Pension Protection Act Blog

- Judge Clifton, 9th Circuit Court of Appeals

Yesterday, the 9th Circuit Court of Appeals decided whether or not a participant in a plan with a Qualified Joint and Survivor Annuity (QJSA) may change the surviving spouse beneficiary after the participant has retired and the annuity has become payable. In Caruso v. Caruso, No. 06-15938 (CA9 Sept. 17, 2008), the Court held that the “QJSA surviving spouse benefits irrevocably vest in the participant’s spouse at the time of the annuity start date - in this case the participant’s retirement - and may not be reassigned to a subsequent spouse.”

How the 9th Circuit reached this holding provides a cautionary tale for both spouses and plan administrators. In 1992, Mr. Caruso retired and began collecting pension benefits from two different pension plans - one sponsored by Hilton and one sponsored by IATSE. At the time of the annuity starting date, Mr. Caruso was married to his 8th wife, Janis Caruso. In 1994, Mr. Caruso and 8th wife decide to divorce, and before the entry of the formal divorce decreee, Mr. Caruso ask to remove 8th wife as his named survivor beneficiary. Both plan administrators refused to remove her as beneficiary since the designation became irrevocable at the time of his retirement and annuity starting date.

In 1997, their divorce became final. Mr. Caruso was awarded his interests in both pensions as his sole and separate property, and 8th wife was awarded her interests in her pensions as her soel and separate property. Additionally, Mr. Caruso was ordered to pay 8th wife $1,500 as an equalization payment because his pensions had greater value than her pensions.

Mr. Caruso then married his 9th wife, Judy Caruso, in 1997 and petitioned the domestic relations court for QDROs which would change his beneficiary designation from 8th wife to 9th wife. In 1999, Mr. Caruso died. The day after he died, the domestic relations court ordered the plan administrators to change the beneficiary from 8th wife to 9th wife.

8th wife then begins a long journey through both state and federal courts seeking to overturn this order, including a trip through the Nevada Supreme Court and a petition to the U.S. Supreme Court seeking certiorari, which the U.S. Supreme Court denied. In 2004, the domestic relations court issued two Qualified Domestic Relations Orders (QDROs), directing each plan to pay survivor benefits to 9th wife or pay the benefits into a constructive trust.

Normally, the case would have been expected to end at this point because 8th wife had exhausted all judicial avenues by pursuing her cause through both state and federal courts, and exhausted all of her appeals. Unfortunately for 9th wife, 8th wife files one final action in federal court, seeking to “enjoi any act or practice which violates any provision [of ERISA] or the terms of the plan”, and the plan trustees for the IATSE pension plan file a cross-claim against 8th wife. The 9th Circuit determines that the 8th wife may have exhausted all of her legal avenues, but the trustees for the IATSE plan have not exhausted their legal avenues because it was not a party to the prior suits and not in privity with the 8th wife. By filing the cross-claim, the trustees of the IATSE plan breathed new life into 8th wife’s journey through the legal system to obtain benefits payable under both plans.

The 9th Circuit then found that because Mr. Caruso’s retirement created a vested interest in the surviving spouse’s benefits, a domestic relations order issued after Mr. Caruso’s retirement could not alter or assign the 8th wife’s interest to the 9th wife, and that the Nevada domestic relations court’s attempt to transfer those benefits from 8th wife to 9th wife was prohibited.

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