[Federal Register Volume 75, Number 111 (Thursday, June 10, 2010)]
[Rules and Regulations]
[Pages 32846-32852]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-13868]
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
29 CFR Part 2530
RIN 1210-AB15
Final Rule Relating to Time and Order of Issuance of Domestic
Relations Orders
AGENCY: Employee Benefits Security Administration, Department of Labor.
ACTION: Final rule.
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SUMMARY: This document finalizes an interim final rule published on
March 7, 2007, which was adopted in response to the specific statutory
directive contained in section 1001 of the Pension Protection Act of
2006, Public Law No.
[[Page 32847]]
109-280 (PPA), requiring the Secretary of Labor to issue, not later
than one year after the date of the enactment of the PPA, regulations
clarifying certain issues relating to the timing and order of domestic
relations orders under section 206(d)(3) of the Employee Retirement
Income Security Act of 1974, as amended (ERISA). The rule provides
guidance to plan administrators, service providers, participants, and
alternate payees on the qualified domestic relations order (QDRO)
requirements under ERISA. The rule is being adopted in response to the
specific statutory directive contained in the PPA.
DATES: The final rule is effective on August 9, 2010.
FOR FURTHER INFORMATION CONTACT: Allison E. Wielobob, Office of
Regulations and Interpretations, Employee Benefits Security
Administration, U.S. Department of Labor, Washington, DC 20210, (202)
693-8510. This is not a toll free number.
SUPPLEMENTARY INFORMATION:
A. Qualified Domestic Relations Order Provisions
Section 206(d)(3) of title I of ERISA, and the related provisions
of section 414(p) of the Internal Revenue Code of 1986 (Code),
establish a limited exception to the prohibitions against assignment
and alienation contained in ERISA section 206(d)(1) and Code section
401(a)(13).\1\ Under this limited exception, a participant's benefits
under a pension plan may be assigned to an alternate payee, defined as
the participant's spouse, former spouse, child, or other dependent,
pursuant to an order that constitutes a qualified domestic relations
order (QDRO) within the meaning of those provisions. Such QDROs, in
addition, survive the federal preemption of State law imposed by ERISA
section 514(a) by virtue of ERISA section 514(b)(7).
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\1\ The QDRO provisions were added to ERISA and the Code by the
Retirement Equity Act of 1984 (REA), Public Law No. 98-397, 98 Stat.
1426 (1984). Except where no corresponding provision exists, all
references to paragraphs of ERISA section 206(d)(3) should be read
to refer to corresponding provisions of Code section 414(p). The
Secretary of Labor has authority to interpret the QDRO provisions,
section 206(d)(3), and its parallel provision at section 414(p) of
the Code, and to issue QDRO regulations in consultation with the
Secretary of the Treasury. 29 U.S.C. 1056(d)(3)(N) and 26 U.S.C.
414(p)(13). The Secretary of the Treasury has authority to issue
rules and regulations necessary to coordinate the requirements of
section 414(p) (and the regulations issued by the Secretary of Labor
thereunder) with the other provisions of Chapter 1 of Subtitle A of
the Code. 26 U.S.C. 401(n). The Secretary of the Treasury and the
Pension Benefit Guaranty Corporation were consulted in connection
with the final rule.
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Pursuant to the QDRO provisions, a plan administrator must
determine, in accordance with specified procedures, whether an order
purporting to divide a participant's benefits under a plan meets the
applicable requirements set forth in section 206(d)(3) of ERISA.\2\ If
the plan administrator determines that the order meets these
requirements and is, accordingly, a QDRO within the meaning of section
206(d)(3), the plan administrator must distribute the assigned portion
of the participant's benefits to the alternate payee or payees named in
the order in accordance with the terms of the order.
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\2\ For purposes of the Code, the requirements of section
414(p)(2) and (3) (parallel to ERISA section 206(d)(3)(C) and (D))
do not apply to governmental plans, church plans, or eligible plans
under Code section 457(b). See Code section 414(p)(9) and (11).
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Subparagraphs (G) and (H) of ERISA section 206(d)(3) set forth
provisions relating to the procedures that a plan must establish, and a
plan administrator must observe, in determining whether an order is a
QDRO and in administering the plan and the participant's benefits
during the period in which the plan administrator is making such a
determination. The plan's procedures must be reasonable, must be in
writing, must require prompt notification and disclosure of the
procedures to participants and alternate payees upon receipt of an
order, and must permit alternate payees to designate representatives
for notice purposes. In addition, the plan administrator must complete
the determination process and notify participants and alternate payees
of its determination within a reasonable period after receipt of the
order.
