SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
A-6693-95T1
ARTHUR M. ROSS,
Plaintiff,
v.
CAROL LEE ROSS,
Defendant-Respondent.
_______________________________
GINA ANN CHILORO,
Appellant.
_________________________________________________________________
Argued December 15, 1997 -- Decided January
30, 1998
Before Judges Havey, Newman and Collester.
On Appeal from Superior Court of New Jersey,
Chancery Division, Morris County.
Laurence B. Orloff argued the cause for appellant
(Orloff, Lowenbach, Stifelman & Siegel, attorneys;
Mr. Orloff, of counsel; Mr. Orloff and Laura V.
Studwell, on the brief).
Karin Duchin Haber argued the cause for respondent
(Haber & Silver, attorneys; Ms. Haber, on the
brief).
The opinion of the court was delivered by
NEWMAN, J.A.D.
This appeal involves the impact of the Employee Retirement
Income Security Act,
29 U.S.C.A.
§§1001 to -1461, as amended by
the Retirement Equity Act, on the disposition of pension assets
in a property settlement agreement pursuant to a divorce.
Appellant, Gina Ann Chiloro, appeals from an order of June
4, 1996 by the Family Part entering Qualified Domestic Relations
Orders (QDROs) after the death of her husband which authorized
the distribution of the proceeds of certain pension plans and
annuity contracts to defendant, Carol Lee Ross, former wife of
the decedent. We affirm the distribution of the proceeds of the
Work-O-Lite Co., Inc. Money Purchase Pension Plan to Carol Ross.
We reverse the distribution of the R&S/CN Trucking Defined
Benefit Pension Plan to Carol Ross and direct that it be paid to
appellant. We vacate the Qualified Domestic Relations Order
entered for the Nationwide Insurance Annuity Contract and remand
for further proceedings.
After a twenty-seven-year marriage, plaintiff Arthur Ross
and defendant Carol Lee Ross divorced on October 19, 1993.
Attached to the judgment of divorce was a property settlement
agreement (PSA) entered into by the couple on October 18, 1993
which, among other things, distributed the personal and real
property acquired during the marriage. In addition to providing
Ms. Ross with one-half of the annuity and pension benefits that
Mr. Ross may receive during his lifetime, one section of the PSA
purports to entitle Ms. Ross to the full amount of survivor
benefits under the pension and annuity plans in the event of Mr.
Ross's death. That section (hereafter referred to as Section F)
reads in full:
F. Husband's Pensions
1. Wife shall be entitled to receive one-half (1/2) of the Husband's pensions and/or
annuities from Work-O-Lite Co., Inc. and
National Lighting Co., Inc. The Wife shall
receive the survivor annuity of the pension
plans, as per the provisions of the plans.
It is the intention of the parties that for
the purposes of the defined benefit plan and
the defined contribution plan, Carol Ross
shall be deemed to be the surviving spouse
and shall be designated beneficiary for any
survivor annuity.
2. In the event that the defined contribution
plan is terminated prior to Husband's death,
Husband and Wife shall equally split the
amount to be received as a result of the
termination.
3. Wife shall have prepared, at her expense,
Qualified Domestic Relations Orders, to
effectuate the division of Husband's pensions
and the other provisions of this paragraph
relating to Husband's pensions. The
Qualified Domestic Relations Orders shall be
prepared by a qualified professional
acceptable to both parties. Husband shall
cooperate in providing all information
necessary to allow the preparation of the
Qualified Domestic Relations Orders.
During their marriage, Mr. Ross was an officer and
shareholder of two closely-held sister companies, Work-O-Lite
Co., Inc. and National Lighting Co., Inc. These companies, which
were previously owned by Ms. Ross's father, were conveyed to Mr.
and Ms. Ross in equal shares. As a result of his employment by
these companies, Mr. Ross acquired substantial pension benefits
which are the subject of this lawsuit.
In the final years of his marriage, Mr. Ross lived with Ms.
Chiloro rather than his wife. After being diagnosed with
terminal cancer, he sought to expedite his divorce from Ms. Ross
in order to marry Ms. Chiloro before his death. On November 24,
1993, one month after his divorce and remarriage to Ms. Chiloro,
Mr. Ross died.
Upon his death, Mr. Ross owned the following three pension
plans: (1) Work-O-Lite Co., Inc. Money Purchase Pension Plan,
worth $431,906, (2) R&S Leasing Defined Benefit Plan, worth
$17,451, and (3) CN Trucking, Inc. Defined Benefit Plan, worth
$24,447. The record below reveals that the second and third
plans were merged such that CN Trucking, Inc. became an adopting
employer of the R&S Leasing Defined Benefit Plan. Thus, both
plans will hereafter be collectively referred to as the R&S/CN
plan. Mr. Ross also owned one annuity contract with Nationwide
Life Insurance Company, entitled "Nationwide Insurance Annuity,"
worth $294,780 at his death. Since his death, the proceeds from
the pension plans and annuity contract have grown to well over
one million dollars.
The pension plans and annuity contract each state that, in
the event of the participant's death, the beneficiary of the
survivorship payments shall be the Participant's/Annuitant's
spouse, unless otherwise agreed to in writing by the spouse.
Although the PSA stated that "Carol Ross shall be deemed to be
the surviving spouse," Chiloro never agreed in writing to this
alienation of her survivorship rights.
On April 24, 1995, Ms. Ross (hereafter, references to "Ross"
only are to defendant Carol Ross) requested the Family Court,
through an informal letter, to enter QDROs entitling her to the
survivor benefits under each of the pension plans and the annuity
contract. The court postponed entry of the QDROs when Mr. Ross's
estate objected on the grounds that the QDROs were submitted
without the estate's prior review as contemplated by the PSA and
because the tax implications of the QDROs were, at that point,
unknown.
