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Laura Wish Morgan

I. Introduction: ERISA’s QDRO Provisions

In 1974, Congress passed the Employee Retirement Income Security Act of 1974 (P.L. 93-406, 88 Stat. 829) (ERISA) to provide better protection for beneficiaries of employee pension and welfare benefit plans in the private workplace. ERISA imposed a number of requirements on these plans relating to reporting and disclosure, vesting, funding, discontinuance, and payment of benefits. These requirements were imposed through amendments to both the Federal labor code (Title 29 U.S.C.) and the Internal Revenue Code (Title 26 U.S.C.). Some of the new statutory language was added to only one or the other of those codes; some was added to both codes to ensure that employers would not receive the tax benefits accorded by “qualified” plans unless those plans met the requirements imposed principally as a matter of Federal labor policy.

One of the provisions added to both codes was an anti-alienation requirement, a “spendthrift” provision precluding plan participants from assigning or alienating their benefits under pension plans subject to the Act. ERISA § 206(d)(1) added § 1056(d)(1) to Title 29 U.S.C., requiring that “[e]ach pension plan shall provide that benefits provided under the plan may not be assigned or alienated.” ERISA § 1021(c) added a similar provision to the Internal Revenue Code. To the definition of “qualified trusts,” it added the requirement that “[a] trust shall not constitute a qualified trust under this section unless the plan of which such trust is a part provides that benefits provided under the plan may not be assigned or alienated.” 26 U.S.C. § 401(a)(13).

In both instances, ERISA allowed a limited exception to this provision, permitting employees actually receiving benefits under a plan voluntarily to assign up to 10% of the benefits for purposes other than defraying plan administration costs. See 29 U.S.C. § 1056(d)(2); 26 U.S.C. § 401(a)(13). The anti-alienation provisions apply to pension plans in particular; there is no similar provision applicable to other kinds of employee benefit plans subject to ERISA. See Mackey v. Lanier Collections Agency & Service, 486 U.S. 825, 108 S.Ct. 2182 (1988).

ERISA § 514, which became part of the labor code (29 U.S.C. § 1144), and to which no counterpart was added to the Internal Revenue Code, provided, with exceptions not relevant here, that the basic requirements of ERISA (including the anti-alienation requirement) “shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan [subject to the ERISA requirements].” The term “State law,” for purposes of § 514, includes “all laws, decisions, rules, regulations, or other State action having the effect of law, of any State.” ERISA § 514(c)(1); 29 U.S.C. § 1144(c)(1) (emphasis added). The preemption provision of ERISA has been regarded by the Supreme Court as “deliberately expansive, and designed to ’establish pension plan regulation as exclusively a federal concern.’” Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 46, 107 S. Ct. 1549 (1987) (quoting in part from Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 523, 101 S. Ct. 1895, 1906 (1981)). See also Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 103 S. Ct. 2890 (1983).

The combination of the anti-alienation provision in both codes and the preemption provision of ERISA § 14 eventually raised a question, apparently not anticipated by Congress, as to the validity of orders entered in State domestic relations proceedings requiring that pension benefits be paid to a person other than the plan beneficiary. The question arose in two principal contexts: attachments served on plan administrators designed to enforce previously entered orders for child or spousal support, and orders entered pursuant to State community property or equitable distribution laws actually transferring pension rights.

Although the courts and the Internal Revenue Service apparently had little problem in giving effect to the first kind of order, there was more uncertainty about the second. While considering what eventually became the Retirement Equity Act of 1984 (P.L. 98-397, 98 Stat. 1433, hereinafter referred to as REA), however, Congress decided to clarify both aspects. The Congressional concern was clearly reflected in the various House and Senate Committee Reports on the REA. The House Ways and Means Committee Report noted the uncertainty caused by the anti-alienation and preemption provisions and stated, at 18:

Your committee believes that the spendthrift rules should be clarified by creating a limited exception that permits benefits under a qualified plan to be divided under certain circumstances. In order to provide rational rules for plan administrators, your committee believes it is necessary to establish guidelines for determining whether the exception to the spendthrift rules applies. In addition, your committee believes that conforming changes to the ERISA preemption provision are necessary to ensure that only those orders that are excepted from the spendthrift provisions are not preempted by ERISA.

