FAQs for Attorneys

General

What is a defined contribution plan?


A plan qualified under ERISA and the IRC that provides for contributions directly to individual accounts established and maintained for each plan participant. The contributions may consist of either employee or employer contributions or both. The participant is generally entitled to receive the account balance (together with any interest accrued thereon as well as investment gains and/or losses) when the employee retires or otherwise terminates employment with the company. There are several types of defined contribution plans, including profit sharing plans, thrift plans, 401(k) plans, retirement savings plan, stock bonus plans, and employee stock ownership plans (ESOPs).




What is a defined benefit pension plan?


Pension plan qualified under ERISA and the IRC that provides a specific pre-determinable amount of benefits to a participant at the individual’s projected date of retirement. Normally, the benefits are based on a formula that incorporates the participant’s projected years of service and final average compensations. Defined benefit plan is required to be funded on an ongoing basis in accordance with actuarial principles enumerated in ERISA and the IRC. A participant’s benefits under a defined benefit pension plan are referred to as accrued benefits.




How do we get started identifying the retirement benefits in the case?


At minimum, request statements for each retirement plan in which a party has an interest. You may also want to request the plan participant to provide the Summary Plan Description ("SPD") for each retirement plan being divided. The SPD is a detailed guide to the benefits the program provides and how the plan works.




Can a QDRO be prepared before a divorce is finalized?


In many cases, we are engaged to prepare a QDRO after the divorce has been finalized. However, this can result in costly delays (both emotional and financial), and in extreme cases loss of benefits. We encourage attorneys to prepare or have the QDRO(s) prepared once a settlement has been reached, so that the document(s) can be signed and entered with the Divorce Decree or Settlement Agreement. It is generally much easier to get the participant’s signature on the QDRO and the Divorce Decree at the same time. After the Divorce Decree or Settlement Agreement has been finalized, many participants can be difficult to locate.

If the Divorce Decree is finalized without the completion of a QDRO, and the participant dies before a QDRO can be entered and accepted, an alternate payee’s awarded benefit may be forfeited or at the very least require further action to determine whether the alternate payee may receive his/her benefit.




What documents should I be gathering during discovery?


An account statement for each defined contribution plan. A benefit statement dated within the last year for each defined benefit plan. You need the full legal name of the plan being divided in order to reference it properly in the parties' divorce decree or settlement agreement. A screen shot is likely not going to provide all of the information you need to appropriately identify the retirement plan.





Defined Contribution Plans

What is a defined contribution plan?


A plan qualified under ERISA and the IRC that provides for contributions directly to individual accounts established and maintained for each plan participant. The contributions may consist of either employee or employer contributions or both. The participant is generally entitled to receive the account balance (together with any interest accrued thereon as well as investment gains and/or losses) when the employee retires or otherwise terminates employment with the company. There are several types of defined contribution plans, including profit sharing plans, thrift plans, 401(k) plans, retirement savings plan, stock bonus plans, and employee stock ownership plans (ESOPs).




What are matching employer contributions?


Contributions made to a defined contribution benefit plan, such as a 401(k) Retirement Savings Plan, by the employer based on a certain percentage of the employee’s own contribution. For example, an employer may contribute 50 cents on the dollar for each dollar which an employee contributes to the plan on a payroll deduction basis, up to 6 percent of his/her base salary.




What kind of language should property settlement agreement or divorce decree contain when dividing a defined contribution plan?


Ideally, the settlement agreement or divorce decree should clearly identify:

The retirement plan name.

The amount to be awarded to the Alternate Payee (as a dollar amount or percentage).

Whether the Alternate Payee's award is to include any investment earnings and losses from the date of division to the date of segregation/distribution.

How the Plan Administrator should treat any loans on the account, for loans taken before the date of division as well as for loans taken after the divorce.





Private Pensions

What is a vested accrued benefit?