On April 11, 1996, Ross formally moved before the Family
Part for the entry of the QDROs in accordance with Section F of
the PSA. Alternatively, Ross requested that the court deem the
PSA itself to be a QDRO, name her as the "surviving spouse" under
Mr. Ross's pension plans, or compel Mr. Ross's estate to pay her
an amount equal to that which she would receive under the pension
plans. Ross served a copy of the motion upon (1) her husband's
estate; (2) Jeffrey Ross, the parties' son from the marriage and
the designated beneficiary of the annuity contract; and (3)
Chiloro's attorney. Ross now emphasizes that Chiloro was only
noticed "for informational purposes, since she had been copied on
prior correspondence regarding the QDROs by [the estate] and
Judge." Neither the estate nor Jeffrey Ross opposed the entry of
the QDROs in Ross's favor.
Because the underlying action was one for divorce, only Mr.
and Ms. Ross were parties. Chiloro was never formally made a
party to the action. Nevertheless, Chiloro opposed Ross's motion
to enter the QDROs. In addition, Chiloro contested the Family
Court's jurisdiction over the matter, arguing that Ross never
served Chiloro with a complaint and, even if she had, Chiloro
would have removed the matter to federal court pursuant to
federal question jurisdiction and preemption by the Employee
Retirement Income Security Act,
29 U.S.C.A.
§§1001 to -1461
(ERISA). Chiloro never filed a formal notice to intervene
pursuant to R. 4:33-1 nor did she request to be joined pursuant
to R. 4:28-1; rather, she simply filed a brief and presented her
position at oral argument.
Before Ross's motion to enter the QDROs was heard, Chiloro
filed a complaint on April 12, 1996 in the United States District
Court for the District of New Jersey against Ross and various
trustees and administrators of Mr. Ross's Work-O-Lite and R&S/CN
pension plans. In the complaint, Chiloro sought payment of
survivor benefits under ERISA, arguing that, because a QDRO had
not been signed before Mr. Ross's death, she was entitled to the
proceeds from the plans as Mr. Ross's surviving spouse. The
complaint was later amended to include Nationwide Life Insurance
Company and Jeffrey Ross as defendants.
On May 14, 1996, the motion judge heard oral argument on
Ross's motion in the Family Part to enter the QDROs in accordance
with the PSA. Maintaining that the Family Court did not have
jurisdiction over the matter, Chiloro filed a forty-two page
brief in opposition to the motion and argued her case on the
merits, alleging that the pension plan benefits had vested in her
as of the date of Mr. Ross's death, and therefore QDROs should
not be entered on behalf of Ross. During the proceedings, the
motion judge acknowledged that Chiloro was not a party to the
proceedings, but declared that he would "treat[] her as basically
an intervenor" "for purposes of this hearing today, otherwise ...
she really doesn't have any standing to argue before the Court."
After extensive arguments, the motion judge concluded at the
hearing that he would sign the QDROs in issue. He stated:
I'm satisfied that the respective rights of the parties
vest at the time that the judgment of divorce is
entered by the Court and the property settlement
agreement incorporated into that judgment of divorce.
Those rights are enforceable from that time on. The
length of time that has elapsed between the granting of
the divorce and the submission of the QUADROS does not
affect the respective rights of the parties.
[Emphasis added.]
Thus, according to the motion judge, the pension benefits in
issue should be equitably distributed to Ross under the terms of
the PSA; they did not belong to Chiloro because they had already
vested in Ross as of the judgment of divorce and the transfer of
assets via the PSA.
On May 24, 1996, the motion judge executed QDROs for the
"Work-O-Lite Co., Inc. Money Purchase Plan" and the "Work-O-Lite
Co., Inc. Nationwide Insurance Annuity Contract" in accordance
with his decision. The judge reserved decision on the R&S/CN
plan, erroneously referring to it as two separate plans, because
it was not referenced in the PSA. He indicated, however, that if
the R&S/CN plan was derivative of Mr. Ross's employment by Work-O-Lite, survivorship benefits from that plan would also belong to
Ms. Ross. This decision was memorialized in an order dated June
4, 1996, from which Chiloro now appeals. The order reflected the
determination that Chiloro was permitted to intervene, stating:
[Counsel] appearing on behalf of Gina Chiloro ... who,
although not a party to this action, is permitted to
take part in the hearing since her client has a
financial interest in the outcome.
Prior to the entry of the order, Chiloro, naming herself a
third-party defendant, requested the removal of Ross's action to
federal court. After the case was removed, Ross moved to remand
it back to the Family Court. After oral argument on July 22,
1996, United States District Judge Bissell granted Ross's motion,
emphasizing that "absolutely critical to the right of a movant
[for removal to federal court] is the status of the removing
party as a party defendant." Because Chiloro was not a party
defendant in the state court proceeding, she could not remove the
case to federal court. Chiloro then filed a notice of appeal of
the June 4, 1996 order granting the QDROs as to the Work-O-Lite
pension plan and Nationwide annuity contract in favor of Ross.
In the wake of the conflicting claims to each plans'
survivor benefits, Warren Siegel, the trustee for the Work-O-Lite
and R&S/CN pension plans, sought a court order permitting him to
deposit the proceeds of the plans, or $536,286.55, into federal
court. This order was executed by Judge Bissell and the money
was deposited with the clerk of the court on June 28, 1996.