The device created to achieve these ends is the QDRO. As further explained in both the House Ways and Means and Senate Finance Committee Reports:

The bill clarifies the spendthrift provisions of the Internal Revenue Code by providing new rules for the treatment of certain domestic relations orders. The bill creates an exception to the ERISA preemption provision with respect to these orders. The bill provides procedures to be followed by a plan administrator and an alternate payee (a child, spouse, or former spouse of a participant) with respect to domestic relations orders.

Under the bill, if a domestic relations order requires the distribution of all or a part of a participant’s benefits under a qualified plan to an alternate payee, then the creation, recognition, or assignment of the alternate payee’s right to the benefits is not considered an assignment or alienation of benefits under the plan if and only if the order is a qualified domestic relations order. Because rights created, recognized, or assigned by a qualified domestic relations order, and benefit payments pursuant to such an order, are specifically permitted under the bill, State law providing for these rights and payments under a qualified domestic relations order will continue to be exempt from Federal preemption under ERISA.

H. Rep. No. 655 at 18; S. Rep. No. 575 at 19, U.S.Code Cong. & Admin.News 1984, pp. 2547, 2565 (emphasis added).

The House Education and Labor Committee Report reflects same purpose, though naturally it was directed more toward the labor code amendments. At 39, the Committee stated:

The Committee believes that ERISA should not preempt state domestic relations law to the extent that ‘qualified domestic relations orders’ are issued under such State law. The bill therefore makes clear that neither the anti-attachment provisions found in section 206 of ERISA and section 40(a) of the Internal Revenue Code of 1954, nor the preemption provisions found in section 514 of ERISA apply to qualified domestic relations orders. It is the Committee’s intent to remove the confusion that now exists in this area. While ERISA should not be a barrier to recovery of alimony, child support and property settlements, the bill makes clear that the orders have to meet specific requirements if they are to be honored by the plan. This will minimize the burden on the plan and eliminate confusion over what the court is ordering. While the order must meet specific requirements in order to be qualified, the general policy underlying the bill’s provisions is that the domestic relations court is the appropriate forum to balance the equities between the parties and settle all controversies.

Because the anti-alienation requirement was part of both the labor and the tax codes, Congress amended both codes to provide for this limited exception. See REA § 104 (amending 29 U.S.C. § 1056(d)); REA § 204 (amending 26 U.S.C. §§ 401, 414). Both provisions begin with the statement that the anti-alienation requirement “shall apply to the creation, assignment, or recognition of a right to any benefit payable with respect to a participant pursuant to a domestic relations order, except that [it] shall not apply if the order is determined to be a qualified domestic relations order.”

The law then defines a “qualified domestic relations order” as a domestic relations order that meets certain requirements set forth in the statute. It must first be a “domestic relations order,” i.e., “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, child, or other dependent of a participant, and (ii) is made pursuant to a State domestic relations law (including a community property law).”

REA §§ 104, 204; 29 U.S.C. § 1056(d)(3)(B)(ii); 26 U.S.C. § 414(p)(1)(B).

It must then meet three other requirements: (1) It must create or recognize the existence of an alternate payee’s right to, or assign to an alternate payee the right to, receive all or a portion of the benefits payable with respect to a participant under a plan, 29 U.S.C. § 1056(d)(3)(B)(i); 26 U.S.C. § 414(p)(1)(A); (2) It 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 such order applies. 29 U.S.C. § 1056(d)(3)(C); 26 U.S.C. § 414(p)(2); and (3) It: (i) does not require a plan to provide any type or form of benefit, or any option, not otherwise provided under the plan, (ii) does not require the plan to provide increased benefits (determined on the basis of actuarial value), and (iii) does not require the payment of benefits to an alternate payee which are required to be paid to another alternate payee under another order previously determined to be a qualified domestic relations order. 29 U.S.C. § 1056(d)(3)(D); 26 U.S.C. § 414(p)(3).

