Why do we use the phrase “court of competent jurisdiction”

Why do we use the phrase “court of competent jurisdiction” when referencing a court that will enter the qualified domestic relations order?

Most agreements we see prepared by other attorneys include a line such as “the parties shall promptly submit a qualified domestic relations order to a court of competent jurisdiction.” But what is that anyways, a “court of competent jurisdiction”?

As attorneys, we only seek to file for our clients’ divorce in a court that has both subject matter jurisdiction over the divorce and personal jurisdiction over the parties. Logically, that is a court of competent jurisdiction, because it has both the authority to make a decision and the means to enforce it upon the parties. However, it would appear that this is not the type of decision the Employees’ Retirement Income Security Act is referencing.

 
Specifically, ERISA 206(H)(i) states “During any period in which the issue of whether a domestic relations order is a qualified domestic relations order is being determined (by the plan administrator, by a court of competent jurisdiction, or otherwise), the plan administrator shall separately account for the amounts (hereinafter in this subparagraph referred to as the “segregated amounts”) which would have been payable to the alternate payee during such period if the order had been determined to be a qualified domestic relations order.”

So the court being referenced here must be one with the jurisdiction to determine if the domestic relations order prepared for the purpose of dividing the retirement account is a qualified domestic relations order. This distinction then begs the inquiry, what makes a domestic relations order qualified? According to ERISA, if the domestic relations order assigns to an alternate payee or recognizes the alternate payee’s right to receive benefits payable to a participant (ie: someone other than the alternate payee), relates to the provision of child support, alimony, or marital property rights to a spouse, former spouse, or other dependent of the participant, and is issued by a state or Tribal court (among other requirements) the domestic relations order is qualified. 29 USC 1056(d)(3).

If the order is qualified, then the plan administrator is required implement it and make payment to the alternate payee. If the order is not qualified, then the plan administrator is prohibited from implementing it.

Now that we know the distinction between a domestic relations order and one that is qualified, who determines whether it is qualified? ERISA 206(H)(i) above makes clear that the plan administrator or a court of competent jurisdiction will determine whether the domestic relations order is qualified. But does it matter which one makes the determination?

A domestic relations order, once entered by the court in the divorce case will be sent to the plan administrator for their determination as to whether the order qualifies. It is at this point that the plan administrator must begin to segregate the benefits for the alternate payee, pursuant to section 206(H)(i), above.

So if the plan administrator makes the determination, how could the question of whether a domestic relations order is qualified get before a court of competent jurisdiction? A plan administrator’s decision may be challenged, if either the participant or the alternate payee believes the plan administrator made a mistake. Usually there are administrative procedures to handle such a challenge, but once those are exhausted the issue could go before a court. That court would need to have jurisdiction over the plan to be able to decide if the plan administrator made the correct decision regarding the qualification of the domestic relations order.

Why does this matter? Let’s say the QDRO is for a pension, and at the time of the divorce the participant is already receiving benefits. This means that from the moment the QDRO is received by the plan administrator, all future payments must be divided for the alternate payee. If the plan administrator determines the order to be qualified and the participant objects, then pursuant to Section 206(H)(i), the plan administrator is required to continue to segregate the payments for the alternate payee through the final appeal of the question. Further, if the court of competent jurisdiction agrees with the plan administrator that the order is qualified, then all of the benefit that has been segregated for the alternate payee shall be paid to the alternate payee. This procedure ensures that the participant cannot challenge the plan administrator’s decision regarding qualification of the order in hopes of delaying the implementation of the order. It discourages disingenuous challenges by protecting the alternate payee’s benefit until such time that the decision is final.  

So, attorneys must have latched on to the phrase “court of competent jurisdiction” at some point and decided to use it in separation agreements.  Since it is not a defined term in ERISA, it is not necessarily wrong to use in agreements, because the agreement could be that the domestic relations order will first be submitted to a court with jurisdiction over the divorce and the parties. However, since it is not a term seen elsewhere, its use in separation agreements is not necessary.

If you or your client needs a QDRO, please give us a call at 240-396-4373 to discuss your case specifically and what you or your client needs.