or other dependent of the participant who is recognized by the domestic relations order as having a right to receive plan benefits. Janet’s order allowed her to name anyone as the successor to her share of plan benefits, and could require the plan to pay benefits to someone other than an alternate payee under ERISA, which made the order invalid.

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