Subparagraph (H) of section 206(d)(3) provides specific procedural
protection of a potential alternate payee's interest in a participant's
benefits during the plan's determination process and for a period of up
to 18 months (the 18-month period) during which the issue of the
qualified status of a domestic relations order is being determined--
whether by the plan administrator, by a court of competent
jurisdiction, or otherwise. During the 18-month period, a plan
administrator must separately account for any amounts that would have
been payable to the alternate payee if the order had been immediately
treated as a QDRO and must pay these amounts (including any interest
thereon) to the alternate payee if the order is determined to be a QDRO
within such period. If the issue as to whether the order is a QDRO is
not resolved within the 18-month period, the plan administrator is to
pay such amounts to the person or persons who would have been entitled
to the amounts if there had been no order. Any determination that an
order is a QDRO that is made after the close of the 18-month period is
to be applied prospectively only.
If a plan fiduciary, acting in accordance with the fiduciary
responsibility provisions of part 4 of title I of ERISA, treats an
order as a QDRO (or determines that such an order is not a QDRO) and
distributes benefits in accordance with that determination, paragraph
(I) of section 206(d)(3) provides that the obligations of the plan and
its fiduciaries to the affected participants and alternate payees with
respect to the distribution shall be treated as discharged.
The QDRO provisions detail specific requirements that an order must
satisfy in order to constitute a QDRO. The order must be a ``domestic
relations order,'' which is a judgment, decree, or order issued
pursuant to a State domestic relations law (including a community
property law) that relates to the provision of child support, alimony
payments, or marital property rights to a spouse, former spouse, child,
or other dependent of a participant. Section 206(d)(3)(B)(ii). It must
create or recognize the existence of an alternate payee's right to
receive all or a portion of the benefits payable with respect to a
participant under a plan. Section 206(d)(3)(B)(i). Further, it must
clearly specify the name and 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(s) 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 the order applies; and each plan
to which the order applies. Section 206(d)(3)(C). An order will fail to
be a QDRO, however, if it requires the plan: To provide any type or
form of benefit, or any option, not otherwise provided under the plan;
to provide increased benefits determined on the basis of actuarial
value; or to pay benefits to an alternate payee that are required to be
paid to another alternate payee under another order previously
determined to be a QDRO. Section 206(d)(3)(D).
B. Pension Protection Act of 2006
Under section 1001 of the Pension Protection Act of 2006 (PPA),
Public Law 109-280, section 1001, 120 Stat. 780 (2006), Congress
instructed the Secretary of Labor to issue regulations, not later than
one year after the date of the enactment, under section 206(d)(3) of
ERISA and section 414(p) of the
[[Page 32848]]
Code, to clarify that--(1) a domestic relations order otherwise meeting
the requirements to be a QDRO, including the requirements of section
206(d)(3)(D) of ERISA and section 414(p)(3) of the Code, shall not fail
to be treated as a QDRO solely because--(A) the order is issued after,
or revises, another domestic relations order or QDRO; or (B) of the
time at which it is issued. Section 1001 of the PPA also requires that
the regulations clarify that such orders are subject to all of the same
requirements and protections that apply to QDROs, including the
provisions of section 206(d)(3)(H) of ERISA and section 414(p)(7) of
the Code.
C. Interim Final Rule and Public Comments
On March 7, 2007, the Department published an interim final rule
(IFR) with a request for comments.\3\ The IFR closely tracks the
statutory language of section 1001 of the PPA. The IFR also includes
several illustrative examples of specific fact patterns that the
Department understands to be relatively common situations faced by
plans. The Department received 24 comments in response to the request
for comments contained in the IFR. Overall, the comments were
favorable.
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\3\ 72 FR 10070.
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A number of commenters asked the Department to add additional
examples to illustrate the rules in the regulation. The suggested
additions generally were slight variations on the existing examples.
The Department was not persuaded that additional examples are necessary
to illustrate or further clarify the general rules of the regulation.
To the contrary, the Department is concerned that, by adding more
examples, some might conclude that the examples themselves are the only
circumstances to which the general principles, contained in paragraphs
(b)(1), (c)(1), and (d)(1) of the final regulation, apply. Such a
conclusion would be inconsistent with the intent of the Department.\4\
Accordingly, the Department, with one exception (discussed below), has
decided against adding additional examples.
