Everything You Should Know (But Probably Don't) About Negotiating the Division of Retirement Benefits

This article was edited and reviewed by FindLaw Attorney Writers | Last reviewed March 26, 2008

COMMON TYPES OF RETIREMENT BENEFITS FOR DIVISION IN DISSOLUTION CASES -- 8.1
1. Introduction--8.1
2. Qualified v. Non-Qualified Plan -- 8.1
3. 1. Definition of Qualified Plan -- 8.1
  2. Advantages of Qualified Plans. -- 8.2
  3. Main Types of Qualified Plans -- 8.2
4. Qualified Defined Contribution Plans -- 8.2
5. 1. Definition of a Defined Contribution Plan -- 8.2
  2. Common Forms of Defined Contribution Plans. -- 8.2
  3. Valuation Needs for Negotiation -- 8.2
6. Qualified Defined Benefit Plans -- 8.3
7. 1. Definition of Defined Benefit Plan -- 8.3
  2. Common Forms of Defined Benefit Plans. -- 8.3
  3. Cash Balance Defined Benefit Plan -- 8.3
  4. Valuation Needs for Negotiation -- 8.3
8. Public Employees' Retirement System Plans ("PERS") -- 8.4
9. 1. Hybrid Plan. -- 8.4
  2. Exempt from ERISA, but Still Divisible -- 8.4
  3. Valuation for Negotiation -- 8.4
10. Federal Employee Retirement System/Civil Service Retirement System Plans (FERS/CSRS) -- 8.4
11. 1. Defined Benefit Plans -- 8.4
  2. Thrift Savings Plan -- 8.4
  3. Other Benefits -- 8.4
  4. Valuation for Negotiation -- 8.4
12. Military Pensions -- 8.5
13. 1. Benefits May Be Divisible -- 8.5
  2. Special Requirements for Military Benefit Orders -- 8.5
  3. Valuation for Negotiation -- 8.5
14. Non-Qualified Plans (not subject to assignment or division) -- 8.5
15. 1. Non-Assignable Benefits -- 8.5
  2. Valuation for Negotiation -- 8.5
NEGOTIATED USES OF QDRO'S -- 8.6
1. Division of Property -- 8.6
2. Spousal Support -- 8.6
3. Child Support -- 8.6
4. Dependent Support -- 8.6
5. Use of Plan Loans in Lieu of, or in Addition to, a QDRO -- 8.6
DEFAULT ISSUES -- 8.6
1. Defined Contribution Plans -- 8.6
2. 1. Most Common Limitation -- 8.6
  2. Existence of Plan Loans -- 8.7
  3. Future Funding of Employer Matches Earned During the Marriage -- 8.7
  4. Future Funding of Employer's Basic or Discretionary Credits for Current Year or a Prior Year -- 8.7
  5. Future Funding of Unvested Benefits Earned During the Marriage -- 8.7
3. Defined Benefit Plans -- 8.7
4. 1. Limited to Period of Marriage -- 8.7
  2. Valuation Dates Earlier than Division Dates -- 8.7
  3. Forfeiture of Disability Payments -- 8.8
  4. Cost of Living Increases and Employer Subsidies -- 8.8
  5. Out-of-date Actuarial Valuations -- 8.8
  6. Lump Sum Distributions -- 8.8
5. Public Employee Retirement System Benefits -- 8.8
6. 1. Most Common Problem: The December 31st Valuation Date -- 8.8
  2. Disability Payments -- 8.8
  3. Cost-of-Living Increases and Employer Subsidies -- 8.9
  4. Changes After Benefits Payment Begins. -- 8.9
7. Federal Employee Retirement System/Civil Service Retirement System -- 8.9
8. 1. QDRO v COAP Drafting Trap -- 8.9
  2. Self-Only Annuity v. Survivor Annuity -- 8.9
  3. Health Benefits -- 8.9
  4. Restrictions to be Included in COAP -- 8.10
  5. Automatic Effective Dates. -- 8.10
  6. Federal Thrift Savings Plan -- 8.10
  7. Life Insurance -- 8.10
9. Military Pensions -- 8.10
10. 1. The Ten-Year Requirement -- 8.10
  2. Payments are Net -- 8.10
11. Non-Qualified Plans -- 8.10
12. 1. Vested Benefits -- 8.10
  2. Non-Vested Benefits -- 8.11
  3. Negotiation of Non-Qualified Assets -- 8.11
DISCOVERY ISSUES -- 8.11
1. The Benefit Statement for Participant -- 8.11
2. The Plan Summary Document -- 8.11
3. The Plan Agreement -- 8.11
4. 1. Hidden Benefits -- 8.12
  2. 1. Life Insurance -- 8.12
    2. Health Benefits -- 8.12
    3. Disability -- 8.12
    4. Miscellaneous -- 8.12
  3. Hidden Defaults -- 8.12
5. Statements as to Amount of Any Plan Loans -- 8.12
6. Prior Qualified Domestic Relations Orders -- 8.12
7. Plan Rules/Procedures/Suggested QDRO Language -- 8.12
8. Status of Funding of Benefits -- 8.13
9. Vesting Status -- 8.13
10. Division of Future Funding -- 8.13
USE OF INVESTMENT AND ESTATE PLANNING ADVICE IN NEGOTIATION OF RETIREMENT BENEFITS -- 8.13
1. Professional Investment Advice -- 8.13
2. Typical Investment Decisions for Former Spouses Regarding Retirement Benefits -- 8.13
3. Typical Investment Decision for Both Spouses -- 8.14
4. The Naming of Beneficiaries for Retirement Benefits -- 8.14

