Pursuant to Section 1001 of the Pension Protection Act of 2006 (PPA), the Department of Labor (DOL) recently issued an interim final rule and regulations (collectively, the "Regulations") clarifying certain issues relating to the timing and order of domestic relations orders (DRO) under Section 206(d)(3) of the Employee Retirement Income Security Act of 1974, as amended (ERISA). The Regulations provide guidance to plan administrators, service providers, participants and alternate payees on the qualified domestic relations order (QDRO) requirements under ERISA. The Regulations were adopted in response to a specific statutory directive contained in the PPA.
Effective as of April 6, 2007, the Regulations provide that a DRO would not fail to be treated as a QDRO solely because the DRO was issued after, or revises, another DRO or QDRO. The Regulations give an example in which a participant and spouse divorce, and the administrator of the plan receives a DRO. The administrator determines that the order is a QDRO. The QDRO allocates a portion of the participant's benefit to the spouse as the alternate payee under the QDRO. Prior to the distribution of the alternate payee's benefit, the participant and spouse seek and receive a second DRO. The second DRO reduces the portion of the participant's benefits that the spouse was to receive under the original QDRO. The second DRO does not fail to be treated as a QDRO solely because it was issued after, and reduces, the prior assignment contained in the first DRO.
Under another example contained in the Regulations, the same situation is described as in the first example, except that after the administrator of the plan receives the first QDRO, the participant subsequently marries spouse number two. The plan participant and spouse number two then also divorce. The participant's plan administrator subsequently receives a DRO pertaining to spouse number two. The DRO assigns to spouse number two a portion of the participant's benefit not already allocated to spouse number one. The second DRO does not fail to be a QDRO solely because the second DRO is issued after the plan administrator has determined that an earlier DRO pertaining to spouse number one is a QDRO.
The Regulations, through other examples, indicate that a DRO also will not fail to be treated as a QDRO solely because at the time the DRO was issued, (i) the participant had died, (ii) the participant's spouse was no longer a surviving spouse under the terms of the plan's death benefit provision or (iii) the participant had retired and commenced receiving a straight life annuity, where the participant's spouse had waived her surviving spousal rights under the plan.
The Regulations stress that, even though a DRO may not fail to be considered a QDRO because of the timing in which the DRO was issued or revised, it still must comply with ERISA's other requirements and protections applicable to all QDROs. For example, under no circumstances may a DRO require the plan to provide a type or form of benefit, or any option, not otherwise provided for under the plan. Another example in the Regulations indicates that a DRO which assigns benefits that have already been assigned under a previous QDRO would fail to be considered a QDRO.
As always, White & Case is available to discuss the above Regulations or help you with any need you may have with regard to the review of a qualified domestic relations order.