The accrued benefit in which the plan participant is vested based on the individual’s years of vesting service with the company. Normally, a plan participant becomes fully vested in pension benefits after five years of service. However, some pension plans use a graded vesting schedule in which a participant’s vesting percentage increases each year until it reaches 100 percent. Under current law, a plan participant must be fully vested in the accrued benefit after no later than seven years of vesting service. The participant’s vested accrued benefit refers to the portion of benefits the participant has a non-forfeitable right to receive under the plan.




What is a defined benefit pension plan?


Pension plan qualified under ERISA and the IRC that provides a specific pre-determinable amount of benefits to a participant at the individual’s projected date of retirement. Normally, the benefits are based on a formula that incorporates the participant’s projected years of service and final average compensations. Defined benefit plan is required to be funded on an ongoing basis in accordance with actuarial principles enumerated in ERISA and the IRC. A participant’s benefits under a defined benefit pension plan are referred to as accrued benefits.




What is the Participant’s accrued benefit under a defined benefit plan?


This refers to the amount of benefits that a participant has earned under a defined benefits pension plan as of any particular date and is usually stated in terms of a monthly pension annuity. It is generally based on the employee’s years of service with the company and his/her final average compensation as of the calculation date.




What is the Participant’s accrued benefit under a defined benefit plan?


This refers to the amount of benefits that a participant has earned under a defined benefits pension plan as of any particular date and is usually stated in terms of a monthly pension annuity. It is generally based on the employee’s years of service with the company and his/her final average compensation as of the calculation date.




What is meant by the earliest retirement age?


The age at which a plan participant may first commence pension benefits under the provisions of the plan. Normally, benefits payable to someone before normal retirement age are actuarially reduced to reflect the earlier commencement of benefits.




What is an actuarial equivalent?


The actuarial adjustment necessary to convert a participant’s benefits into different forms and/or payment periods so that the total value of a participant’s pension benefits remains equal (on an actuarial basis) regardless of the form of benefit or the commencement date the participant may elect.




What kind of language should property settlement agreement or divorce decree contain when dividing a defined benefit plan?


Ideally, the settlement agreement or divorce decree should clearly identify:

The retirement plan name.

The amount to be awarded to the Alternate Payee (as a dollar amount or percentage).

How the Plan should calculate the Alternate Payee's award. Is it as of the date of divorce or should the Plan Administrator use a coverture fraction?

When the benefits to the Alternate Payee are to commence -- at the Participant's earliest retirement age (a separate interest benefit) or when the Participant's benefits begin (a shared interest benefit).

Whether the Alternate Payee is entited to pre-retirement survivor annuity benefits.

Whether the Alternate Payee is entitled to post-retirement survivor annuity benefits. (This is typically not awarded to an Alternate Payee if the Alternate Payee's award is a separate interest.)

Whether the Alternate Payee is entited to any temporary or supplemental benefits or cost-of-living increases.




What are Pre-Retirement Survivor Benefits?


All qualified defined benefit plans must provide a qualified pre-retirement survivor annuity (QPSA). The QPSA is a bridge benefit to provide the participant’s surviving spouse with retirement benefits in the event the participant dies after the retirement benefits have vested but before the retirement benefits actually commence. The QPSA is calculated similar to the joint and survivor annuity (see below) with the assumptions that the participant (1) has separated from service, (2) on or after the plan’s earliest retirement age, (3) retired with an immediate benefit payable in the form of a qualified joint and survivor benefit and (4) died the following day.

The QPSA is a benefit that may be assigned to an alternate payee independent of any of the other benefits provided by a plan. An alternate payee may be assigned all or a portion of the QPSA. The QPSA may be paid in any form (other than a joint and survivor annuity) including a single life annuity or lump sum, subject to the requirements of the individual plan.




What is a Single Life Annuity?


A single life annuity benefit is paid in the form of monthly payments over the life of the participant. The benefit stops when the participant dies. There are no post-retirement death benefits paid when the participant dies. Under a single life annuity form the participant is not allowed to designate a beneficiary. This is the basic normal form of benefit for most defined benefit plans.




What is a Joint & Survivor Annuity?