COMMON TYPES OF RETIREMENT BENEFITS FOR DIVISION IN DISSOLUTION CASES

-- 8.1

Introduction--8.1
No presentation of this type could be expected to adequately prepare an attorney for every issue which will conceivably need to be addressed in negotiating for the division of retirement benefits. There are literally hundreds of plans, each with their own unique pitfalls to trap the unwary or potential hidden treasures to be mined on behalf of a client by the knowledgeable practitioner. Having gained certain rights or protections for your client through the negotiation process, there still remains the formidable task of preserving and protecting those rights through the use of appropriate language contained in the judgment of dissolution and securing administration of those rights pursuant to a qualified domestic relations order or court order acceptable for processing; however, the first step in the process is the negotiation. The purpose of this presentation is to give a general overview of the various types of plans likely to be encountered; some basic differences and similarities of the various plans; common default provisions which come into play, often to your client's detriment, if not addressed in the negotiations and spelled out in the language of the judgment and subsequent order; and basic discovery items which will better equip you to successfully negotiate a division of retirement benefits to your client's advantage.
Qualified v. Non-Qualified Plan -- 8.1
1. Definition of Qualified Plan -- 8.1 A qualified employee benefit plan is a pension, retirement or other plan maintained by an employer or an employee organization for the benefit of its employees that meets the requirements of (qualifies under) the Employee Retirement Income Security Act ("ERISA") and Subchapter D, Part 1 of the Internal Revenue Code ("Code"). ERISA is codified in Chapter 18 of Title 29 of the United States Code, 29 U.S.C. Â§ 1001-1461. The provisions of the Code that contain the requirements for qualification of employee benefit plans are found in 26 U.S.C. Â§Â§ 401-420.
2. Advantages of Qualified Plans. -- 8.2 If a plan is qualified under ERISA and the Code, the employer receives an income tax deduction for the contributions made to the Plan for the given tax year, provided that the payments are made on or before the filing date with extensions for the tax year of the deduction. The employer receives these deductions even though the employee may not receive the contributed funds until many years in the future. The employee is not taxed on employer contributions until the funds are distributed to the employee or the employee's dependent pursuant to a qualified domestic relations order ("QDRO"). Former spouses who receive benefits under qualified plans are taxed for these benefits upon their receipt. Employees, former spouses and dependents do not meet the ERISA and Code requirements for qualification unless such plans are exempt from ERISA coverage.
3. Main Types of Qualified Plans -- 8.2 The Code provides for two types of qualified employee benefit plans: Defined Contribution Plans and Defined Benefit Plans, both of which are discussed below.
Qualified Defined Contribution Plans -- 8.2
1. Definition of a Defined Contribution Plan -- 8.2 A Defined Contribution Plan is one that requires the establishment of an individual account for each participating employee and then provides benefits only from such account from the amount contributed to the account by the employee or the employer, together with any income, expenses, gains or losses that are attributable to the account. 26 U.S.C. Â§ 414(I) and 29 U.S.C. Â§ 1002(34).
2. Common Forms of Defined Contribution Plans. -- 8.2 Qualified Defined Contribution Plans normally appear as some sort of savings or investment accounts. They include profit-sharing plans, money purchase pension plans, target benefit plans, employee stock ownership plans, 401(k) plans, savings plans and simplified employee pension plans. Depending on the exact form of plan, there may or may not be an employee contribution to the Plan.