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\4\ The examples in paragraphs (b)(2), (c)(2), and (d)(2) of the
final regulation show how the rules in paragraphs (b)(1), (c)(1),
and (d)(1), respectively, apply to specific facts. They do not
represent the only circumstances for which these rules apply.
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A number of commenters were concerned that Example (1), set forth
in paragraph (c)(2) of the IFR, could be interpreted as requiring a
plan fiduciary to reject a posthumous order if the plan fiduciary was
not given notice of that order before the death of the participant. The
Department does not agree with that interpretation of the example.
Example (1) was intended to clarify that a domestic relations order
will not fail to be a QDRO solely because it is issued after the death
of a participant. The example dealt solely with the timing issue and
its conclusion does not depend on the plan's receipt of pre-death
notification of the domestic relations order. The facts of the example
include pre-death notification merely because, as indicated above, the
Department understands this to be a fairly frequent fact pattern
confronted by plans. Nothing in the example should be construed as a
requirement under section 206 of ERISA that an otherwise valid
posthumous order fails to be a QDRO merely because the plan was not put
on notice of the order while the participant was alive.\5\ This
example, which is in paragraph (c)(2) of the final regulation, has been
modified to address the concern raised by these commenters.
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\5\ Example (1) in paragraph (d)(2) of the IFR regulation also
dealt with a posthumous domestic relations order, but in this
example no pre-death notice is given to the plan. This example dealt
solely with the type or form of benefit. Although the order in this
example fails to be a QDRO, the conclusion is unrelated to the
absence of pre-death notification to the plan. This example is
unchanged and is in paragraph (d)(2) of the final regulation.
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A number of commenters expressed concern that Example (3), set
forth in paragraph (c)(2) of the interim final regulation, could be
read to require plans to provide a type or form of benefit, or an
option, not otherwise available under the plan contrary to section
206(d)(3)(D)(i) of ERISA. Example (3) was intended to clarify that a
domestic relations order will not fail to be a QDRO merely because it
is issued after the annuity starting date. The example dealt solely
with the timing issue and assumed that for all other purposes,
including the requirements of paragraph (d)(3)(D)(i), the order met the
requirements of section 206. In this regard, it is the view of the
Department that a domestic relations order issued after the annuity
starting date would not violate the requirements of section
206(d)(3)(D)(i) merely because the order requires the allocation of
some or all of the participant's determined benefit payment under the
applicable optional form of benefit to an alternate payee. In such
cases, the plan is merely required to pay a portion of the benefit
otherwise due to the participant to another person. On the other hand,
any domestic relations order received by a plan after the original
annuity starting date of the participant that would require
reannuitization with a new annuity starting date would violate section
206(d)(3)(D)(i), unless the plan specifically provides for such an
option. Examples of an order requiring a reannuitization with a new
annuity starting date would include an order issued after the annuity
starting date directing the plan to substitute one measuring life for
another or directing the plan to change the form of benefit, such as
from a single life annuity to a qualified joint and survivor annuity
(QJSA) with a death benefit or from an annuity to a lump sum payment.
In an effort to clarify the application of the principles in this
paragraph, the Department has modified Example (3), set forth in
paragraph (c)(2) of the final regulation, and has added Example (4) to
paragraph (d)(2) of the final rule.
With regard to the principle, expressed above, that a domestic
relations order issued after the annuity starting date does not violate
the requirements of section 206(d)(3)(D)(i) merely because the order
requires the allocation of some or all of the participant's determined
monthly benefit payment to an alternate payee, the Department, based on
its review of sections 206 and 205 of ERISA, the case law, and other
relevant guidance, is of the view that such principle does not apply to
a domestic relations order that is received after the annuity starting
date and that requires an allocation to an alternate payee of some or
all of the death benefit that, under the form of benefit in effect, is
payable to another beneficiary.\6\ An example of this is a plan's
receipt of a domestic relations order after the annuity starting date
of a QJSA that assigns to the participant's former spouse a shared
payment of the participant's current spouse's survivor benefits under
the QJSA.
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\6\ See Boggs v. Boggs, 520 U.S. 833 (1997); Hopkins v. AT & T
Global Info. Solutions Co., 105 F.3d 153 (4th Cir. 1997); Rivers v.
Central & S.W. Corp., 186 F.3d 681 (5th Cir. 1999); Carmona v.
