United States: Second Circuit Decides 1983 State Court Order Is a QDRO

In Metropolitan Life Insurance Co. v. Bigelow, the U.S. Court of Appeals for the Second Circuit has affirmed that a 1983 state-law settlement agreement designating a plan participant’s daughters as beneficiaries under his ERISA plans is a qualified domestic relations order ("QDRO"). The decision is striking in that the 1983 agreement was missing some of the basic information that the Internal Revenue Code ("Code") requires QDROs to contain.

Michael J. Bigelow was employed at General Electric Company ("GE"), where he participated in three ERISA plans. In late 1982, Bigelow and his wife were divorced, and in early 1983, they reached a settlement agreement. The settlement agreement identified, though it did not name, the plans, and it designated "the children of this marriage" as irrevocable beneficiaries of "any retirement benefits . . . attached to this G.E. program." The settlement agreement was incorporated into a state court order and judgement on February 1, 1983.

Despite the settlement agreement, Bigelow in 1991 designated his father as his beneficiary under the GE benefit plans.

After Bigelow’s death in 1999, both his daughters and his father submitted claims for benefits under the three plans, which were a life insurance plan administered by Metropolitan Life and two retirement plans administered by GE.

Having concluded that they could not determine which claimant should receive the plan benefits, Metropolitan Life and GE initiated an interpleader action naming both the father and the daughters as defendants. When the District Court ruled that the daughters were the proper beneficiaries, the father appealed.

In this case, the Second Circuit Court of Appeals was being asked to decide whether ERISA, under which the father was the beneficiary, or state law, under which the daughters were the beneficiaries, governed. The court noted that, generally, ERISA preempts state laws relating to employee benefit plans. However, ERISA does not preempt QDROs. Therefore, if the state court order naming the daughters as "irrevocable beneficiaries"was a QDRO, the daughters would be entitled to the plan benefits.

Timing was significant in the case. The Retirement Equity Act of 1984 ("REA"), which added the concept of the QDRO to ERISA and the Code, took effect in 1985. Could the Bigelow order, which was entered before REA was enacted, be a QDRO? Yes. As the Second Circuit noted, Congress made it clear in REA section 303(d) that a domestic relations order entered before January 1, 1985 could not only be treated as a QDRO, but could be so treated "even if such order does not meet the [REA] requirements."

Code section 414(p)(2) says in no uncertain terms that, to be a QDRO, a domestic relations order must include the name and mailing address of the plan participant and each alternate payee, and must clearly specify "each plan to which such order applies."

Not surprisingly, Bigelow’s father argued that the relevant order was not a QDRO because it did not (a) name each plan to which it applied or (b) give the names and addresses of the plan participant (Michael J. Bigelow) and the alternate payees (Bigelow’s daughters). But the Second Circuit decided that the language of the settlement agreement was adequate to identify the benefit plans involved and also identified the daughters "with sufficient specificity."

Although the Bigelows’ settlement agreement would not be a QDRO if it were entered today, the Second Circuit found that it met the standard set by REA section 303(d) for a pre-1985 order.