3. Valuation Needs for Negotiation -- 8.2 For the purpose of negotiating the division of Defined Contribution Plans, it is important to understand that these plans require determination of the value of the Participant's account in the Plan. In some instances, this will include valuing unvested benefits and the future funding, of both vested and unvested account contributions. These issues will be discussed below. Often, it is advisable to roll over the account balances awarded to the Former Spouse into the Former Spouse's existing or new IRA account. Direct rollovers are not subject to the 20% mandatory withholding tax.
Qualified Defined Benefit Plans -- 8.3
1. Definition of Defined Benefit Plan -- 8.3 A Defined Benefit Plan is defined by the statute as a pension plan that is not a Defined Contribution Plan. 26 U.S.C. Â§ 414(j) and 29 U.S.C. Â§ 1002(35).
2. Common Forms of Defined Benefit Plans. -- 8.3 Qualified Defined Benefit Plans are plans that take many forms, but essentially consist of annuities or lump sums payable upon retirement. There are significant differences among the plans as to when the benefits vest, when the benefits are paid, what is the amount of benefits, whether they must be paid as annuity or can be paid as a lump sum, whether there are annuity payments for a guaranteed period of time, and whether or not the annuity can be based upon the Former Spouse's life. Most of these plans now allow a separate pension account for the Former Spouse. However, many of the Defined Benefit Plans require that if the Former Spouse predeceases the Participant, the remainder of the Former Spouse's benefits will then be added back to the Participant spouse's benefits rather than be given to beneficiaries named by the Former Spouse.
3. Cash Balance Defined Benefit Plan -- 8.3 One particularly confusing form of Defined Benefit Plan is called a Cash Balance Pension Plan. Under this form of plan, an annual contribution is made by the employer to a hypothetical account. The Plan then provides that the employee will receive earnings based on the account at a rate specified in the contract. Under these plans, it is common to permit a terminated employee to withdraw his or her entire accrued benefit in the form of a lump sum equal to a hypothetical account on the date of the allowed distribution or to select one or more annuities based on the accrued benefit. These plans look like Defined Contribution Plans, but they are not because the investment risk is not on the employee, but on the employer. The employer must pay the specified rate on the account even if the Plan's investments fail to return the specified rate of investment.
4. Valuation Needs for Negotiation -- 8.3 In negotiating Qualified Defined Benefit Plans, it is important to use an actuary to obtain the present value of the Plan's benefits. An actuary will reduce the total future expected dollar benefits to their present value. The actuary will choose a life expectancy from commonly used tables and total the benefits. However, in reducing the total benefits to their present value, it is important to consider the reasonableness of the interest rates used by the actuary. These discount rates are commonly taken from the Pension Guaranty Corporation's interest rate for pension benefits. Cost-of-living increases are usually calculated at two percent (2%). If the life expectancy tables or rates used by the actuary are unreasonable, they could be rebutted by other expert testimony or more reasonable rates may be used in negotiations to balance the other marital assets of the parties for any negotiated increase or decrease in value.
Public Employees' Retirement System Plans ("PERS") -- 8.4
1. Hybrid Plan. -- 8.4 Oregon Public Employee System plans are commonly referred to as PERS Plans. The PERS plan is a hybrid plan because it contains features of both a Defined Benefit Plan and a Defined Contribution Plan. If an employee leaves public service after satisfying certain age and length-of-service requirements, the employee is entitled to the defined benefit or they have the option of receiving the value of the employee's account.