Carmona, 548 F. 3d 988 (9th Cir. 2008); 26 CFR 1.401(a)-20 Q&A-
25(b)(3) (second sentence); and 29 CFR 4022.8(d).
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A number of commenters asked the Department to undertake an
education campaign on QDROs. The Department's Employee Benefits
Security Administration (EBSA) already conducts various educational
outreach programs aimed at increasing awareness of the requirements of
ERISA and helping fiduciaries meet their legal obligations. In response
to these specific comments, however, EBSA will update its educational
handbook ``QDROs--The Division of Pensions Through Qualified Domestic
Relations Orders'' that is available at http://www.dol.gov/EBSA/publications.
[[Page 32849]]
A number of commenters raised QDRO issues pertaining to matters
that the Department considers to be beyond the scope of the directive
contained in section 1001 of the PPA. This section of the PPA
specifically directed the Department to clarify certain timing issues.
These timing issues are addressed, with examples, in paragraphs (b)
through (d) of the final regulation. QDRO issues beyond this specific
directive may be addressed in future guidance by the Department in
consultation with the Pension Benefit Guaranty Corporation and the
Internal Revenue Service.
D. Overview of Final Rule
Scope of the Regulation
Paragraph (a) of the regulation provides that the scope of the
regulation is to implement the directive contained in section 1001 of
the PPA to clarify certain timing issues with respect to domestic
relations orders and qualified domestic relations orders under ERISA.
Subsequent Domestic Relations Orders
Paragraph (b)(1) of the regulation provides that a domestic
relations order otherwise meeting ERISA's requirements to be a QDRO
shall not fail to be treated as a QDRO solely because the order is
issued after, or revises, another domestic relations order or QDRO.
Paragraph (b)(2) provides examples of this rule. Example 1 illustrates
this rule as applied to a subsequent order revising an earlier QDRO
involving the same parties. Example 2 illustrates this rule in the
context of a subsequent order involving the same participant and a
different alternate payee.
Timing of Domestic Relations Order
Paragraph (c)(1) of the regulation provides that a domestic
relations order otherwise meeting ERISA's requirements to be a QDRO
shall not fail to be treated as a QDRO solely because of the time at
which it is issued. Paragraph (c)(2) provides examples of this rule.
Example 1 illustrates the principle that a domestic relation order will
not fail to be a QDRO solely because it is issued after the death of
the participant. Example 2 illustrates that a domestic relation order
will not fail to be a QDRO solely because it is issued after the
parties divorce. Example 3 illustrates that an order would not fail to
be a QDRO solely because it is issued after the participant's annuity
starting date.
Requirements and Protections
Paragraph (d)(1) of the regulation provides that any domestic
relations order described in paragraph (b) or (c) of the regulation
shall be subject to the same requirements and protections that apply to
all QDROs under section 206(d)(3) of ERISA. Paragraph (d)(2) provides
examples of this rule. Example 1 illustrates that, although an order
will not fail to be a QDRO solely because it is issued after the death
of the participant, the order would fail to be a QDRO if it requires
the plan to provide a type or form of benefit, or any option, not
otherwise provided under the plan. Example 2 illustrates application of
the protective rules regarding segregation of payable benefits to a
second order involving the same participant and alternate payee.
Example 3 illustrates that, although an order will not fail to be a
QDRO solely because it is issued after another QDRO, the order will
fail to be a QDRO if it assigns benefits already assigned to another
alternate payee under another QDRO. Example 4 illustrates the principle
that although an order will not fail to be a QDRO solely because it is
issued after the annuity starting date, the order would fail to be a
QDRO if it requires the plan to provide a type or form of benefit, or
any option, not otherwise provided under the plan.
E. Regulatory Impact Analysis
Executive Order 12866 Statement
Under Executive Order 12866 (58 FR 51735), a regulatory action
determined to be ``significant'' is subject to review by the Office of
Management and Budget (OMB). Section 3(f) of the Executive Order
defines a ``significant regulatory action'' as an action that is likely
to result in a rule (1) Having an annual effect on the economy of $100
million or more, or adversely and materially affecting a sector of the
economy, productivity, competition, jobs, the environment, public
health or safety, or State, local or tribal governments or communities
(also referred to as ``economically significant''); (2) creating
serious inconsistency or otherwise interfering with an action taken or
planned by another agency; (3) materially altering the budgetary
impacts of entitlement grants, user fees, or loan programs or the
rights and obligations of recipients thereof; or (4) raising novel
legal or policy issues arising out of legal mandates, the President's
priorities, or the principles set forth in the Executive Order. This
regulatory action is not economically significant within the meaning of
section 3(f)(1) of the Executive Order. However, the Office of
Management and Budget (OBM) has determined that the action is
significant within the meaning of section 3(f)(4) of the Executive
Order, and the Department accordingly provides the following assessment
of its potential costs and benefits.
