As part of a divorce settlement, a participant in a defined benefit retirement plan and his spouse entered into a qualified domestic relations order (QDRO) with respect to the participant’s benefit in the plan. The QDRO assigned to the spouse 53 percent of the present value of the participant’s accrued benefit in the plan as of December 20, 2004. In addition, the QDRO provided that if payments to the spouse commenced while the participant was still employed and the participant subsequently retired prior to attaining age 65, then the amount payable to the spouse would be recalculated to include 53 percent of any employer subsidy for early retirement.
The spouse elected to commence benefits in August 2006, after the participant had attained early retirement age under the plan. The participant continued to work until he was discharged as part of a company-wide reduction in force in 2009.
A participant who elected to receive early retirement benefits under the plan would ordinarily have his or her accrued benefit actuarially reduced to reflect payments being made prior to attainment of age 65; however, enhanced retirement benefits were provided under the plan to employees who were eligible for early retirement and who executed a release following their discharge in connection with certain organizational changes, including a reduction in force. The enhanced retirement benefits provided a qualifying participant with an unreduced retirement benefit – that is, a participant’s monthly pension benefit would be the same as if he or she had retired at age 65.
As a result of his discharge in 2009, the participant was eligible for the plan’s enhanced retirement benefit, and he executed the required release. Pursuant to the QDRO’s terms, the participant’s spouse contended that she was entitled to 53 percent of the enhanced retirement benefit’s value as an employer subsidy for early retirement. The plan administrator rejected the spouse’s claim, reasoning that the enhanced retirement benefit was payable due to a reduction-in-force, not on account of early retirement.
In reviewing the plan administrator’s determination, the court viewed the word “for” as taking on a different meaning than that ascribed to it by the administrator. Starting with the proposition that the QDRO was intended to provide the spouse with 53 percent of her former husband’s retirement benefit, rather than treating “for” as meaning “because of” or “on account of,” the court treated “for” as meaning “to indicate purpose,” such as a “grant for studying medicine.” Because the enhanced retirement benefit applied only to participants who were eligible for early retirement under the plan, the court held that the enhanced retirement benefit was an employer subsidy for early retirement. Accordingly, the spouse was entitled to share in the enhanced retirement benefit pursuant to the QDRO’s terms.
Although ERISA does not require plan administrators to maintain model QDRO forms, many plan administrators frequently do so in the interest of streamlining the QDRO approval process. Plan administrators of defined benefit pension plans that provide for enhanced retirement benefits upon the occurrence of a contingent event may wish to examine the terms of the plan’s model QDRO with an eye toward how any enhanced benefit would be treated under the model QDRO. Gruber v. PPL Retirement Plan (3d Cir. 2013)