2. Exempt from ERISA, but Still Divisible -- 8.4 PERS is exempt from ERISA. However, ORS 238.465 allows PERS to pay benefits to an Alternate Payee. This may be done in a domestic relations order or judgment that meets PERS regulations as found in Chapter 459 of the Oregon Administrative Rules. Separate accounts for the member (Participant) and Alternate Payee (Former Spouse) can be established. The Alternate Payee may elect most, but not all, of the benefit options offered to the Participant.
3. Valuation for Negotiation -- 8.4 There are two approaches to the valuation of the PERS benefits. One is to simply determine the PERS account balance for the member employee. This simple approach may work well for low dollar amount situations where the cost of an actuarial valuation is unreasonable. The second, and more common valuation approach, is to treat the PERS benefits the same as a Defined Benefit Plan.
Federal Employee Retirement System/Civil Service Retirement System Plans (FERS/CSRS) -- 8.4
1. Defined Benefit Plans -- 8.4 The FERS/CSRS are the plans offered through the federal government for its employees. These plans are exempt from ERISA. They are not divided by a QDRO but instead by a court order acceptable for processing ("COAP") which acts in much the same manner as a QDRO but is administered pursuant to the Office of Personnel Management ("OPM") regulations. These plans have annuity and lump sum benefit features.
2. Thrift Savings Plan -- 8.4 The savings plan feature of the federal plans is known as the Thrift Savings Plan. The Thrift Savings Plan is administered by the Federal Retirement Thrift Investment Board and not the OPM. This Plan can be divided under its own "Retirement Benefits Court Order."
3. Other Benefits -- 8.4 Life and health benefits are included in the federal benefit program.
4. Valuation for Negotiation -- 8.4 The federal Defined Benefit Plans should be valued by an actuary. The Thrift Savings Plan is usually divided by using its account balance.
Military Pensions -- 8.5
1. Benefits May Be Divisible -- 8.5 The military retirement system is a form of Defined Benefit Plan that is exempt from ERISA. Members of the armed services are provided with several forms of benefits that include pensions, disability, health and commissary use. These benefits accrue after satisfying length of service requirements or disability rules. Their division has many restrictions. Many, but not all of these benefits are subject to division by domestic relations orders for division of property, spousal support or child support. To divide a military pension as marital property and obtain direct payment to a Former Spouse, the parties must have been married to each other during 10 years of creditable military service. This time requirement rule does not apply to orders for spousal or child support.
2. Special Requirements for Military Benefit Orders-- 8.5 The order dividing benefits must satisfy eight (8) technical requirements to be accepted by the military. The requirements concern actual jurisdiction; being a final, unappealable order; service of process under the Soldiers and Sailors' Civil Relief Act of 1940; an express finding of jurisdiction by the court; a finding of satisfaction of the 10-year rule for property division, if dividing the pension as property; identification of the member of the armed services; payment in a dollar or fixed percentage of disposable retirement pay; and certification within 90 days of service on the military.
3. Valuation for Negotiation -- 8.5Military pensions need to be valued by an actuary.
Non-Qualified Plans (not subject to assignment or division) -- 8.5
1. Non-Assignable Benefits -- 8.5 There are many plans that are not qualified under the Code or subject to mandatory division regulations or statutes under ERISA. These non-qualified plans often do not permit any assignment of benefits, by order or otherwise. These plans often include both deferred benefits and many stock option plans. However, they may include any form of benefit. Although the plans need to be valued for the purposes of dividing marital property, they are not, usually, assignable in whole or in part to the Former Spouse.
2. Valuation for Negotiation -- 8.5 Non-qualified plans need to be valued as any other retirement asset in a dissolution. The type of benefit will determine how the present value is determined.