While Chiloro awaited the appeal of the June 4, 1996 order,
the Family Court designated the R&S/CN plan in favor of Ross upon
Ross's motion. Although noticed on the motion, Chiloro did not
participate in this proceeding. The court's decision was based
on the affidavit of Warren Siegel, the trustee of the pension
plans, who indicated that most, if not all, of the assets in the
plans were derivative of Mr. Ross's employment by Work-O-Lite and
were incorporated into the Work-O-Lite pension plan and
Nationwide annuity contract. Specifically, Siegel certified in
his affidavit that:
R&S was a New Jersey general partnership we formed to
purchase and lease equipment to National and Work-O-Lite and, ultimately, to various third parties. I
estimate that approximately 90" of the rental income
generated by R&S during its existence derived from
either National or Work-O-Lite.
CN Trucking was a New Jersey Subchapter S corporation
we formed in approximately 1982 for the purpose of
providing trucking services to National, CN's sole
customer. CN leased trucks from third parties and used
those trucks to provide trucking services for National.
CN Trucking discontinued its operations in or about
1989 and was merged into National.
Chiloro never amended her notice of appeal to include this
subsequent decision.
At this point, Chiloro's federal action remained active. On
November 27, 1996, Chiloro moved for summary judgment before
Judge Bissell on her federal action, arguing that Ross never
entered a QDRO which would properly divest Chiloro of the pension
benefits as the surviving spouse. Ross also moved for summary
judgment, arguing that the principles of res judicata precluded
Chiloro's federal action, and requesting that the monies
deposited with the district court and the proceeds of the
Nationwide annuity contract be released to her.
After oral argument, Judge Bissell concluded that Chiloro's
status at the hearing needed to first be determined as a matter
of state law before either motion could be decided on its merits.
Consequently, in a letter opinion dated February 26, 1997, Judge
Bissell abstained from determining either motion and stayed the
matter with leave to apply to re-open it after this court
determined Chiloro's contested status as a party or non party
intervenor.
On appeal, Chiloro makes the procedural argument that she
was a necessary and indispensable party to the proceedings below
and the failure to join her requires this court to vacate the
orders entered by the Family Court judge. Furthermore, she
asserts that this action was not cognizable in the Family Part of
the Superior Court. With regard to the merits, Chiloro argues
that the court erred in granting Ross's application for the entry
of the QDROs because at the time they were entered, the pension
benefits had already vested in her as Mr. Ross's surviving
spouse. Chiloro also contends that the property settlement
agreement lacked sufficient specificity to satisfy the
requirement for a QDRO under ERISA or to divest her as "surviving
spouse" of her pension rights. We address the procedural issues
separate from the issues affecting the merits.
On appeal, Chiloro argues that she was a necessary party to the proceedings below because she was "claiming a right to the very pension moneys which Carol was seeking for herself through the entry of the QDROs." Thus, because Ross failed to join her, Chiloro contends that the motion judge's ruling granting Ross the survivor benefits of the pension plans and annuity contract
should be reversed. According to Chiloro, the action was not
even cognizable in the Family Part.
As the motion judge noted, Chiloro possessed a financial
interest in the outcome of the case because any award to Ross of
survivor benefits would necessarily strip Chiloro of those same
benefits. Chiloro argues, therefore, that "pursuant to R. 4:28-1, [Ross] was obligated to join [Chiloro] as a party."
We acknowledge that, pursuant to R. 4:28-1, Chiloro should
have been joined as a party because she claimed an interest in
the survivor benefits (the subject of the action) and the
disposition of such benefits in her absence impedes her ability
to protect that interest. Moreover, a substantial risk of
inconsistent outcomes could result if Chiloro was not joined in
the Family Court action, in that one result could exist in Family
Court with a possibly different result existing in federal court.
Chiloro argues, therefore, that "it was error for the Court below
to adjudicate this matter without ordering that Gina be joined as
an indispensable party." We disagree.
R. 4:28-1 follows verbatim Rule 19 of the Federal Rules of
Civil Procedure. The comment in the New Jersey Rules quotes the
introductory comment of the Advisory Committee's notes on the
federal rule, which states in part:
Even if the court is mistaken in its decision to
proceed in the absence of an interested person, it does
not by that token deprive itself of the power to
adjudicate as between the parties already before it
through proper service of process. But the court can
make a legally binding adjudication only between the
parties actually joined in the action. It is true that
an adjudication between the parties before the court
may on occasion adversely affect the absent person as a
practical matter, or leave a party exposed to a later
inconsistent recovery by the absent person. These are
factors which should be considered in deciding whether
the action should proceed, but they do not themselves
negate the court's power to adjudicate as between the
parties who have been joined.
[Emphasis added.]
Thus, a court may adjudicate a matter before it, even if all
parties are not joined therein. Consequently, the motion judge
had jurisdiction to adjudicate this matter.
Chiloro next argues that this type of action is not even
cognizable in the Family Court. Because her claim "arises under
federal law and requires an analysis of ERISA's preemption and
anti-alienation provisions," Chiloro argues that it is not a
claim unique to and arising out of a family-type relationship,
and therefore may not be decided by a Family Court. Not so. R.
5:1-2, which sets forth those actions which are cognizable in the
Family Part, states in pertinent part:
All civil actions in which the principal claim is
unique to and arises out of a family or family-type
relationship shall be brought in the Family Part. Such
actions include all actions and proceedings provided
for in Chapters II and III of Part V; all civil actions
and proceedings formerly designated as matrimonial
actions; all civil actions and proceedings formerly
cognizable in the Juvenile and Domestic Relations
Court; and all other civil actions and proceedings
unique to and arising out of a family or a family-type
relationship.
[Emphasis added.]
In Brennan v. Orban, 145 N.J. 282 (1996), the plaintiff filed a divorce complaint and later filed a separate tort action in the Law Division for physical abuse allegedly suffered at the
hands of her husband, the defendant. The Family Part
consolidated the two actions, and the plaintiff appealed. The
Supreme Court determined that the Family Part could hear both
actions. Id. at 301-02. Brennan makes it clear that the scope
of the Family Court's ancillary jurisdiction is indeed broad.