This final rule is intended to clarify the statutory requirements
for QDROs under section 206(d)(3) of ERISA and section 414(p) of the
Code. The provisions of section 206(d)(3) generally assist State
authorities in deciding permissible ways in which pension benefits may
be divided in domestic relations matters. The rules and processes under
section 206(d)(3) make it possible for plan administrators to determine
whether a State order seeking to assign pension benefits to an
alternate payee should be given effect under the plan; clear rules
concerning what constitutes a QDRO have the effect of assisting plan
administrators in reviewing orders received by the plan, as well as
participants and alternate payees in planning how to take pension
assets into account when significant events require making a division
of marital assets.
In directing the Department, in section 1001 of the Pension
Protection Act, to clarify the application of the QDRO provisions,
Congress recognized that existing uncertainty about the application of
those provisions has caused difficulties meriting resolution through
regulatory action. Such uncertainty can impose litigation and other
costs on plans, participants, and alternate payees, as well as on State
domestic relations authorities, that will be reduced through the
promulgation of this rule. Consistent with the view of Congress, this
rule clarifies, first, that the sequence in which multiple orders may
be issued does not, in itself, affect whether the orders are QDROs,
and, second, that the time at which an order is issued does not, in
itself, determine whether an order is or is not a QDRO. The rule
further reiterates that an order must meet the specific requirements of
section 206(d)(3) of ERISA and section 414(p) of the Code.
By reducing uncertainty over the application of the statutory
requirements in specific circumstances, the rule is expected to reduce
costs that might otherwise arise from the necessity of resolving
uncertainty in such circumstances. By providing clearer rules for plan
administrators, the rule is also expected to increase the efficiency of
plan administration. In addition, the Department is issuing this rule
in direct response to a Congressional directive. As described above,
section 1001 of the PPA requires the Department to issue regulations
clarifying that an order otherwise meeting the requirements for a QDRO
under section 206(d)(3) of ERISA should not fail to be treated as
[[Page 32850]]
a QDRO solely because it was issued after or revised another order, or
because of the time at which it was issued. In issuing this final rule,
therefore, the Department is fulfilling objectives expressly endorsed
by Congress. Because the rule applies only in certain specific
circumstances and affects only a small subset of domestic relations
orders, the Department believes that its economic impact will be small,
overall, but positive.
The rule is not anticipated to impose increased compliance costs,
because it merely establishes the legal effect of certain sequences of
events. Although it may cause some orders to be treated as QDROs that
otherwise might be disputed (or fail to be treated as a QDRO), the rule
provides certainty with respect to the circumstances it covers, which
will aid State authorities seeking to divide pension benefits and
assist plan administrators seeking to discharge their obligations under
section 206(d)(3) of ERISA, without limiting the power of State
authorities to determine the proper division of marital assets. The
rule is expected generally to provide benefits to pension plans, plan
participants and alternate payees, and State domestic relations
authorities by increasing the clarity of the rules that apply to QDROs.
Based on the foregoing assessment, the Department concludes that
the benefits of this final rule justify its costs.
Paperwork Reduction Act
The final regulation being issued here is not subject to the
requirements of the Paperwork Reduction Act of 1980 (44 U.S.C. 3501 et
seq.) because it does not contain an ``information collection'' as
defined in 44 U.S.C. 3502 (11).
Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes
certain requirements with respect to federal rules that are subject to
the notice and comment requirements of section 553(b) of the
Administrative Procedure Act (5 U.S.C. 551 et seq.) and that are likely
to have a significant economic impact on a substantial number of small
entities. Unless an agency certifies that a final rule will not have a
significant economic impact on a substantial number of small entities,
section 603 of the RFA requires that the agency present a regulatory
flexibility analysis at the time of the publication of the notice of
proposed rule-making describing the impact of the rule on small
entities and seeking public comment on such impact. Because this rule
was issued as an interim final rule, the RFA does not apply and the
Department is not required to either certify that the rule will not
have a significant impact on a substantial number of small businesses
or conduct a regulatory flexibility analysis. Nevertheless, the
Department has considered the likely impact of the rule on small
entities in connection with its assessment under Executive Order 12866,
described above, and believes this rule will not have a significant
impact on a substantial number of small entities. For purposes of this
discussion, the Department continues to consider a small entity to be
an employee benefit plan with fewer than 100 participants. The basis of
this definition is found in section 104(a)(2) of ERISA, which permits
the Secretary of Labor to prescribe simplified annual reports for
pension plans which cover fewer than 100 participants. The Department
invited comments on the effect of the interim final rule on small
entities, but no comments were received.