NEGOTIATED USES OF QDRO'S

-- 8.6

Division of Property -- 8.6
The most common use of a QDRO is to divide marital assets between the spouses.
Spousal Support -- 8.6
A less common use of a QDRO is to use it for the purposes of spousal support.
Child Support -- 8.6
Another less common use of a QDRO is to divide pension benefits for the purposes of providing child support.
Dependent Support -- 8.6
Dependents who are not children may also receive the benefits of a QDRO.
Use of Plan Loans in Lieu of, or in Addition to, a QDRO -- 8.6
Plan loans that lessen deferred benefits are not taxed to Participant. They usually carry low interest rates. Therefore, they may be able to fund cash needs to balance the estate.

DEFAULT ISSUES

-- 8.6

Beware of the default provisions of the Plan(s) when negotiating benefits. The default provisions of a plan determine what your client will receive if your order is silent on an issue or if the order selects a division date or benefit which is not permitted under the Plan. In most cases, the default provisions favor the Participant over the Former Spouse. Examples of default issues are as follows:

Defined Contribution Plans -- 8.6
1. Most Common Limitation -- 8.6 The most common problem is that valuation dates used by these plans under their default rules are often much earlier than division dates specified in the orders and negotiated by the parties. In times of rising markets, this may favor the Participant. In times of falling markets, this may favor the Former Spouse.
2. Existence of Plan Loans -- 8.7 If a division order grants a percentage of benefits and there is a loan against the Plan, the Former Spouse may receive substantially smaller benefits under the loan default rules of the Plan. Any offset for a loan should be negotiated or at least treated as a Plan asset to be distributed when repaid.
3. Future Funding of Employer Matches Earned During the Marriage -- 8.7 A division date may be specified in the order/judgment that is significantly or even slightly before the date that the employer funds the employers' matching portion. Unless specified in the order, most plans do not give this benefit to the Former Spouse. These future payments are both vested and earned during the marriage. Failure to address future funding may cause the loss of this benefit to the Former Spouse. This issue should be addressed in negotiations and the order.
4. Future Funding of Employer's Basic or Discretionary Credits for Current Year or a Prior Year -- 8.7 The main employer contribution months or years may be both vested and earned during the marriage but unfunded. Employers have until they file their tax returns to fund these plans. This time period includes any permitted extensions to file their tax returns. Beware of unfunded benefits. If future funding is an issue, orders should provide for all earned and vested benefits to be divided rather than taking a certain account balance as of a certain date.
5. Future Funding of Unvested Benefits Earned During the Marriage -- 8.7Normally, a marriage is terminated before the last day of any given year. However, most plans require the basic and/or discretionary payment to be made only if the Participant is employed on December 31st of the given year. A marriage that terminates on December 30th may leave the Former Spouse without any portion of these unvested benefits, unless they are balanced against other marital assets or addressed in the order. Unless prohibited by the Plan, a QDRO can assign a portion of the unvested benefits earned during the marriage upon their funding. If the employee ceases employment, there would be no funding and no payment to either party. The use of future funding may be easier than balancing the unvested benefits from other assets for the Participant.
Defined Benefit Plans -- 8.7
1. Limited to Period of Marriage -- 8.7 A common problem in Defined Benefit Plans is that the Former Spouse is normally limited to the accrued benefit that was earned while the Participant spouse was both a participant in the Plan and was married to the Former Spouse.
2. Valuation Dates Earlier than Division Dates -- 8.7 Many of these plans will have default provisions that move the actual valuation days, weeks or months earlier than the division date that is specified in the order. Permitted valuation dates should be determined prior to any negotiation of the division of retirement benefits. Earned benefits after permitted valuation dates may need to be balanced against other marital assets.
3. Forfeiture of Disability Payments -- 8.8 Generally, payments begin earlier due to disability under many of these plans. If the orders do not address the disability issue, the Former Spouse may not receive the disability payments under some default provisions.
4. Cost of Living Increases and Employer Subsidies -- 8.8 Although these plans may specify a basic defined benefit such as "$510 per month for life beginning at the age of 65," many of these plans allow additional benefits for cost-of-living increases or permit employers to add a subsidy to the Plan which will increase the basic benefit. For some plans, these add-ons are viewed as unvested benefits and, unless these are specifically awarded in the order, they may not be given to the Former Spouse or given only by specific provision.