The law requires each plan to establish “reasonable procedures to determine the qualified status of domestic relations orders and to administer distributions under such qualified orders.” 29 U.S.C. § 1056(d)(3)(G)(ii); 26 U.S.C. § 414(p)(6)(B). Upon receipt of a domestic relations order, the plan administrator must notify the participant and the alternate payee of the receipt of the order and the plan’s procedures for determining its qualified status. The administrator has “a reasonable period” of up to 18 months in which to determine that status and inform the parties of the decision. See 29 U.S.C. § 1056(d)(3)(G)-(H); 26 U.S.C. § 414(p)(6)-(7).

Clearly, the QDRO has become an order of high significance in State domestic relations practice. An attempt to cause pension plan benefits payable to one party to be paid to an alternate payee, whether through an attachment in aid of a support obligation or pursuant to the disposition of marital property can succeed only through the mechanism of a QDRO. See Fox Valley & Vicinity Const. Workers v. Brown, 879 F.2d 249, 252 (7th Cir.1989) (“[E]RISA preempts any attempt to alienate or assign benefits by a domestic relations order if that order is not a QDRO.”) Absent such a qualified order, not only will the pension plan administrator refuse to implement the court’s decision, but, given the anti-alienation provisions extant in both the labor and tax codes, coupled with the preemption provision of ERISA § 514 (29 U.S.C. § 1144), there is at least a reasonable argument that a non-qualified order may be invalid even as between the parties.

II. Using QDRO’s to Enforce Spousal and Child Support

Even before ERISA was amended to provide for QDRO’s, there was general acceptance that a pension could be attached to enforce spousal and child support. The House Education and Labor Committee report stated that ERISA was not a barrier to recovery of alimony, child support and property settlements, but the REA amendments were needed to clarify the specific requirements an order needed if it was to be honored by a plan. The amendments themselves then define a domestic relations order as “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, child, or other dependent of a participant, and (ii) is made pursuant to a State domestic relations law (including a community property law).”

A. QDRO’s Not Available to Enforce Support Obligations

Despite the absolute clarity of the law that a QDRO may be used to enforce spousal or child support, a few cases have held that a QDRO may not be used to enforce support arrears, because that would be tantamount to a post-divorce modification of the property division.

In Hoy v. Hoy, 29 Va. App. 115, 510 S.E.2d 253 (1999), at the time of the divorce, the husband had no interest in a pension plan. The decree awarded the wife alimony. After the husband fell behind $84,000 in his alimony, the wife sought a QDRO on the husband’s pension plan, at which time he did have an interest in the plan. The appellate court held that the post-divorce order awarding the wife $84,000 from the pension was not enforcement of a spousal support order via a QDRO, but was instead an improper attempt to reopen and modify the divorce decree. 510 S.E.2d at 254. A QDRO, the court held, must be consistent with the substantive provisions of the original decree, and that statutory exception does not empower the trial court to make substantive modification of the final decree.

The Hoy decision is flat out wrong. A spouse is entitled to attach a pension for the enforcement of support, and doing so does not make the enforcement a new property division. Under the court’s reasoning, placing a lien on the husband’s bank accounts or other assets would also be an improper modification of the divorce decree, thereby rendering any attempt at enforcement impossible. It is especially perplexing that the Virginia court reached this conclusion in light of the line of cases holding that a pension is both an asset for division and a source of income available for support. Moreno v. Moreno, 24 Va. App. 190, 480 S.E.2d 792 (1997).

Hoy should be contrasted with DeSantis v. DeSantis, 714 So. 2d 638 (Fla. DCA 1998). In this case, the divorce judgment had awarded the husband his pension plan, and had awarded the wife her pension plan. After the wife failed to make a court ordered cash payment to the husband, the trial court entered a QDRO to attach assets on the wife’s pension plan. The appellate court reversed, holding that were the court to grant a QDRO attaching the wife’s pension in favor of the husband, this would be tantamount to granting the husband an interest in an asset that he was not entitled to, that the final judgment had extinguished. The court of appeals, like the court in Hoy, held that this would be an impermissible modification of the final adjudication of property rights in the divorce case. Cf. Hayden v. Hayden, 662 So. 2d 713 (1995) (QDRO may be used to enforce support obligations). DeSantis is defensible, because the cash payment was not support, but part of the property division. See also In re Marriage of Marshall, 36 Cal. App. 4th 1170, 43 Cal. Rtpr. 2d 38 (1995) (QDRO cannot be used to enforce a collateral, contingent tax liability in a dissolution action).