Congressional Review Act
The final rule being issued here is subject to the provisions of
the Congressional Review Act provisions of the Small Business
Regulatory Enforcement Fairness Act of 1996 (5 U.S.C. 801 et seq.) and
will be transmitted to Congress and the Comptroller General for review.
The final rule is not a ``major rule'' as that term is defined in 5
U.S.C. 804, because it does not result in (1) An annual effect on the
economy of $100 million or more; (2) a major increase in costs or
prices for consumers, individual industries, or Federal, State, or
local government agencies, or geographic regions; or (3) significant
adverse effects on competition, employment, investment, productivity,
innovation, or on the ability of United States-based enterprises to
compete with foreign-based enterprises in domestic and export markets.
Unfunded Mandates Reform Act
For purposes of the Unfunded Mandates Reform Act of 1995 (Pub. L.
104-4), the final rule does not include any Federal mandate that may
result in expenditures by State, local, or tribal governments, or
impose an annual burden exceeding $100 million on the private sector.
Federalism Statement
Executive Order 13132 (August 4, 1999) outlines fundamental
principles of federalism and requires federal agencies to adhere to
specific criteria in the process of their formulation and
implementation of policies that have substantial direct effects on the
States, the relationship between the national government and the
States, or on the distribution of power and responsibilities among the
various levels of government. This final rule does not have federalism
implications because it has no substantial direct effect on the States,
on the relationship between the national government and the States, or
on the distribution of power and responsibilities among the various
levels of government. Section 514 of ERISA provides, with certain
exceptions specifically enumerated, that the provisions of Titles I and
IV of ERISA supersede any and all laws of the States as they relate to
any employee benefit plan covered under ERISA. One exception described
in section 514(b)(7) is for qualified domestic relations orders, as
defined in section 206(d)(3) of ERISA. The rule does not alter the
provisions of the statute; it merely clarifies the status of certain
types of domestic relations orders under ERISA.
List of Subjects in 29 CFR Part 2530
Alternate payee, Divorce, Domestic relations orders, Employee
benefit plans, Marital property, Spouse, Plan administrator, Pensions,
Qualified domestic relations orders.
0
For the reasons set forth in the preamble, the Department amends
Subchapter D, Part 2530 of Title 29 of the Code of Federal Regulations
as follows:
SUBCHAPTER D--MINIMUM STANDARDS FOR EMPLOYEE PENSION BENEFIT PLANS
UNDER THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974
PART 2530--RULES AND REGULATIONS FOR MINIMUM STANDARDS FOR EMPLOYEE
PENSION BENEFIT PLANS
0
1. The authority citation for part 2530 is revised to read as follows:
Authority: Secs. 201, 202, 203, 204, 210, 505, 1011, 1012,
1014, and 1015, Pub. L. 93-406, 88 Stat. 852-862, 866-867, 894, 898-
913, 924-929 (29 U.S.C. 1051-4, 1060, 1135, 26 U.S.C. 410, 411, 413,
414); Secretary of Labor's Order No. 13-76. Section 2530.206 also
issued under sec. 1001, Pub. L. 109-280, 120 Stat. 780.
0
2. Revise Sec. 2530.206 to read as follows:
Sec. 2530.206 Time and order of issuance of domestic relations
orders.
(a) Scope. This section implements section 1001 of the Pension
Protection Act of 2006 by clarifying certain timing issues with respect
to domestic relations orders and qualified domestic relations orders
under the Employee Retirement Income Security Act of 1974, as amended
(ERISA), 29 U.S.C. 1001 et seq.
[[Page 32851]]
The examples herein illustrate the application of this section in
certain circumstances. This section also applies in circumstances not
described in the examples.
(b) Subsequent domestic relations orders. (1) Subject to paragraph
(d)(1) of this section, a domestic relations order shall not fail to be
treated as a qualified domestic relations order solely because the
order is issued after, or revises, another domestic relations order or
qualified domestic relations order.