Under the doctrine of ancillary jurisdiction,
once the Chancery Division asserts jurisdiction over a
complaint seeking equitable relief, it has the power to
dispose of ancillary legal claim and award money
damages. Legal issues are ancillary if they are
germane to or grow out of the subject-matter of the
equitable jurisdiction.
[Id. at 293 (citation and quotation omitted).]
Ross's original application was to enforce the PSA agreement
by requesting the entry of QDROs. The Family Court had proper
jurisdiction over this action as it arose from a family matter -
the PSA. As the Advisory Committee's note discussing joinder
indicates, the Family Court had the power to adjudicate the
matter, regardless of whether Chiloro was joined or not joined as
a party. If she was not joined as a party, however, the court's
decision would not be binding on her. The determinative
question, therefore, is whether Chiloro participated in the
Family Court action to the extent that she should be bound by
that court's decision.
At the initial hearing to determine whether QDROs should be
entered in favor of Ross, the motion judge indicated that he
would treat Chiloro as an intervenor "for purposes of this
hearing today" in order to permit arguments by her counsel.
Chiloro's counsel never objected to this classification, and in
fact stated, "if you're going to treat Gina Chiloro as an
intervenor, then I would like to have a piece of paper from
[Ross's counsel] that I can take to Federal Court and remove this
action to Federal Court." The judge responded, "Well, no. I
said for purposes of this hearing today, otherwise, if it were
not for me considering her in a position of an intervenor, ...
she really doesn't have any standing to argue before this
court."See footnote 1
Chiloro argues that "[t]o be treated as an 'intervenor' for
'purposes of this hearing' is not the same as being a full-fledged party with all of the rights (and binding obligations)
visited upon a party." Chiloro continues that she should not be
"saddle[d] ... with the burdens assessed against a party" just
because she was permitted to argue her case on the merits. As a
non-party, Chiloro contends that she "had no opportunity to seek
or obtain documents; to take depositions; or to obtain
information through Interrogatories or Requests to Admit." Thus,
Chiloro argues that she was not entitled to those modes of
discovery which a normal litigant is entitled to in an action.
To support her arguments, Chiloro relies on Biddle v.
Biddle,
166 N.J. Super. 1 (App. Div. 1979). There, plaintiff
loaned money to her son and his wife so they could purchase
property on which to build a house. When the couple divorced,
plaintiff filed a motion to intervene to protect her interest in
the loan as a lien on the property before it was equitably
distributed. The court denied her motion. During the divorce
proceedings, she testified as a witness on her son's behalf,
arguing that the lien reduced the value of the premises subject
to equitable distribution and increased the debts of the
relationship. Thereafter, the wife was awarded the property free
and clear of any alleged liens by the plaintiff. No appeal was
taken; rather, plaintiff filed a separate action asserting her
claim to a lien on the premises. The issue before the court was
whether plaintiff was bound by the previous judgment that no lien
existed on the property.
We determined that plaintiff was not bound by the decision
in the divorce action, as she was "plainly not a party to the
divorce action," and her interest was not protected by her son,
who could not be in privy with her because his ownership in the
land conflicted with her claim. Id. at 4. We commented that the
plaintiff, as a witness, may have ultimately presented her claim
to the same extent that she could have were she a real party, but
determined that "participation as a trial witness does not,
without more, bind one to the determination therein." Id. at 7
(citations omitted). We also stated that "a person who has
unsuccessfully attempted to intervene in an action prior to the
entry of judgment is not bound as to the claims adjudicated
therein unless he is thereafter represented by one who is a
party." Ibid.
Biddle is clearly distinguishable. Here, Chiloro did not
participate as a witness on behalf of another party. Instead,
she appeared on her own behalf and presented her full argument on
the merits to the Family Court judge. By doing so, plaintiff
effectively intervened, despite the absence of a formal motion to
do so. See United States v. RMI Co.,
599 F.2d 1183, 1187 (3d
Cir. 1979) (stating that one who appears specially in the
proceedings may be treated, "de facto, as an intervenor.").
We hold that a judgment may be binding as an estoppel on a
person who, although not nominally or formally a party to the
action in which it was rendered, submitted his or her interest in
the subject matter of the litigation to the consideration of the
court and invited its adjudication thereon. See 50 C.J.S.
Judgment § 859 (1997). Chiloro submitted a brief with
accompanying exhibits and certifications extensively outlining
her interests to the Family Court. When the motion judge
informed her that he was treating her as an intervenor, even if
only for purposes of this hearing, she did not object. She
thereby submitted to the jurisdiction of the court and invited
its adjudication as to her claim in spite of her constant
reminders on the pleadings that she contested the jurisdiction of
the court. Most significantly, Chiloro was not prejudiced by her
status as an intervenor "only for the purposes of this hearing,"
because that hearing represented the entire claim. This was not
a protracted lawsuit, it was simply a motion for the entry of
QDROs, which was granted on the same day as the hearing.
Chiloro asserts that she was substantially deprived of her
rights by being treated as an intervenor without being given the
benefit of discovery. However, discovery was not needed to
address the issue in this lawsuit of whether federal law governs
the entitlement of the survivor benefits of Mr. Ross's pension
plans and annuity contract. The facts before this court are
obvious: two pension plans and one annuity contract existed at
the time of Mr. Ross's death. The information necessary to
determine who was entitled to the proceeds of each were already
before the court. No further discovery was needed, and Chiloro
was not deprived of her rights by being classified as an
intervenor in the Family Court Action.
Chiloro argues that, despite the motion judge's statement
during the hearing that he would treat her as an intervenor, his
final order indicates that she was "not a party to this action."
The order further states that Chiloro, or her counsel, was
"permitted to take part in the hearing since her client has a
financial interest in the outcome." Chiloro was treated as an
intervenor and fully participated at the hearing, whether or not
the order pinned an appropriate label on her.
