In divorce negotiations, a client is going to ask what he or she can expect to receive from his or her spouse’s retirement plan. In order to answer, an attorney must be familiar with the plan because he or she cannot mediate or negotiate a settlement without an understanding of its type and value. Sometimes lawyers and clients negotiate a settlement involving a pension plan, only to discover later that the division will not work or cannot be done at all. Judges rely on lawyers for correct information on pension plans in order to make a fair and valid division. Making an error in the division of a pension, especially when it is a major asset of the divorcing couple, can devastate a client who is starting anew.
In contested divorces, most clients, whether they are the plan participant (the worker) or the alternate payee, (his or her spouse) know whether or not a pension, retirement, 401k or similar plan exists. They may not know much about it, but most are aware of its existence. Unless the spouses have already agreed not to divide the plans, or each have plans that are similar in value, the attorney should, from the beginning of the case, gather basic information about the existence and nature of any deferred compensation plans.
In preparing for negotiations, lawyer and client review the marital assets and the client’s expectations of their division. The lawyer must be cautious about the information the client offers because participants may not know much or may purposefully fail to mention one of the plans and identify others. Spouses may have little information, be unaware of recent, significant plan changes, or not be aware of all the plans the spouse participates in. Client information is only a start.
Almost all pension plans provide the participant with a summary of the plan. A copy of the actual plan document can be obtained, but it is not really necessary because the plan summary packet or booklet identifies all the plans in which an employee may participate and their proper names, the administrator’s name, phone and address. Most plan summaries also contain a section on QDROs and alternate payees and may provide some important information on this aspect.
If the lawyer cannot obtain a plan summary from the client or the opposing party, the plan administrator or employer will provide a summary. Some may refuse without a signed release from the participant or a subpoena. The attitude and cooperation of plans and their administrators vary. The plan administrator may or may not be cooperative, but as a rule, if the questions are posed hypothetically, or only seek general information about the plan, most will cooperate.
The lawyer must contact the plan administrator or the employer and ask some basic questions, and it is important to remember not to treat the plan administrator in an adversarial way. He or she is the person who approves or rejects a QDRO.
In ERISA, a 1974 law that established rules that qualified plans must follow to ensure that plan fiduciaries do not misuse plan assets, Congress gave plan administrators discretionary authority for approving QDROs. According to Investopedia, a ‘pension plan administrator is “[a]n individual responsible for managing the day-to-day affairs and the strategic decisions involved with a group’s pension fund/plan. More specifically, the plan administrator ensures that money is being contributed into the fund, the proper asset allocation decisions are made and that payouts are promptly distributed among all qualified plan participants or beneficiaries.”
In smaller companies for simplicity and cost savings, the employer may be the company’s pension plan administrator. However, as the number of employees grows, the task becomes more time consuming and complex, so an employer normally hires a professional pension plan administrator. In terms of fiduciary duty, the pension plan administrator has a duty to act in the interest of the plan’s participants, not the sponsoring company. ERISA requires accountability of plan fiduciaries, and it defines a fiduciary as “anyone who exercises discretionary authority or control over a plan’s management or assets, including anyone who provides investment advice to the plan.“
Contacting the plan administrator is not discovery. Specific information about a particular participant requires a signed release. Some plans will not give specific information about an account, such as a current balance or benefit, but may tell whether or not the employee participates in certain plans. This is helpful if there are some unidentified plans in the case.
The plan administrator is the party an attorney must contact when pension when benefits are divided in a divorce. This issue should be addressed in the original settlement or decree. In order to receive benefits, recipients must obtain a qualified domestic relations order (QDRO).
A plan administrator may make very generous interpretations of a draft QDRO in order to have it approved. For example, the plan administrator may overlook technical or nonsubstantive deficiencies that otherwise would lead to a rejected order. “Making an enemy of the plan administrator could cause him or her to apply stricter requirements to your QDRO, or even delay the review process,” says one QDRO authority.
Whether an attorney represents the plan participant (the worker) or the alternate payee, it is imperative to remember that the plan administrator is not a party in the divorce action; therefore, “it is essential that [the lawyer] treat the plan administrator in a nonadverserial manner.”
Moreover, sometimes an attorney must contact the plan administrator for other reasons, such as:
> Payments are lower than expected. The plan administrator verifies its calculations, and then compares those figures with the original plan documents. If there is a discrepancy or dispute, an independent actuary or an employment attorney may enter the action.
> Pension plan denied a claim for benefits. Normally, this includes an appeal process to challenge a denial of benefits.
> A party was overpaid and owes money to the plan. This can even occur years after the overpayment. When this happens as a result of inaccurate information, a party may have to repay the money. However, if plan staff made the mistake, it may be required to make restitution to the plan.