All qualified defined benefit plans must provide a qualified joint and survivor annuity (QJSA) form of benefit payable to a surviving spouse of a married participant. The QJSA must be equal to at least 50% but not more than 100% of the amount payable to the participant during the couple’s joint lives. The QJSA must be the actuarial equivalent of a single life annuity based on the life expectancy of the participant. Actuarially equivalent means that the participant’s pension may be reduced to accommodate the potential future payment to the spouse. A reduction may be required to keep the plan in actuarial balance because it will be paid over two lives instead of one and the participant and beneficiary will be of different sexes and age. The reduction will persist through out the payment period unless the plan provides for a “pop-up benefit”.

The QJSA form of benefit may be waived prior to commencement of benefits. However, the participant’s spouse must consent in writing to the waiver. Failure to include language allowing the alternate spouse to elect a joint and survivor form of benefit in a QDRO acts as a waiver.

The QJSA is a benefit that may be assigned to an alternate payee independent of any of the other benefits provided by a plan. An alternate payee may be assigned all or a portion of the QJSA.




Is it possible for an Alternate Payee to lose his/her rights to the pension?


Yes. If the participant dies before the QDRO is finished and approved by the Plan, the alternate payee runs a substantial risk of losing his/her interest in the pension.




Is it always necessary to elect post-retirement survivor benefits for an Alternate Payee?


No. Most plans will allow the use of a separate interest approach to dividing the benefits. Using this type of QDRO, the Alternate Payee’s share of the benefits are actuarially adjusted and therefore, payable for the lifetime of the Alternate Payee. In such a case, the death of the Participant after benefits have commenced will not affect payment to the Alternate Payee.




Can an ex-spouse receive both a part of the pension and a Qualified Preretirement Survivor Annuity?


Typically, no. Under most plans, the death of the employee before commencement of benefits would cause the pension to be forfeited, and the only benefit payable would be a qualified preretirement survivor annuity.




If an Alternate Payee is awarded part of the pension, but not the Qualified Preretirement Survivor Annuity, what happens if the Participant dies prior to retirement?


The Alternate Payee will probably get nothing from the Plan.




What are post retirement cost-of-living increases (COLAs)?


These are small incremental increases that keep retirees’ benefits in line with inflation. A COLA is usually based upon the increase in the Consumer Price Index. Not all plans offer COLAs.




What is an early retirement subsidy?


Early retirement subsidies can come in a variety of different forms and are sometimes offered for different reasons. An early retirement subsidy can be a package deal to encourage early retirement in an effort by the company or union to downsize their workforce or can be a bonus for completion of a certain amount of years of service. Not all plans offer early retirement subsidies.





Military Pensions

Is it possible to write a QDRO against the Military Retirement System?


In general terms, yes, except it is not called a QDRO.




Is it true that the Member and Former Spouse must have been married for 10 years during which the Member was earning points towards retirement in order for the Former Spouse to receive court ordered benefits directly from the Military Retirement System?


Yes. In order for a former spouse to receive payments directly from the Defense Finance and Accounting Service (DFAS), the member and former spouse must have been married for 10 years during which the member was performing military service creditable towards his/her retirement. In other words, if the marriage did not last for 10 years which coincide with 10 years of military service on the part of the member, DFAS will not honor an order awarding benefits to the former spouse.

However, just because the 10 Year Rule is not met does not mean that a former spouse does not have a claim against retired pay. According to the laws of most states, retirement benefits accumulated during the period of marriage are deemed marital or community property. Therefore, it is possible for a former spouse to be awarded a portion of the member’s retirement. However, the former spouse would have to receive his/her interest in the retirement benefits elsewhere (i.e. equity in the home, cash, payment made directly from the member, etc.).




Is it possible to use the number of points earned by the Member during the marriage to determine the portion of the military benefits earned during the marriage?


Yes. It is common for members of the reserves to use points rather than time to determine the amount of his/her benefits which accumulated during the period of marriage. Since reservists earn a point for each day served, it is possible for someone to serve more days in one year than they do in another year. Since the number of points earned dictates the amount of the retirement benefit payable, it is not entirely accurate to assume that the same amount was earned towards retirement each year. Therefore, it is possible to write an Order which determines the marital portion by comparing the number of points earned during the marriage to the total number of points earned at retirement.