Moreover, regardless of the proceedings below, Chiloro
effectively intervened by appealing the June 4, 1996 order. See
Local 322, Allied Industrial Workers v. Johnson Controls, Inc.,
921 F.2d 732 (7th Cir. 1984) (barring plaintiff, who was
permitted to intervene only on appeal, from relitigating its
claim in a subsequent action under the doctrine of res judicata),
cert. denied,
500 U.S. 942,
111 S. Ct. 2238,
114 L. Ed.2d 480
(1991). In Local 322, the court quoted the following from a
decision in the district of Alaska:
[A party] is entitled to its day in court on these
issues and intervention in those proceedings is not its
only choice. Indeed, it is only due to the fact that
the intervenors requested to be allowed into this
action that this judgment may be binding on them in the
other case.
[Id. at 735 (quoting Alaska v. Andrus,
429 F.Supp. 958, 964
(D. Alaska 1977), aff'd,
591 F.2d 537 (9th Cir. 1979)).]
The same applies here. Because Chiloro chose to submit a
brief and argue the merits of her case, both at oral argument and
on appeal, this court's judgment will be binding on her. That
she was not entitled to conduct her own discovery, as mentioned,
is irrelevant to the outcome of this case. Moreover, Chiloro
submitted her own discovery with her briefs and certifications
filed in the Family Court.
Thus, we deem the active level of Chiloro's participation in
both the proceedings below and on appeal sufficient to consider
Chiloro an intervenor in this action. The Family Court had
proper jurisdiction over the matter and Chiloro is therefore
bound by its decision.
Chiloro argues that the Family Court should not have executed the QDROs entitling Ross to the survivor benefits of Mr. Ross's pension plans and annuity contract. By concluding that Ross's rights vested at the time that the judgment of divorce was entered by the Court with the attached PSA, Chiloro stresses that
the motion judge ignored applicable provisions under ERISA.
According to Chiloro, the judge "erroneously applied a 'vesting'
concept which finds no support in ERISA or the legal authorities
interpreting ERISA, and ignored case law" which requires strict
compliance with statutory requirements in order to divest
survivor benefits from the actual surviving spouse.
Prior to 1974, pension plan participants could freely assign
or alienate both their own interests and survivorship interests
in the plans pursuant to the Internal Revenue Code. Hawkins v.
Commissioner of Internal Revenue,
86 F.3d 982, 988 (10th Cir.
1996). In 1974, however, Congress enacted the Employee
Retirement Income Security Program (ERISA), which changed
existing law by providing that benefits obtained "under [a
qualifying pension] plan may not be assigned or alienated."
29 U.S.C.A.
§1056(d)(1).
Under ERISA, survivor benefits from a pension plan
automatically pass to the surviving spouse upon a participant's
death.
29 U.S.C.A.
§1055(a)(1). That section states in
pertinent part:
Each pension plan to which this section applies shall
provide that -
(1) in the case of a vested participant who does not
die before the annuity starting date, the accrued
benefit payable to such participant shall be provided
in the form of a qualified joint and survivor annuity,
and
(2) in the case of a vested participant who dies before
the annuity starting date and who has a surviving
spouse, a qualified preretirement survivor annuity
shall be provided to the surviving spouse of such
participant.
[Emphasis added.]
Congress made it clear that it intended ERISA to "supersede
any and all State laws insofar as they may now or hereafter
relate to any employee benefit plan," which included employee
pension plans.
29 U.S.C.A.
§1144(a);
29 U.S.C.A.
§1002(3).
After ERISA was enacted, however, courts were divided on whether
the complete restriction on alienation of pension plans preempted
state domestic relations laws which permitted assignment of the
benefits of such plans for the purpose of dividing marital
property. Compare Francis v. United Tech. Corp.,
458 F.Supp. 84,
85-86 (N.D. Cal. 1978) (holding that ERISA preempts state
community property law permitting division of plan benefits for
domestic support purposes) with American Tel. & Tel. Co., v.
Merry,
592 F.2d 118 (2d Cir.) (determining that ERISA does not
preempt state laws allowing the attachment of plan benefits in
order to satisfy family support obligations), cert. denied,
444 U.S. 856,
100 S. Ct. 116,
62 L. Ed.2d 75 (1979).
In 1984, Congress responded by enacting the Retirement
Equity Act (REA). The REA created a limited exception to ERISA
preemption, allowing pension plan benefits to be divided pursuant
to state law where a "qualified domestic relations order" (QDRO)
exists.
29 U.S.C.A.
§1144(b)(7). Consequently, with respect to
pension plans, ERISA preempts all marital dissolution decrees
that do not meet the statutory definition of a QDRO. Thus, state
law will prevail only where pension plan benefits are alienated
pursuant to a valid QDRO. If no QDRO exists, ERISA and federal
common law must be applied to determine whether the benefits were
properly alienated.
Under ERISA, only two means exist by which a participant may
designate a beneficiary other than his own spouse: waiver by the
spouse or entry of a QDRO. The waiver provision is set forth in
29 U.S.C.A.
§1055(c)(2), which states:
Each plan shall provide that an election under
paragraph (1)(A)(i) shall not take effect unless:
(A)(i) the spouse of the participant consents in
writing to such election, (ii) such election designates
a beneficiary (or a form of benefits) which may not be
changed without spousal consent (or the consent of the
spouse expressly permits designations by the
participant without any requirement of further consent
by the spouse), and (iii) the spouse's consent
acknowledges the effect of such election and is
witnessed by a plan representative or a notary public,
or
(B) it is established to the satisfaction of a plan
representative that the consent required under
subparagraph (A) may not be obtained because there is
no spouse, because the spouse cannot be located, or
because of such other circumstances as the Secretary of
Treasury may by regulations prescribe.