5. Out-of-date Actuarial Valuations -- 8.8Another default problem which may arise when dividing Defined Benefit Plans is when you use dollar or percentage amounts based upon old actuarial valuations. This valuation problem may occur due to a long time period between the date of the information used for the actuarial valuation of the benefit and the actual division date. Also, this may occur if there have been significant changes in the underlying interest rates used for the calculation of the present value of the pension plan by the actuary.
6. Lump Sum Distributions -- 8.8 Beware of default provisions on lump sum distributions in Defined Benefit Plans. Some plans have a default provision that where a lump sum is available, it must be specifically given to the Former Spouse along with the annuity or the Former Spouse will not receive the Former Spouse's share of the benefit. An example of this problem rule is under the FERS/CSRS pensions. Failure to restrict the Participant may allow the Participant to remove some of the benefits by requesting a lump sum distribution.
Public Employee Retirement System Benefits -- 8.8
1. Most Common Problem: The December 31st Valuation Date -- 8.8 The most common default problem with PERS is the application regulations that require PERS to use a valuation date of December 31st of the prior year for any division date that is not December 31st. OAR 459-045-0010(e) and (f).
2. Disability Payments -- 8.8 PERS' regulations require that if the Alternate Payee is to share in voluntary purchase of service credits and/or additional service credits allowed by law due to disability, that right must be specified in the judgment or domestic relations order if the Former Spouse is to receive any portion of these credits. OAR 459-045-0020(3).
3. Cost-of-Living Increases and Employer Subsidies -- 8.9 To get cost-of living increases and employer subsidies, the Participant spouse must maintain enough of a PERS' interest for the Participant spouse to receive an annuity of at least $30 per month or more. OAR 459-045-0030(10). Failure to allow an annuity of at least $30 per month will deprive a Former Spouse from receiving the subsidies or cost-of-living increases even if the Former Spouse is awarded 100% of the PERS' benefits.
4. Changes After Benefits Payment Begins. -- 8.9 Except for a short time after the first benefit payment, domestic relations orders cannot be changed from the payment option previously selected by the member. OAR 459-045-0010(4)(d); ORS 238.305
Federal Employee Retirement System/Civil Service Retirement System -- 8.9
1. QDRO v COAP Drafting Trap -- 8.9 Don't designate your order as a qualified domestic relations order. Instead, call it a court order acceptable for processing ("COAP"). The designation of an order to divide federal benefits as a QDRO is a disqualification unless the order further states that the CSRS or FERS benefits are governed by Part 838 of Title 5 of C.F.R.'s other provisions. 5 C.F.R. Â§ 838.803.
2. Self-Only Annuity v. Survivor Annuity -- 8.9 There is a treacherous default issue of balancing the use of a self-only annuity and the use of a survivor annuity under the federal plans. Self-only annuities are based upon the Participant's life. Survivor annuities are based upon the Former Spouse's life. Under FERS/CSRS rules, a spouse that elects a survivor annuity would lose all of the Former Spouse's benefit if remarried before age 55. 5 C.F.R. 8341(h)(3)(B). Furthermore, survivor annuities are limited to 50%-55% (depending upon which plan) of the benefits. 5 C.F.R. 842.613 and 5 C.F.R. 843.102. In contrast, the self-only annuity has no percentage limit, but terminates with the death of the employee. Therefore, the Former Spouse's benefits could completely be eliminated if the employee predeceases the Former Spouse. Under a self-only annuity, it is possible to elect a survivor annuity and then, prior to the age of 55, change the first election and, instead, elect to receive a portion of the employee-only annuity. The right to make this option must be provided for in the COAP.
3. Health Benefits -- 8.9 The default provisions for medical benefits require an annuity of $1 per month be provided for in the COAP and that special forms or notice be filed with the employing office within 60 days of the dissolution. Failure to comply with these rules will cause federal medical benefits to be lost for the Former Spouse, unless certain exceptions apply. 5 C.F.R. Â§ 890.805.
4. Restrictions to be Included in COAP -- 8.10 Restrictions must be included in the COAP to prevent the employee from taking a lump sum distribution of employee contributions and having a Former Spouse lose any share of the employee contributions. 5 C.F.R. Â§ 838.505.
5. Automatic Effective Dates. -- 8.10 These plans have an automatic effective date of the first day of the second month after OPM receives an acceptable form of court order. 5 C.F.R. Â§ 8341(h)(3)(B). With very few exceptions, the systems will not allow any adjustment for arrearages. 5 C.F.R. Â§ 838.234.
6. Federal Thrift Savings Plan -- 8.10 Many federal government employees are also part of the Thrift Savings Plan. This Plan essentially operates like a savings account and needs to be separately provided for in a proper "Retirement Benefits Court Order" or the Employee may keep all of the account. 5 C.F.R. Â§ 1653.2. Unlike COAPs, these orders divide amounts in an account. They may be used to make payments to:
  
