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In a Battle of Acronyms, a QDRO Protects Your Retirement Account from ERISA Preemption

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By: Dana M. Horlick, Attorney, Woodruff Family Law Group

 

VanderKam v. VanderKam, 776 F.3d 883 (D.C. Cir. 2015)

(a) Facts: Before the parties were divorced, the wife was the death beneficiary of the husband’s retirement plan. The parties were divorced in Texas. Their divorce decree was silent on survivor benefits, but awarded the husband all rights existing because of his employment.

After divorce, the husband sought to name his second wife as survivor beneficiary. The first wife objected, and asked a Texas state court to hold that she was the proper beneficiary. The state court held that the first wife had waived her rights, and that the husband was free to name the second wife.

The plan encountered financial difficulty, and was taken over by the Pension Benefit Guaranty Corporation (PBGC). PBGC determined that the death beneficiary could not be changed after the first payment of retirement benefits to the employee and the order could not be qualified as a QDRO.

The husband asked a federal district court to overturn PBGC’s determination. The district court held that PBGC’s ruling was correct and that any rights the husband might have under Texas state law were preempted by ERISA.

(b) Issue: Did ERISA preempt the husband’s rights under Texas state law?

(c) Answer to Issue: Yes.

(d) Summary of Rationale: The court construed Boggs v. Boggs, 520 U.S. 833, 843 (1997), to provide that whenever state law conflicts in any way with ERISA, state law is preempted for all purposes. ERISA provided that the first wife received the benefits because the Texas state order was not qualified; Texas state law provided that the second wife received the benefits. A clear conflict existed, and ERISA controlled.

The husband argued that Texas state law should control under footnote 10 of Kennedy v. Plan Administrator for DuPont Savings & Investment Plan, 555 S. 285 (2009), which refused to rule on whether state law rights of action could exist between competing beneficiaries under ERISA plans if the plan administrator was not involved. He further relied upon Andochick v. Byrd, 709 F.3d 296 (4th Cir. 2013), which held that ERISA did not bar such actions.

The D.C. Circuit distinguished Andochick:

Unlike Andochick, however, this is not a post-distribution case. Rather … John seeks a pre-distribution declaration that he currently “has equitable title to the … survivor benefit payments.” Second Am. Compl. 13. Moreover, none of the cases John cites, including Kennedy,  involves survivor annuity benefits. Instead, they concern other ERISA benefits … that are not subject to the rigorous waiver provisions that govern survivor annuities. With respect to survivor annuities, absent an express and witnessed waiver, “Congress has spoken with force and clarity in directing that the proceeds belong to the named beneficiary and no other.” Hillman, 133 S.Ct. at 1951 (citation omitted).

VanderKam, 776 F.3d at 892 (quoting Hillman v. Maretta, 133 S. Ct. 1943, 1949 (2013). The court carefully limited its opinion to the facts of the cases, which involved survivor benefits.

Comments:

  • VanderKam adopted an expansive reading of Boggs suggesting that ERISA preempts any conflicting state law in any context.
  • There is no logical reason why the scope of ERISA preemption should depend upon whether benefits have been distributed. State law either should or should not be preempted by ERISA; this question should not turn upon whether suit is filed before or after distribution.
  • ERISA offers specific protections that limit the conditions under which survivor benefits can be waived without a spouse’s consent. This could be a reason to find that state law rights in survivor benefits are preempted, when state law rights in other ERISA-regulated benefits are not.

Lesson: The central problem in VanderKam was that the divorce decree did not expressly state whether the wife would receive survivor benefits. When drafting agreements and divorce decrees, always state expressly whether spouses must be retained as survivor beneficiaries. If the parties intend to create rights in ERISA-regulated benefits, always have those rights stated in a proper state court order and approved as a QDRO in a timely manner after the divorce.