(2) The rule described in paragraph (b)(1) of this section is
illustrated by the following examples:
Example (1). Subsequent domestic relations order between the
same parties. Participant and Spouse divorce, and the administrator
of Participant's 401(k) plan receives a domestic relations order.
The administrator determines that the order is a QDRO. The QDRO
allocates a portion of Participant's benefits to Spouse as the
alternate payee. Subsequently, before benefit payments have
commenced, Participant and Spouse seek and receive a second domestic
relations order. The second order reduces the portion of
Participant's benefits that Spouse was to receive under the QDRO.
The second order does not fail to be treated as a QDRO solely
because the second order is issued after, and reduces the prior
assignment contained in, the first order. The result would be the
same if the order were instead to increase the prior assignment
contained in the first order.
Example (2). Subsequent domestic relations order between
different parties. Participant and Spouse 1 divorce and the
administrator of Participant's 401(k) plan receives a domestic
relations order. The administrator determines that the order is a
QDRO. The QDRO allocates a portion of Participant's benefits to
Spouse 1 as the alternate payee. Participant marries Spouse 2, and
then they divorce. Participant's 401(k) plan administrator
subsequently receives a domestic relations order pertaining to
Spouse 2. The order assigns to Spouse 2 a portion of Participant's
401(k) benefits not already allocated to Spouse 1. The second order
does not fail to be a QDRO solely because the second order is issued
after the plan administrator has determined that an earlier order
pertaining to Spouse 1 is a QDRO.
(c) Timing. (1) Subject to paragraph (d)(1) of this section, a
domestic relations order shall not fail to be treated as a qualified
domestic relations order solely because of the time at which it is
issued.
(2) The rule described in paragraph (c)(1) of this section is
illustrated by the following examples:
Example (1). Orders issued after death. Participant and Spouse
divorce, and the administrator of Participant's plan receives a
domestic relations order, but the administrator finds the order
deficient and determines that it is not a QDRO. Shortly thereafter,
Participant dies while actively employed. A second domestic
relations order correcting the defects in the first order is
subsequently submitted to the plan. The second order does not fail
to be treated as a QDRO solely because it is issued after the death
of the Participant. The result would be the same even if no order
had been issued before the Participant's death, in other words, the
order issued after death were the only order.
Example (2). Orders issued after divorce. Participant and Spouse
divorce. As a result, Spouse no longer meets the definition of
``surviving spouse'' under the terms of the plan. Subsequently, the
plan administrator receives a domestic relations order requiring
that Spouse be treated as the Participant's surviving spouse for
purposes of receiving a death benefit payable under the terms of the
plan only to a participant's surviving spouse. The order does not
fail to be treated as a QDRO solely because, at the time it is
issued, Spouse no longer meets the definition of a ``surviving
spouse'' under the terms of the plan.
Example (3). Orders issued after annuity starting date.
Participant retires and begins receipt of benefits in the form of a
straight life annuity, equal to $1,000 per month, and with respect
to which Spouse has consented to the waiver of the surviving spousal
rights provided under the plan and section 205 of ERISA. Subsequent
to the commencement of benefits (in other words, subsequent to the
annuity starting date as defined in section 205(h)(2) of ERISA and
as further explained in 26 CFR 1.401(a)-20, Q&A-10(b)), Participant
and Spouse divorce and present the plan with a domestic relations
order requiring 50 percent ($500) of Participant's future monthly
annuity payments under the plan to be paid instead to Spouse, as an
alternate payee (so that monthly payments of $500 are to be made to
Spouse during Participant's lifetime). Pursuant to paragraph (c)(1)
of this section, the order does not fail to be a QDRO solely because
it is issued after the annuity starting date. If the order instead
had required payments to Spouse for the lifetime of Spouse, this
would constitute a reannuitization with a new annuity starting date,
rather than merely allocating to Spouse a part of the determined
annuity payments due to Participant, so that the order, while not
failing to be a QDRO because of the timing of the order, would fail
to meet the requirements of section 206(d)(3)(D)(i) of ERISA (unless
the plan otherwise permits such a change after the participant's
annuity starting date). See 29 CFR 2530.206(d)(2), Example (4).
(d) Requirements and protections. (1) Any domestic relations order
described in this section shall be a qualified domestic relations order
only if the order satisfies the same requirements and protections that
apply under section 206(d)(3) of ERISA.