  a. Spouses or Former Spouses;
  b. Attorney's fees for spouses or Former Spouses;
  c. Dependents of the Participant;
  d. Attorney's fees for dependents of the Participant. 5 C.F.R. Â§ 1653.2(4)
  Benefits must be vested within 90 days of the receipt of the order to be paid. 5 C.F.R. Â§ 1653.2(c)(1). The use of QDRO wording or Defined Benefit wording will cause the order for the Thrift Plan to be rejected. 5 C.F.R. Â§ 1653.2.
7. Life Insurance -- 8.10 Life insurance is also included in the federal retirement benefits. If the Former Spouse is to receive this life insurance, there are assignment issues that need to be dealt with and a special government form filed. 5 C.F.R. Â§ 874. Life insurance is not part of a COAP.
Military Pensions -- 8.10
1. The Ten-Year Requirement -- 8.10 The "10/10" rule (10 years of marriage during 10 years of creditable service) must be satisfied in order to qualify for the direct payment to a Former Spouse of a military pension for marital property divisions. 10 U.S.C. Â§ 1408(d)(2); 32 C.F.R. Â§ 63.6(a)(2). Note: A less than 10 years pension can still be valued for marital property. 10 U.S.C. Â§ 1408(c)(1).
2. Payments are Net -- 8.10 The major default issue in dealing with military pensions is that any payments pursuant to a domestic relations order are made after all federal, state and local withholding taxes, debts to the United States and military fines and forfeitures. The Former Spouse can receive a maximum of 50% of the disposable pay. 10 U.S.C. Â§ 1408(d)(7)(B)(e)(1). This makes the amount due the Former Spouse much more speculative than other pensions and should be considered in the negotiations for division of the marital estate.
Non-Qualified Plans -- 8.10
1. Vested Benefits -- 8.10 Although vested benefits in non-qualified plans cannot be assigned to former spouses by domestic relations orders, they are still considered marital assets. They should be valued and balanced against other marital assets if possible, or otherwise dealt with in the judgment.
2. Non-Vested Benefits -- 8.11 Non-vested benefits in non-qualified plans are, in part, still part of the marital estate. The percentage earned of these unvested benefits during the marriage times their present value should be considered as part of the marital estate. See, Powell and Powell, 147 Or App 17, 934 P2d 612 (1997).
3. Negotiation of Non-Qualified Assets -- 8.11 The best way to treat non-qualified assets after valuation is to balance them against the other assets of the marital estate. Alternatives to balancing include voluntary sale with distribution of the proceeds after taxes, and judgments to pay a portion of the benefit, net of taxes, after receipt.

DISCOVERY ISSUES

-- 8.11

The following items should be obtained before negotiation of the retirement benefits:

The Benefit Statement for Participant -- 8.11

A benefit statement is the basic document that should be received for any plan, qualified or non-qualified, which gives a list of the benefits to be received and/or the value of an account, and/or the expected monthly annuity.
The Plan Summary Document -- 8.11

The Plan Summary Document will generally provide you with the name of the Plan, the name and address of the Plan Administrator, the type of the Plan and the basic form of benefits. It will also commonly indicate whether it is a qualified or a non-qualified plan.
The Plan Agreement -- 8.11

