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Fearing that financial trouble in the airline industry would result in a PBGC takeover and reduced benefits upon their retirement, airline pilots divorced their spouses and obtained domestic relations orders (DROs) from state courts assigning all or most of the pilots’ pension benefits to their spouses. The ex-spouses then requested and received lump-sum disbursements pursuant to the DRO. After the ex-spouses secured the benefits distribution, the couples remarried. Can the plan administrator recover benefits paid based on these “sham” divorces?
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Answer: |
No. Based on these facts, the Fifth Circuit declined to incorporate into the qualified domestic relations order (QDRO) context the “sham transaction doctrine,” under which sham divorces are discarded in tax, bankruptcy, and immigration law. “There is a significant difference between allowing federal tribunals such as the tax, bankruptcy, and immigration courts to consider whether a divorce is a sham, and authorizing a private entity … to make such a determination, which would involve independently investigating employees’ private lives in order to judge the genuineness of the intentions behind their divorces,” the court reasoned.
A DRO must be qualified if it meets the enumerated criteria set forth in ERISA Sec. 1056(d)(3)(B)(i). Determining whether a DRO is qualified is “a straightforward matter that requires the administrator to take DROs at face value and not to engage in complex determinations of underlying motives or intent.” There is no provision among ERISA’s enumerated QDRO requirements that allows the committee to consider whether the divorces were “shams” when qualifying the DROs. Thus, a pension plan is not required, or even permitted, to look beneath the surface of the order. A plan is not entitled to cease qualifying DROs on later speculation that the pilots’ marriages were not dissolved in good faith — or to seek restitution for benefits already distributed.
Source: Brown v Continental Airlines, Inc (5thCir 2011), 2011 U.S. App. LEXIS 14661.
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