When can a former spouse receive benefits under the Military Retirement System?


The Military Retirement System will begin distributing benefits to the Former Spouse when the Member retires and begins receiving benefits.




Can the former spouse receive a lump sum payment from the Military?


No. Benefits are only paid on a monthly basis.




How long will payments be made to the former spouse from the Military Retirement System?


Benefits will paid by the Military to a former spouse for the lifetime of the member. Therefore, upon the member’s death, all payments to the former spouse will stop. However, if the former spouse was awarded a survivor benefit plan annuity (SBP), then upon the death of the member, the survivor annuity will become payable to the former spouse.




Can a member have more than one person listed as the beneficiary for the survivor benefit plan annuity (SBP)?


No. Only one person can be designated as the beneficiary for the survivor benefit plan annuity. Therefore, only one person can receive the entire survivor benefit plan. It is not possible to designate a former spouse as beneficiary for part of the survivor annuity and a new spouse as beneficiary for the remainder of the survivor annuity.




Are there any forms which must be completed and sent to the DFAS with the Court Order?


Yes. Accompanying the Order should be a completed application form entitled "Request for Former Spouse Payments from Retired Pay" (DFAS Form 2293).




Are there any time restrictions relative to awarding benefits to a former spouse under the Military Retirement System?


There are no restrictions relative to the retirement benefit. However, there is a time restriction with respect to the survivor benefit plan annuity (SBP).

In order for the former spouse to remain eligible for survivor benefit plan coverage, the member must make an affirmative election for such coverage within 1 year of the date of the decree of divorce, dissolution or annulment. If the member neglects or refuses to make such affirmative election it is possible to protect the former spouse entitlement to the SBP coverage by having the former spouse make a "deemed election" for such coverage within the one year time limit. Accordingly, the member shall be deemed to have made the necessary elections thereby preserving the former spouse entitlement to the SBP coverage.





Federal Benefits

Is it possible to write a QDRO against the CSRS or FERS?


In general terms, yes, except it is not called a QDRO. The Office of Personnel Management uses the title "Court Order Acceptable for Processing" (COAP).




When can a former spouse receive benefits under the CSRS or FERS?


The CSRS and FERS will begin distributing benefits to the Former Spouse when the Employee retires and begins receiving benefits.




Can the former spouse receive a lump sum payment from the CSRS or FERS?


A Former Spouse may not receive a lump sum distribution of retirement benefits, but may receive a lump sum payment of any withdrawal of contributions elected by the Employee. The COAP has to clearly illustrate the payment of benefits when a withdrawal of contributions is requested by the Employee.




How long will payments be made to the former spouse from the OPM?


Benefits will paid by the OPM to a former spouse for the lifetime of the employee. Therefore, upon the employee’s death, all payments to the former spouse will stop. However, if the former spouse was awarded a former spouse survivor annuity, then upon the death of the employee, the survivor annuity will become payable to the former spouse.




Can an employee have more than one person listed as the beneficiary for survivor annuities?


Yes. The employee may have a former spouse survivor annuity established for a former spouse and a survivor annuity in place for a current spouse. Under the CSRS the total of these survivor annuities cannot exceed 55% of the Employee’s gross monthly retirement benefit, and under FERS cannot exceed 50% of the Employee’s gross monthly retirement benefit.





State and Local Govt Pensions

What is the Participant’s accrued benefit under a defined benefit plan?


This refers to the amount of benefits that a participant has earned under a defined benefits pension plan as of any particular date and is usually stated in terms of a monthly pension annuity. It is generally based on the employee’s years of service with the company and his/her final average compensation as of the calculation date.




What is the Participant’s accrued benefit under a defined benefit plan?


