Court Decision Provides Lessons for What Constitutes a QDRO

A federal appellate court has found that a divorce decree contains all the information required for a qualified domestic relations order (QDRO) under the Employee Retirement Income Security Act (ERISA) and therefore determined that a deceased employee’s life insurance proceeds go to his minor child rather than his named beneficiary.

Although the case involves and employer-provided life insurance plan, it has lessons for what constitutes a QDRO for all ERISA plans.

Bruce and Bridget Jackson divorced in 2006. In their divorce agreement, they agreed to maintain any employer-related life insurance policies for the benefit of their only child, Sierra, until she turned 18 or graduated from high school. At the time, Bruce had an employer-sponsored life insurance policy that listed his uncle, Richard Jackson, as the sole beneficiary.

Bruce never changed the beneficiary of the policy to Sierra before he died in 2013. A district court ordered Sun Life Assurance Company of Canada to pay the life insurance proceeds to Sierra, because the divorce decree suffices as a qualified domestic relations order that “clearly specifies” Sierra as the beneficiary under ERISA Section 1056(d)(3)(C). The 6th U.S. Circuit Court of Appeals affirmed this decision.

In its ruling, the appellate court noted that in 1984, Congress amended ERISA to provide greater protection for spouses and dependents after a divorce. One such protection was an exemption from ERISA’s general preemption provision for “qualified domestic relations orders.” A QDRO includes any state “judgment, decree, or order” relating to the provision of “child support, alimony payments, or marital property rights” that recognizes an “alternate payee’s right to . . . benefits” and meets a number of other requirements.

A domestic order meets the requirements of QDRO only if such order clearly specifies:

• 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,
• 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,
• the number of payments or period to which such order applies, and
• each plan to which such order applies.

The appellate court found the divorce decree met all these requirements.

Arguments by Sun Life unpersuasive

Sun Life offered a number of competing arguments that the appellate court found unpersuasive. For example, it pointed out that it did not begin managing the life insurance plan until 2008, two years after the decree was executed. But, the court ruled it doesn’t matter who manages the plan and when they assume those duties.   

Sun Life also argued that Bruce’s optional life insurance is not “employer-provided life insurance” he, rather than his employer, paid the plan premiums. The 6th Circuit pointed out that the optional life insurance plan was a group policy offered only through the employer, and there would be no reason for the agreement to specify “employer-provided life insurance now in existence at a reasonable cost” if “employer-provided life insurance” covered only policies completely paid for by the employer.

Sun Life argued that the couple failed to comply with the decree’s requirements to change the name of the beneficiary and monitor the beneficiary designation and thus extinguished any rights their child may have had against Sun Life. According to the court, these shortcomings may have entitled the child to take action against the probate estate and perhaps those rights now have been forfeited, but she nows brings a claim under ERISA, not a common-law contract claim. The court ruled that her parents’ alleged non-compliance with the decree does not limit the child’s rights under ERISA. “As long as the order suffices as a qualified domestic relations orders, she deserves the proceeds of her father’s life insurance policy,” the court opinion says.