[Emphasis added.]
Section 1056(d)(3)(A) allows alienation where a QDRO exists.
That section provides:
Paragraph (1) [stating that pension plan benefits may
not be assigned or alienated] shall apply to the
creation, assignment, or recognition of a right to any
benefit payable with respect to a participant pursuant
to a domestic relations order, except that paragraph
(1) shall not apply if the order is determined to be a
qualified domestic relations order. Each pension plan
shall provide for the payment of benefits in accordance
with the applicable requirements of any qualified
domestic relations order.
[Emphasis added.]
Clearly then, where a surviving spouse has not waived her
right to benefits and a QDRO does not exist, ERISA prevents a
participant from naming a beneficiary other than a surviving
spouse. In that case, a participant will be unable to alienate
any of his or her pension plans, even by distribution in a PSA.
Hawkins, supra, 86 F.
3d at 988.
The following key facts are undisputed: Chiloro was married
to Mr. Ross when he died, and was by definition his surviving
spouse, notwithstanding the PSA in which Mr. Ross designated Ms.
Ross as the surviving spouse. Chiloro did not waive her rights
to the survivor benefits of Mr. Ross's pension plans. Where no
waiver exists, ERISA prohibits the alienation or assignment of
pension plan benefits.
29 U.S.C.A.
§1056(d)(1). This
prohibition even applies "to the creation, assignment, or
recognition of a right to any benefit payable with respect to a
participant pursuant to a domestic relations order."
29 U.S.C.A.
§1056(d)(3)(A). ERISA defines "domestic relations order" as:
any judgment, decree, or order (including approval of a
property settlement agreement) which -
(I) relates to the provision of child support, alimony
payments, or marital property rights to a spouse,
former spouse, child or other dependent of a
participant, and
(II) is made pursuant to a State domestic relations law
(including a community property law).
[
29 U.S.C.A.
§1056(d)(3)(B)(ii).]
However, ERISA's prohibition on alienation of pension plan benefits "shall not apply if the order is determined to be a qualified domestic relations order." 29 U.S.C.A. §1056(d)(3)(A)
(emphasis added). Therefore, the critical issues are whether the
PSA could itself be considered a QDRO and whether the QDROs which
were entered after Mr. Ross's death are valid. The issues are
addressed in this order.
Pursuant to
29 U.S.C.A.
§1056(d)(3)(B), a qualified
domestic relations order must first "create[] or recognize[] the
existence of an alternate payee's right to, or assign[] to an
alternate payee the right to, receive all or a portion of the
benefits payable with respect to a participant under a plan."
Clearly, the PSA in question creates a right in Ross, as the
alternate payee, to receive "one-half (1/2) of the Husband's
pensions and/or annuities from Work-O-Lite Co., Inc. and National
Lighting Co., Inc." Furthermore, it entitles Ross to "the
survivor annuity of the pension plans, as per the provisions of
the plans." Thus, the PSA satisfies these requirements of a
QDRO.
In addition, Section 1056(d)(3)(D) states:
A domestic relations order meets the requirements of
this subparagraph only if such order clearly
specifies -
(i) the name and last known mailing address (if any) of
the participant and the name and mailing address of
each alternate payee covered by the order,
(ii) the amount or percentage of the participant's
benefits to be paid by the plan to each such alternate
payee, or the manner in which such amount or percentage
is to be determined,
(iii) the number of payments or period to which such
order applies, and
(iv) each plan to which such order applies.
The foregoing requirements for the creation of a QDRO must
be strictly complied with before a domestic relations order may
be considered "qualified." Hawkins, supra, 86 F.
3d at 993
(concluding that the Internal Revenue Code analog of Section
1056(d) "should be accorded its plain meaning, and not
interpreted so as to allow the parties to omit the requested
information whenever it is convenient or even perhaps logical to
do so.").
During the hearing on May 14, 1996, the motion judge
concluded that "as far as the QUADRO is concerned versus the
judgment of divorce, I'm satisfied that there must be a specific
QUADRO, that the judgment of divorce in and of itself would not
suffice." Yet, he determined that Ross's rights to the pension
plan benefits vested at the time of the divorce judgment. Under
ERISA, that is not possible unless a QDRO existed at the time of
the divorce. Chiloro argues that a valid QDRO did not exist at
that time because the PSA lacked the requisite specificity. We
disagree insofar as the Work-O-Lite pension plan is concerned.
First, the PSA does designate Ross's name and address as the
alternate payee of Mr. Ross's pension plans. While it does not
specifically refer to Ross as "the alternate payee," such
language is not required. In Hawkins, supra, a similar issue was
presented. A marital settlement agreement purported to give the
deceased's ex-wife $1 million in pension benefits. In
determining whether the ex-wife was required to pay taxes on such
benefits, the court discussed whether the marital settlement
agreement met the requirements of a QDRO. The court determined
that, although the plan did not specifically designate the ex-wife as an alternate payee, it expressly stated that she "'shall
receive' $1 million 'from' the Plan," thereby creating or
recognizing a contractual right in the ex-wife as an alternate
payee. In addition, the court noted that the ex-wife fell within
ERISA's definition of an "alternate payee," in that she was "any
spouse [or] former spouse ... of a participant who is recognized
by a domestic relations order as having a right to receive all,
or a portion of, the benefits payable under a plan with respect
to such participant." Id. at 990 (quoting I.R.C. § 414(p)(8),
the analog to
29 U.S.C.A.
§1056(d)(3)(K)). Thus, Hawkins
supports the finding that the first requirement of a QDRO is met.
