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Spouse Cannot Use Texas Law to Seize Federal Survivor Annuity Benefit

Many of you may know about ERISA, but for those of you who do not, here is a quick run down:

ERISA is the Employee Retirement Income Security Act of 1974. It is a federal law that sets minimum protective standards for almost all voluntarily established pension plans in the private sector.

Just recently, the D.C. Circuit Court held in Vanderkam v. Vanderkam that ERISA preempts a party’s attempt to use state law to seize a benefit that federal law has vested in a spouse or former spouse entitled to a survivor annuity. ERISA usually bars alienation or waiver of a spouse’s survivor annuity unless the spouse waives the annuity in writing in conformity with section 205 of the content and timing rules of ERISA. This may sound confusing, so let me give some background on this issue…

John Vanderkam was employed by a corporation and was a participant in the pension plan. He married the defendant, Melissa Vanderkam in 1984 and designated her as a 100% beneficiary of his joint and survivor annuity of his pension plan, paid upon his death. John retired in 1994, at which time the survivor annuity vested in Melissa while John began to receive his monthly benefits from the pension plan. In 2002, John and Melissa divorced. This is where it all gets tricky…John and Melissa agreed to a decree awarding John “all benefits existing by reason of John’s past, present or future employment.” However, Melissa did not sign any sort of waiver. A year after the divorce, John remarried and wanted to name his second wife as a survivor annuity beneficiary. He asked the Texas Court to modify the original decree with Melissa, creating a qualified domestic relations order (QDRO) under ERISA section 206(d). Melissa did not want this to happen at all. She argued that she signed the decree believing that the survivor annuity was still hers. The Court sided with John and allowed the entry of a QDRO divesting Melissa of her rights in the pension plan.

In 2005, the corporation John had been receiving benefits from terminated the pension plan and had another corporation step in and manage the plans. They reviewed John’s file and found that the QDRO was invalid and therefore named Melissa as the owner of the survivor annuity in the pension plan. John filed a suit in federal district court for the District of Columbia with Melissa added as a party. John then demanded that should the benefits go to Melissa through the federal system, she wanted the Court to order Melissa to put the funds in a constructive trust, due to the Texas law divesting her of rights to the QDRO, and have her hold them for distribution to John’s second wife.

John’s argument, although persuasive, was shot down by the Court. The Court decided that ERISA preempts state law in gaining title to a survivor annuity in a pension plan for these three reasons:

1) the survivor annuity vested in Melissa once John retired in 1994 (while they were still married);

2) Melissa did not sign a waiver in conformity with section 205 of the content and timing rules of ERISA; and

3) the Texas order was a not a valid QDRO.

So this tells us one thing very clearly, follow the rules, make sure your spouse signs a waiver upon divorce and have a valid QDRO filed with the Court upon entry of the decree.

For more questions, contact our law firm at 214-692-8200.