This agreement is a lengthy document. Since this document is often many pages long, plan administrators may initially resist your attempts to receive it and want you to rely on the benefit statement and the Plan summary. The problem with relying on these summary documents is that there may be hidden benefits and hidden default provisions not disclosed in the summary documents.
1. Hidden Benefits -- 8.12
2. 1. Life Insurance -- 8.12 Although not included in many plans, life insurance may be found to be a benefit.
  2. Health Benefits -- 8.12 Although health benefits are rare, they are included in some plans.
  3. Disability -- 8.12 Many plans have disability plan provisions that need to be addressed in the dissolution documents.
  4. Miscellaneous -- 8.12 There may be other more obscure benefits included in the Plan that are not stated in the Plan summary.
3. Hidden Defaults -- 8.12 Perhaps the best reason to obtain a copy of the Plan agreement is to understand the default rules of the Plan. The most common problem areas are: (1) the use of specified valuation dates instead of the division date contained in the domestic relations order, (2) the availability of lump-sum payments to Participant, (3) cost-of-living and subsidy rules, and (4) the ability to divide only certain forms of benefits to former spouses.
Statements as to Amount of Any Plan Loans -- 8.12

Many Defined Contribution Plans allow loans by participants of part of their "account." In discovery it is important to determine the amount of any Participant loans. These loans may need to be paid back or the Former Spouse's share of the account may need to be increased. Plans may not pay cash to spouses where loan repayments are needed to fund the spouse's share. (Payment may be possible upon repayment of the loan).
Prior Qualified Domestic Relations Orders -- 8.12

Determine whether or not there have been other QDRO's issued for prior marriages or for child support. These may limit the amount of benefits available to the Former Spouse.
Plan Rules/Procedures/Suggested QDRO Language -- 8.12

Get a copy of the Plan rules, procedures and suggested QDRO language, if any. This will generally reduce costs by saving time in understanding the Plan and in drafting the QDRO.
Status of Funding of Benefits -- 8.13

Determine from the Plan Administrator when the benefits in the Plan agreement are normally funded or what benefits have yet to be funded for recent years, if any. This is most important for small plans where funding has been delayed for months or years.
Vesting Status -- 8.13

Determine if the Participant's benefits are vested or unvested. Unvested benefits should be viewed for the portion earned during the marriage unless there is good evidence that they will never be vested.
Division of Future Funding -- 8.13

Determine the willingness of the Plan to accept QDRO's that will divide future funding upon vesting of unvested benefits, if any. Most plans will accept this form of a QDRO. This should be determined before the division is negotiated in the dissolution proceeding.

USE OF INVESTMENT AND ESTATE PLANNING ADVICE
IN NEGOTIATION OF RETIREMENT BENEFITS -- 8.13

Professional Investment Advice -- 8.13

Recommend that clients obtain professional investment advice for their benefits. I generally recommend at least three investment advisors for clients to chose from in making critical decisions in relation to their retirement benefits.
Typical Investment Decisions for Former Spouses Regarding Retirement Benefits -- 8.13

The following are several typical decisions that may need to be made by former spouses:
1. Should assets be distributed in kind or not?
2. In like-kind of divisions of assets, which assets are to be received by the Former Spouse and which are to be kept by the Participant?
3. Should the Former Spouse stay in a Defined Contribution Plan or rollover the account balance to an IRA?
4. If the Plan assets are to be rolled over into an IRA, who is to be the custodian and how are the funds to be invested?
5. For Defined Benefit Plans, should the Former Spouse take early retirement or not?
6. For FERS/CSRS Plans, should the spouse take a share of the self-only annuity, a survivor annuity only, or some of each?
Typical Investment Decision for Both Spouses -- 8.14

Should the retirement benefit(s) be kept by the Participant and other marital assets given to the Former Spouse?
The Naming of Beneficiaries for Retirement Benefits -- 8.14

Who should be the new beneficiary for the retirement benefits? (This can make a substantial difference in the future income taxes paid. The use of secondary beneficiaries after the use of a disclaimer by a new spouse should be considered. The naming of children or trusts may be appropriate.)

Was this helpful?

Easy to understand

Solved my problem

Other

Missing the information I need

Too complicated / too many steps

Out of date

Other

Everything You Should Know (But Probably Don't) About Negotiating the Division of Retirement Benefits

Legally Reviewed

Fact-Checked