Second, the plan designates the amount or percentage of the
participant's benefits to be paid by the plan to the alternate
payee. The PSA specifically gives Ross the right to one-half of
Mr. Ross's pension benefits while he is alive, and states that
she "shall receive the survivor annuity of the pension plans, as
per the provisions of the plans." (Emphasis added). No other
logical argument exists but that entitlement to the survivor
annuity is actually entitlement to all of the survivor annuities
of the pension plans. This is true especially because no other
designation of benefits is made, and because the PSA states,
"Carol Ross shall be deemed to be the surviving spouse and shall
be designated beneficiary for any survivor annuity." (Emphasis
added). Thus, the second requirement for a QDRO is met.
Third, the plan must specify the number of payments to the
alternate payee or the period to which the plan applies. "Any"
survivor annuity payments can be read to include all survivor
annuity payments. Thus, the number of payments is logically the
total of all payments for the entire duration of the pension
plan. The third requirement of a QDRO is therefore satisfied.
The fourth prerequisite of a QDRO is that the order must
designate each plan to which such order applies. The PSA only
entitles Ross to "the Husband's pensions and/or annuities from
Work-O-Lite Co., Inc. and National Lighting Co., Inc." The PSA
states that, "for the purposes of the defined benefit plan and
the defined contribution plan, Carol Ross shall be deemed to be
the surviving spouse and shall be designated beneficiary for any
survivor annuity." The Work-O-Lite, Inc. Money Purchase Pension
Plan is not expressly designated, but the PSA refers to the Work-O-Lite Co., Inc. pension plan. We believe the designation in the
PSA is specific enough as to the Work-O-Lite Co., Inc. pension
plan to satisfy the fourth criteria of a QDRO. See Metropolitan
Life Ins. Co. v. Fowler,
922 F.Supp. 8, 14 (E.D. Mich. 1996)
(finding that a divorce judgment which specified that the
designation of "any and all life insurance policies by virtue of
... employment" satisfied the fourth requirement of a QDRO).
Therefore, insofar as this specific plan was concerned, the PSA
met the QDRO requisite, satisfying the alienation provision of
the REA for the benefit of Ross upon the death of her former
husband.
We, however, cannot come to the same conclusion as to the
Nationwide annuity contract and the R&S/CN pension plan which are
not referred to at all in the PSA. While those plans may have
been derivatively funded from a pension plan formerly under the
Work-O-Lite Co., Inc. name, or funds from the Work-O-Lite and
National Lighting companies, respectively, that does not imbue
them with the specificity required under the REA.
Recently, the Internal Revenue Service issued sample
language to be included in QDROs, stating that:
A QDRO must clearly identify each plan to which the
QDRO applies. A QDRO can satisfy this requirement by
stating the full name of the plan as provided in the
plan document.
[IRS Notice 97-11, Internal Revenue Bulletin 1997-2 (January
13, 1997).]
Ross correctly argues that this is simply a suggestion, and not mandatory. Regardless, it is clear that Congress intended that a domestic relations order set forth more than a general idea of the plans to which it was referring. While Mr. Ross most likely intended that his ex-wife receive all survivorship benefits of his pension plans and annuity contract, the "subjective intentions of the parties are not controlling," rather, the language of the order itself determines "whether a domestic relations order qualifies as a QDRO." Hawkins, supra, 86 F. 3d at 989-90 (citing Commissioner v. Lester, 366 U.S. 299, 304-05, 81 S. Ct. 1343, 1346-47, 6 L. Ed.2d 306 (1961)). Except for the Work-O-Lite Co., Inc. pension plan, the PSA does not designate with the required specificity any of the other plans in lieu of
filing a QDRO. Therefore, no QDRO existed as to those plans and
they were not properly alienated under ERISA. For that reason,
we must reverse the Family Court judge's decision as to those
plans.
Chiloro next argues that the motion judge improperly entered
the QDROs after Mr. Ross's death. The judge determined that
Ross's rights to her ex-husband's pension plan benefits vested in
her as of the entry of the judgment of divorce. Chiloro
contends, however, that as of Mr. Ross's death, the pension plan
benefits automatically vested in her. Ross responds that ERISA
does not require the entry of QDROs prior to the time that a
participant dies or remarries. Because QDROs are exempted from
ERISA preemption, Ross contends that a state court may determine
whether to allow a QDRO to relate back to the judgment of
divorce. According to Ross, even where a QDRO is entered after a
participant's death, "it automatically supersedes the rights of a
surviving spouse regardless of when it is entered." We disagree.
In Miko v. Miko,
283 N.J. Super. 287 (Law Div. 1994), a
judgment of divorce required a husband to pay a certain amount in
unallocated support to his ex-wife and his minor child. An order
was entered garnishing his income to satisfy his support
obligations. While he was working, the husband remarried. About
two years later, he retired, and his second wife started
receiving benefits under his pension plan. Later, the court
entered a QDRO against his pension plan for support arrearages
owed as a result of the prior marriage. The court phrased the
central issue as "whether the judgment [for support arrearages]
entered against [the husband] can be collected from the
survivorship benefit portion of his pension plan by someone other
than the named beneficiary." Id. at 292.
The court determined that the first wife was entitled to the
survivor benefits because a valid judgment had been entered
against the husband. While mentioning the fact that ERISA was
applicable, the court never discussed ERISA or distinguished that
pension plan survivorship benefits are inalienable under the
statute. Rather, the court based its decision on the belief that
"child support and even alimony arrearages due his first wife
take precedence over whatever obligation he might have to his
second wife." Id. at 294.
We disagreed with Miko in Seavey v. Long,
303 N.J. Super. 153 (App. Div. 1997). There, a property settlement agreement
entitled the decedent's first wife to fifty percent of the
husband's state pension benefits. The husband remarried. The
issue before us was whether the second wife was required to share
her widow's benefits with the first wife. We determined that the
second wife alone was entitled to widow's benefits, which we
deemed to be "her property" under the state retirement statute.