This refers to the amount of benefits that a participant has earned under a defined benefits pension plan as of any particular date and is usually stated in terms of a monthly pension annuity. It is generally based on the employee’s years of service with the company and his/her final average compensation as of the calculation date.




What is meant by the earliest retirement age?


The age at which a plan participant may first commence pension benefits under the provisions of the plan. Normally, benefits payable to someone before normal retirement age are actuarially reduced to reflect the earlier commencement of benefits.




What are Pre-Retirement Survivor Benefits?


All qualified defined benefit plans must provide a qualified pre-retirement survivor annuity (QPSA). The QPSA is a bridge benefit to provide the participant’s surviving spouse with retirement benefits in the event the participant dies after the retirement benefits have vested but before the retirement benefits actually commence. The QPSA is calculated similar to the joint and survivor annuity (see below) with the assumptions that the participant (1) has separated from service, (2) on or after the plan’s earliest retirement age, (3) retired with an immediate benefit payable in the form of a qualified joint and survivor benefit and (4) died the following day.

The QPSA is a benefit that may be assigned to an alternate payee independent of any of the other benefits provided by a plan. An alternate payee may be assigned all or a portion of the QPSA. The QPSA may be paid in any form (other than a joint and survivor annuity) including a single life annuity or lump sum, subject to the requirements of the individual plan.




What is a Single Life Annuity?


A single life annuity benefit is paid in the form of monthly payments over the life of the participant. The benefit stops when the participant dies. There are no post-retirement death benefits paid when the participant dies. Under a single life annuity form the participant is not allowed to designate a beneficiary. This is the basic normal form of benefit for most defined benefit plans.




What is a Joint & Survivor Annuity?


All qualified defined benefit plans must provide a qualified joint and survivor annuity (QJSA) form of benefit payable to a surviving spouse of a married participant. The QJSA must be equal to at least 50% but not more than 100% of the amount payable to the participant during the couple’s joint lives. The QJSA must be the actuarial equivalent of a single life annuity based on the life expectancy of the participant. Actuarially equivalent means that the participant’s pension may be reduced to accommodate the potential future payment to the spouse. A reduction may be required to keep the plan in actuarial balance because it will be paid over two lives instead of one and the participant and beneficiary will be of different sexes and age. The reduction will persist through out the payment period unless the plan provides for a “pop-up benefit”.

The QJSA form of benefit may be waived prior to commencement of benefits. However, the participant’s spouse must consent in writing to the waiver. Failure to include language allowing the alternate spouse to elect a joint and survivor form of benefit in a QDRO acts as a waiver.

The QJSA is a benefit that may be assigned to an alternate payee independent of any of the other benefits provided by a plan. An alternate payee may be assigned all or a portion of the QJSA.




Is it possible for an Alternate Payee to lose his/her rights to the pension?


Yes. If the participant dies before the QDRO is finished and approved by the Plan, the alternate payee runs a substantial risk of losing his/her interest in the pension.




When can the Alternate Payee receive benefits from the Plan?


When the Participant actually retires and begins receiving benefits.




How long will the Alternate Payee be entitled to receive benefits from the Plan?


The Alternate Payee will receive benefits from the Plan for the lifetime of the Participant. In most circumstances, benefit payments will stop upon the death of the Participant.




Do all state and local government pension plans accept court orders awarding benefits to an Alternate Payee?


No. Before distribution of benefits using a court order is negotiated, it is important to determine that such method of distribution is permitted under the terms of the Plan.




Does an Alternate Payee have the same options under a pension plan administered by a state or local government as are available under a private company or union?


No. State and Local governmental pension plans do not fall under the guidelines of ERISA. Therefore, many of the options available to Alternate Payees under a company or union plan are not available under the government plan.




Can benefits be paid in the form of a lump sum benefit?


No, but with one exception. The portion of the Participant’s monthly retirement allowance awarded to the Alternate Payee may not be paid in the form of a lump sum payment. However, if for some reason, the Participant makes a withdrawal of contributions and interest to the Plan, in some cases, the Alternate Payee may receive a portion of those contributions and interest in the Plan paid in the form of a lump sum.