Tip of the Day: Ask no QDRO questions, and pensioners will tell you no lies

I know I don’t need to tell you that times are tough out there, pros. So tough, in fact, that if your company sponsors a defined benefit plan, your participants might actually stage a sham divorce just to gain access to their pension funds.

Sound bananas? What I found even more surprising is that plan administrators and sponsors may have no legal recourse and might even just have to look the other way.

I was poking around on the Employee Benefits Legal Blog published by Fox Rothschild this morning, and came across a post from earlier in the week that addressed the question, “QDROs: Does a ‘sham divorce’ matter?” So rarely do such drama and benefits merge (except when it comes to health care reform) – I just had to continue reading.

Here’s the short version. In the case Brown v. Continental Airlines, a group of pilots – worried (perhaps justifiably) that the airline’s pension plan was on shaky ground – got divorced, and had qualified domestic relations orders that specified their ex-spouses as alternate payees for their benefits.

However, the plan’s administrator became suspicious when the pilots continued living with and in some cases even remarried their exes after the distributions were made. The plot thickens.

The Southern District Court of Texas found that so long as the terms of the QDRO were lawful and were met (which they were), then the plan administrator and sponsor were legally in the clear – even though they weren’t entitled to getting the money back.

Slick and shady dealings by the pilots, to be sure, but at least plan sponsors and administrators can sleep at night knowing that should their participants try to emulate the pilots’ duplicity, they’ll have the legal and moral high ground.