QDRO and State/Local Government Pensions

On July 1, 2015, the General Assembly enacted new legislation that addressed the division of public employee pension plans during the course of divorce proceedings. Section 26-2-105(d)(1) of the Tenn. Code Ann. now provides that “a local government that establishes and maintains for its employees a qualified plan, and the qualified plan’s administrator, shall honor claims under a qualified domestic relations order, if the order relates only to the provision of marital property rights for the benefit of the former spouse of the qualified plan’s participant”.[1] This is a significant change in the area of public employee law and domestic relations as, prior to this amendment, public employee pension plans did not create “separate interests” for the divorcing spouse who was not the employee.

A brief digression into Qualified Domestic Relations Orders (QDRO) is necessary to understand this alteration to the law. A QDRO, for the non-family law practitioner, is an order from the court “which creates or recognizes the existence of an alternate payee’s right to, or assigns to an alternate payee the right to, receive all or a portion of the benefits payable with respect to a participant under a plan.”[2] Section 26-2-105 deals with QDROs as they apply to all pensions plans, both public and private, and discusses the applicability of QDROs to a division of these pension plans.

Section 26-2-105 of the Tenn. Code Ann. goes further to discuss state pension plans, stating that any public employee pension plan is generally exempt from “execution, attachment or garnishment” by those with a claim against the pensioner either before the funds have been disbursed or after, including claims of an alternate payee spouse who is treated like a creditor for the purposes of the statute.[3] Subsections (b) and (c) of the same section of the code make private pension plans divisible and subject to the authority of a QDRO that directs the administrator of the pension plan to pay a portion to the alternate payee spouse as marital property, but public pension plans are still excluded from this requirement and from the authority of a QDRO. However, subsection (d), as quoted above, amends the code to require “local governments” that create and utilize an employee benefit plan to honor a QDRO that affects their enrollees. The amendment does not alter the existing exemption for state public employee pension plans, and those plans retain their exemption from having to comply with QDROs. Despite this apparently significant alteration to the prior rules after the amendment to the Tenn. Code Ann., public employees who are employed by a local government, but are enrolled in the “Tennessee consolidated retirement system,” are not subject to division of the pension by a QDRO pursuant to the definition provided in the statute of the term “local government.”[4]

This begs the question, who is affected by this amendment and who is still under the prior existing exemption for QDROs because they are able to participate in the consolidated retirement system through their local government, be it city or county? The General Assembly has restricted the applicability of this statute significantly, and it is not immediately apparent, without further inquiry, who is subject to the amended section.

A family law practitioner should be particularly careful here and know her local jurisdictions well. Some counties, like Metro-Nashville for example, maintain their own separate pension plan that does not overlap with any State plan. Other counties may have their own pension plans for their employees, but specific types of public employees, like school teachers, who work for the local government, either county or city, still have their pensions held in the Tennessee consolidated retirement system and would not be subject to the amendment to the statute. Still further, some counties may not have any independent pension plan, and all the employee pensions for that county may be consolidated into a state plan. Knowing the specifics of the jurisdiction, or jurisdictions, in which you frequently practice is essential to enable you to get all the benefits to which your client may be entitled upon divorce under this alteration to the Tenn. Code Ann.

Though this new provision may present questions about whether a particular client’s situation would change or not due to the change in the statute, use of this amendment to the code is not the only way to settle this particular issue. Matters such as division of a pension plan can still be resolved through a standard, negotiated Marital Dissolution Agreement whether the new provision is applicable to a particular client or not. If the MDA provides that the pension plan shall be divided in a particular manner that is fair and equitable, then it becomes enforceable just as any other clause or term of an MDA would be and achieves the same practical effect of the amendment to the Tenn. Code Ann. However, it would then be incumbent on the alternate payee spouse to enforce the MDA and insure that he/she received their agreed share of the accrued pension. If there is a QDRO in place, the plan administrator for the employee spouse’s plan will simply make two disbursements instead of one pursuant to the terms of the QDRO and there is no need for the alternate payee spouse to worry about receiving the benefit. Consequently, it is much more beneficial for the alternate payee spouse to have a QDRO in place than to have to rely on receiving these payments from their, most likely, longtime ex-spouse, often many years after the divorce has taken place.

This change to the Tenn. Code Ann. signifies a small but important change for family law practitioners. A minimal amount of research into the public employee pension plans for your jurisdiction may well yield considerable benefit to your client during their own retirement years with less difficulty and more accuracy.

Notes

  1. Tenn. Code Ann. § 26-2-105(d)(1).
  2. Tenn. Code Ann. § 26-2-105(d)(2)(B); 26 U.S.C. 414(p)(1)(A)(i).
  3. Tenn. Code Ann. § 26-2-105(a).
  4. Tenn. Code Ann. § 26-2-105(d)(2)(A).

Marlene Moses

MARLENE ESKIND MOSES is the principal and manager of MTR Family Law PLLC, a family and divorce law firm in Nashville. She is a past president of the American Academy of Matrimonial Lawyers. She has held prior presidencies with the Tennessee Board of Law Examiners, the Lawyers’ Association for Women and the Tennessee Supreme Court Historical Society. She is currently serving as president of the International Academy of Family Lawyers USA Chapter. The National Board of Trial Advocacy has designated Moses as a Family Law Trial Specialist.

MANUEL BENJAMIN RUSS earned a bachelor of arts from Johns Hopkins University, a master of arts from University College London, and a law degree from the Emory University School of Law. He is in private practice in Nashville focusing primarily on criminal defense.

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