(2) The rule described in paragraph (d)(1) of this section is
illustrated by the following examples:
Example (1). Type or form of benefit. Participant and Spouse
divorce, and their divorce decree provides that the parties will
prepare a domestic relations order assigning 50 percent of
Participant's benefits under a 401(k) plan to Spouse to be paid in
monthly installments over a 10-year period. Shortly thereafter,
Participant dies while actively employed. A domestic relations order
consistent with the divorce decree is subsequently submitted to the
401(k) plan; however, the plan does not provide for 10-year
installment payments of the type described in the order. Pursuant to
paragraph (c)(1) of this section, the order does not fail to be
treated as a QDRO solely because it is issued after the death of
Participant, but the order would fail to be a QDRO under section
206(d)(3)(D)(i) and paragraph (d)(1) of this section because the
order requires the plan to provide a type or form of benefit, or any
option, not otherwise provided under the plan.
Example (2). Segregation of payable benefits. Participant and
Spouse divorce, and the administrator of Participant's plan receives
a domestic relations order under which Spouse would begin to receive
benefits immediately if the order is determined to be a QDRO. The
plan administrator separately accounts for the amounts covered by
the domestic relations order as is required under section
206(d)(3)(H)(v) of ERISA. The plan administrator finds the order
deficient and determines that it is not a QDRO. Subsequently, after
the expiration of the segregation period pertaining to that order,
the plan administrator receives a second domestic relations order
relating to the same parties under which Spouse would begin to
receive benefits immediately if the second order is determined to be
a QDRO. Notwithstanding the expiration of the first segregation
period, the amounts covered by the second order must be separately
accounted for by the plan administrator for an 18-month period, in
accordance with section 206(d)(3)(H) of ERISA and paragraph (d)(1)
of this section.
Example (3). Previously assigned benefits. Participant and
Spouse 1 divorce, and the administrator of Participant's 401(k) plan
receives a domestic relations order. The administrator determines
that the order is a QDRO. The QDRO assigns a portion of
Participant's benefits to Spouse 1 as the alternate payee.
Participant marries Spouse 2, and then they divorce. Participant's
401(k) plan administrator subsequently receives a domestic relations
order pertaining to Spouse 2. The order assigns to Spouse 2 a
portion of Participant's 401(k) benefits already assigned to Spouse
1. The second order does not fail to be treated as a QDRO solely
because the second order is issued after the plan administrator has
determined that an earlier order pertaining to Spouse 1 is a QDRO.
The second order, however, would fail to be a QDRO under section
206(d)(3)(D)(iii) and paragraph (d)(1) of this section because it
assigns to Spouse 2 all or a portion of Participant's benefits that
are already assigned to Spouse 1 by the prior QDRO.
Example (4). Type or form of benefit. Participant retires and
commences benefit payments in the form of a straight life annuity
based on the life of Participant, with
[[Page 32852]]
respect to which Spouse consents to the waiver of the surviving
spousal rights provided under the plan and section 205 of ERISA.
Participant and Spouse divorce after the annuity starting date and
present the plan with a domestic relations order that eliminates the
straight life annuity based on Participant's life and provides for
Spouse, as alternate payee, to receive all future benefits in the
form of a straight life annuity based on the life of Spouse. The
plan does not allow reannuitization with a new annuity starting
date, as defined in section 205(h)(2) of ERISA (and as further
explained in 26 CFR 1.401(a)-20, Q&A-10(b)). Pursuant to paragraph
(c)(1) of this section, the order does not fail to be a QDRO solely
because it is issued after the annuity starting date, but the order
would fail to be a QDRO under section 206(d)(3)(D)(i) and paragraph
(d)(1) of this section because the order requires the plan to
provide a type or form of benefit, or any option, not otherwise
provided under the plan. However, the order would not fail to be a
QDRO under section 206(d)(3)(D)(i) and paragraph (d)(1) of this
section if instead it were to require all of Participant's future
payments under the plan to be paid instead to Spouse, as an
alternate payee (so that payments that would otherwise be paid to
the Participant during the Participant's lifetime are instead to be
made to the Spouse during the Participant's lifetime).
Signed at Washington, DC, this 3rd day of June 2010.
Phyllis C. Borzi,
Assistant Secretary, Employee Benefits Security Administration.
[FR Doc. 2010-13868 Filed 6-9-10; 8:45 am]
BILLING CODE 4510-29-P