Id. at 157-58. We went on to observe:
Insofar as Miko might provide a basis for plaintiff in
our case to obtain or even share in the pension payable
to the second wife, we disagree with the conclusion
expressed in Miko, although we appreciate the humanity
that fostered it.
[Id. at 160.]
Here, the required beneficiary change was not properly made
as to the R&S/CN plan, in that a QDRO was not entered prior to
Mr. Ross's death which would allow the proceeds to be alienated
under ERISA. Therefore, Chiloro is entitled to the proceeds of
that plan as Mr. Ross's surviving spouse. As discussed above,
the PSA itself is specific enough to be deemed a QDRO which
properly alienated the Work-O-Lite Co., Inc. Money Purchase
Pension Plan. Thus, the proceeds from that plan must pass to
Carol Ross.
Without a doubt, it is more equitable to satisfy the obvious
intent of the PSA agreement and grant Ross the survivor benefits
of all of Mr. Ross's pensions pursuant to the language in the PSA
that Ross shall be deemed the surviving spouse for any survivor
annuity. It is clear, however, that survivorship benefits are
governed by ERISA unless a valid QDRO exists or the PSA satisfies
the QDRO prerequisites under the REA. The statute specifically
provides that where a domestic relations order which is not
qualified exists, federal common law preempts state law.
29 U.S.C.A.
§1056(d)(3)(A); Hawkins, supra, 86 F.
3d at 988 (stating
that "a marital dissolution decree that does not fall within the
limited QDRO exception is preempted by ERISA, and any assignment
of pension interests under such an order is unenforceable, even
if intended as part of a family support order."). The
unfortunate result is that equity will not prevail.
Here, no QDRO existed at the time of Mr. Ross's death. No
federal case has allowed a QDRO to be entered after a
participant's death. In fact, in Karem v. Commissioner,
100 T.C. 521, 1
993 WL 207685 (1993), during divorce proceedings, a wife
consented to a lump-sum distribution from her husband's pension
plan pursuant to a property distribution plan. A consent
judgment was ordered memorializing the agreement and directing
the wife to enter a QDRO. The court determined that the consent
judgment itself was not a QDRO and never considered entering one
after the fact. Instead, the court supported the proposition
that "an order that does not qualify as a QDRO contravenes the
direct language of ERISA's antiassignment provision and does not
divest a plan participant of benefits under an ERISA plan." Id.
at 529 (citation omitted). Under both Hawkins and Karem, federal
law is clear that where a QDRO does not exist, one should not be
entered to save the meaning of a property settlement agreement.
Ross argues that she was unable to prepare QDROs before Mr.
Ross's death because Mr. Ross was not cooperative or forthcoming
with pertinent information. She attributes his lack of
cooperation to his hospitalization shortly after their divorce
hearing. Conversely, the estate, in opposing Ross's informal
request to enter QDROs, argued that it was Ross who was
uncooperative. According to the estate, Ross was given all of
the pension information but never responded to their inquiries
about a QDRO which was to be approved by the estate. The motion
judge never determined the merits of either party's argument.
Regardless, as discussed above, New Jersey's concepts of equity
cannot be applied and a QDRO cannot be entered after the fact.
It has been pointed out to us by the parties that the
Nationwide Insurance Annuity contract may not qualify as a
pension plan under ERISA for which alienation of benefits is
prohibited. This issue was not addressed in either party's
brief, except for a footnote in Ross's brief and at argument.
From the record, it appears that the Nationwide annuity
contract was purchased out of a portion of the proceeds of a
separate pension plan entitled "Work-O-Lite Defined Benefit
Plan." In an opinion letter by the estate's expert regarding
ERISA-based claims, it was mentioned that if the pension plan was
indeed terminated and the annuity contract purchased from its
proceeds, it would not be a "plan for the purposes of ERISA." No
authority was provided to support this opinion. Our discussion
of the issue, without adequate briefing or expert testimony, if
needed, is only illustrative of our inability to deal with the
issue on the record before us.
If the annuity contract is determined to be a pension plan
under ERISA, then the same analysis as previously utilized would
apply, and Chiloro would be entitled to the survivor benefits
because no QDRO was properly or timely entered which divested her
of those benefits. Conversely, if the annuity contract is not
determined to be a pension plan, its benefits may freely be
alienated, and Carol Ross would be entitled to the survivor
benefits pursuant to the PSA. Although Jeffrey Ross was
designated as the beneficiary in the annuity contract itself, he
ceded his rights as beneficiary to Carol Ross, believing that the
PSA governed the matter. Regardless of Jeffrey Ross's actions,
if he was not entitled to the proceeds because Chiloro, as
surviving spouse, trumped his beneficiary status, he could not
relinquish his rights to Ross.
As a final note, because Ross may not receive all of the
benefits negotiated for and agreed to in the PSA by reason of the
impact of federal law, she may still be entitled to pursue her
claim against other assets, if any remain, of Mr. Ross' estate in
order to carry out the intention of the PSA.
We, therefore, affirm as to the Work-O-Lite Co., Inc. Money
Purchase Pension Plan, allowing the survivor benefits to be
distributed to Carol Ross. We reverse as to the R&S/CN plan and
direct that those survivor benefits be distributed to Gina Ann
Chiloro. We reverse and vacate the QDRO as to the Nationwide
Insurance Annuity and remand for a determination of whether it is
an ERISA-based plan subject to the anti-alienation provision of
ERISA, or alternatively, reverse and preserve for determination
by the federal court should the issue be properly presented in
that forum.
Affirmed in part; reversed in part; reversed and remanded in
part.
Footnote: 1During argument on November 22, 1996 regarding the R&S/CN