Sorry, couldn’t resist – Bill being William Kennedy and Liv Kennedy being the named beneficiary in yesterday’s Supreme Court opinion, Kennedy v. Plan Administrator for DuPont Savings and Investment Plan. After reading the opinion itself last night, I thought I would add a couple of comments to my initial impressions of the opinion, which I discussed in yesterday’s post. Initially, from a practical perspective for plan administrators, drafters, sponsors, and the like, the opinion is exactly what it should have been and, in fact, had to have been. I was chatting with a veteran benefits consultant who services retirement plans a while back about this case while it was still pending before the Supreme Court, and he commented that anything other than a clear pronouncement that administrators are to follow the express terms of the plan, rather than have to go outside the plan and weigh the implications of external events such as a divorce proceeding, would create a terribly chaotic situation. The Supreme Court could not have been more clear in its opinion that it was rejecting that possibility, repetitively reinforcing the idea that administrators act properly by relying on the plan documents; indeed, the ruling really required reciting this idea only once, but instead the Court built a long opinion around the repeated reinforcement of that idea.
Second, I noted yesterday that I wouldn’t have minded some clearer guidance on QDROs as part of the opinion, and on close review of the opinion I think we got some, although not explicitly. The Court, rightfully so, emphasized that the QDRO is the one time that an administrator faced with the divorcing participant and designated beneficiary scenario must incorporate court rulings outside the plan documents into the administrator’s application of the plan terms to determine to whom benefits must be paid. What has been more of an issue in practicality, in the courtrooms of the federal district courts, is to what extent a particular court order must perfectly comply with the statute’s QDRO requirements to be a binding QDRO for purposes of ERISA; many court decisions treat divorce decrees that are close enough to meeting the requirements as QDROs, even if they do not meet each and every statutory requirement perfectly, so long as there is enough there to convince a court that the participant and the ex-spouse intended for the ex-spouse to no longer be the beneficiary.
I would argue that the Supreme Court’s discussion at page 16 of the opinion, read in conjunction with footnote 12, indicates that the QDRO requirements must be perfectly matched by a probate court order for such an order to qualify as a QDRO, and that close – even if good enough for horseshoes – is not good enough for qualifying as a QDRO that would trump a beneficiary designation under a plan’s express terms. Why do I say this? In describing QDROs as the one exception to the Court’s preferred ideal of the administrator not having to go outside the plan documents to decide cases such as this one, the Court explained that QDROs require a “relatively discrete” inquiry that is based on a specific “statutory checklist” that “spare[s] an administrator from litigation-fomenting ambiguities.” The Court then proceeded to list the exact statutory requirements that must be satisfied for a divorce order to qualify as a QDRO. If, as lower courts sometimes appear to believe, close is good enough to qualify as a QDRO, then the issue is not a discrete, precise inquiry – as the Court depicts the QDRO inquiry – and is, contrary to the Court’s interpretation of the QDRO requirements, one that leaves, rather than spares an administrator from, “litigation-fomenting ambiguities” over the question. Indeed, while a plan administrator can make its own call on whether an order is a QDRO if the exact, specific statutory requirements must be satisfied for a particular order presented to the administrator in a particular claim to qualify, this isn’t easily done if something less than complete compliance with the statutory formalities can be sufficient to qualify as a QDRO. In that latter circumstance, whether the order is close enough to qualify is in the eye of the beholder, and you can be certain that the party that didn’t get the proceeds based on the administrator’s judgment call on this issue will sue over the question.