B. QDRO’s Available to Enforce Support Obligations

Fortunately, most courts have not fallen into the trap of thinking that attaching a pension via a QDRO for enforcement of support is somehow an impermissible ex post facto modification of the property division. Indeed, most courts have accepted the premise with little discussion. See Cody v. Cody, 594 F.2d 314 (2d Cir. 1979); Merry v. Merry, 592 F.2d 118 (2d Cir. 1979); Sippe v. Sippe, 101 N.C. App. 194, 398 S.E.2d 895 (1991).

Recently, in Hogle v. Hogle, 732 N.E.2d 1278 (Ind. 2000), the husband was ordered to pay $1,000 a month in child support under a 1979 California decree. By 1979, his arrearage had reached over $375,000. The wife reduced the arrears to money judgments by writs of attachment, and she then sought enforcement of the writs in Indiana. The Indiana court held that the writs satisfied the technical requirements of a QDRO. ERISA, the court reasoned, does not require a QDRO to part of the judgment in the case, but a QDRO can be used to garnish a retirement plan to satisfy past due support obligations.

Rife v. Rife, 529 N.W.2d 280 (Iowa 1995), reached the same result. There, in a 1982 divorce, the wife was awarded $500 a month in alimony. The husband made two payments in the next twelve years. In 1993, the wife obtained a QDRO that ordered the arrearage of $12,000 be satisfied by means of a garnishment of the corpus of the husband’s pension plan. The Iowa court upheld the order, noting that ERISA was not intended to be a vehicle for the avoidance of family support obligations. “We see nothing in the federal statute that prohibits invasion of the corpus.” 529 N.W.2d at 281.

In re Marriage of Bruns, 535 N.W.2d 157 (Iowa Ct. App. 1995), specifically disavowed the reasoning employed in Hoy. In this case, the court held that attachment by means of a QDRO of a former spouse’s pension plan does not amount to an improper modification of the final adjudication of property rights, even when there has been an adjudication establishing that the creditor spouse has no interest in the debtor spouse’s pension. The court held that the wife was not seeking to redistribute property previously awarded in the divorce decree, but was instead seeking to enforce an alimony provision through garnishment or attachment. 535 N.W.2d at 161.

Likewise, in Baird v. Baird, 843 S.W.2d 388 (Mo. Ct. App. 1992), the wife sought a lump sum distribution from the pension plan’s current balance to cover past due spousal and child support. The trial court denied the request, noting that the divorce decree had awarded the husband his pension. The trial court, like the court in Hoy, held that a QDRO entered 11 years after the divorce would be an unlawful modification of the property division portion of the divorce decree. The court of appeals reversed, holding that a QDRO could be used to enforce the delinquent support payments.

Stinner v. Stinner, 520 Pa. 374, 554 A.2d 45 (1989), also allowed a quasi-QDRO for enforcement of support. In that case, the Stinners were married in 1956 and divorced in 1977. They entered into a property settlement agreement prior to the divorce that provided that the husband would pay alimony to the wife. After 18 months, the husband ceased payments. The wife brought an action in assumpsit for breach of the agreement, and a complaint in equity to enforce the agreement. Six years later, the wife filed two writs of execution to garnish the husband’s Bethlehem Steel pension. The plan administrator refused to comply with the writ of execution on the grounds that it was not a QDRO. The trial court agreed.

The appellate court, however, reversed, and held that the pension could be attached to enforce the alimony agreement, and although the writ of execution itself was not a QDRO, a 1980 judgment enforcement the alimony agreement was a QDRO. The 1980 judgment satisfied the requirements of a QDRO in that it was related to alimony payments for a former spouse, it was made pursuant to Pennsylvania domestic relations law, it specified the amount of the participant’s benefits to be paid and a period to which the order applied, and it named the plan participant and the alternate payee.

III. Conclusion

Congress has made it clear that QDROs may be used to enforce spousal and child support obligations. To do so is not an impermissible modification of a property division award, but only a means of enforcement of an obligation. It is time Virginia reversed the Hoy decision and got with the program.

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