Key tips for identifying various retirement plans in divorce cases.
By Louise Nixon, QDRO Specialist
One of the most common problems for family law attorneys is figuring out what retirement plans are involved in the case. Often, the participant is not aware of plans offered by their employer, so those plans are not disclosed in the divorce. The participant may also try to hide assets. The following are some practice tips on how to correctly identify retirement plans in divorce cases:
1. Assume that most public and private mid to large-size employers offer at least 2 plans – a Defined Benefit Plan and Defined Contribution Plan.
2. For private ERISA plans, check out the website www.freeerisa.com. It lists all 5500 forms filed with the IRS for retirement plans (Note you may not find information for small 1 or 2 person plans administered by large custodians because those custodians jumble together many small plans and file one 5500 Form with the IRS under that custodian’s name). You can sign up for a free account, input the employer’s name in the 5500 search, and all the retirement plans offered will be posted with contact information.
3. If you are not sure whether all plans have been identified by the parties, in the Judgment of Dissolution refer to “all plans offered by [Name of Employer], including but not limited to …”. Otherwise, you can end up with an omitted asset.
4. If you send a subpoena, you may request information from an employer as follows: “Provide the exact names of any plans maintained by your company (or any predecessor) in which [insert employee name] has or ever had an interest.”
5. At the beginning of the case, provide and request a signed (notarized) authorization from the employee-spouse to obtain information on all plans offered by employer. Usually the parties are more cooperative at the beginning of a case.
6. Obtain a summary plan description and/or get model QDRO language which helps understand how a plan interprets ERISA. However, there are many pitfalls in model QDROs, as they are drafted first to benefit the plan, then the participant and last the alternate payee.
7. You need to know early on in the case if there are any nonqualified plans. One easy way to check this is on www.freeerisa.com. If a larger plan is not listed, then most likely it is a nonqualified plan. Most nonqualified plans cannot be divided by the plan with a domestic relations order, so the parties may want to negotiate an offset.
Defined Contribution Plans
1. If division is 50% of the community interest – state 50% of community interest and identify the interest (date of marriage and date of separation) in the division paragraph.
2. Always state whether investment gains/losses should be included, especially when amount awarded is an equalization payment.
3. If the division date is different than date of separation, clearly identify that date. If it’s unknown, you could identify it as “through date of judgment of dissolution” or “through date of implementation by the plan”. Do not state “50% of ABC 401k”. Is that 50% through date of judgment, date of separation, or date of implementation by plan?
4. Even when awarding former spouse 100% of the pension, also identify as of what date. Is it date of implementation or date of separation? This can be a problem when the participant still working.
5. Know if there is a premarital contribution to the DC plan. Most plans will not calculate out of the community interest for the participant’s premarital contributions and gain/losses thereon through date of separation. To value that interest, you will need at a minimum balance at date of marriage and date of separation. The more statements, the better.
6. Know the amounts of any withdrawals, distributions or loans to the participant during marriage. If there was a loan, you need to negotiate whether that loan value should be included or excluded in division order.
7. The fees to review DC Plans are usually split if a plan is not discussed.
8. In most cases, you shouldn’t use the Time Rule formula for Defined Contribution plans. It should only be a last resort if there is premarital separate property interest that cannot be otherwise valued.
Defined Benefit Plans
1. Know whether the employee is retired, as this can affect the draft judgment language and what survivor benefits are available, if any.
2. If the employee is retired, try to obtain a form of the pension selected by participant at retirement. A private plan will either be a single life annuity or joint and survivor annuity. For public, it is an option selected in most cases.
3. If the participant is retired and then divorces, most will not change form of selection at retirement but a few will do so. For example, CalSTRS can change so long as an unmodified option was not initially selected.
4. If the participant is retired and then divorces, a plan may not withhold until served with domestic relations order. (i.e. CalSTRS, LACERA and Raytheon). You should get a QDRO done as soon as possible.
5. Again, if the participant is retired and then divorces, their ex-spouse may NOT have right to a survivor benefit. For ERISA plans, this depends on form of benefit at retirement. Public plans, In re Marriage of Cramer (1993) 20 Cal.App.4th 73 can impact the right to a survivor benefit (i.e. UCRP, LACERA).
6. In most cases the Time Rule is the best way to divide the defined benefit pension, but if you are not certain with a particular plan, use more general language. See general language of JC Form FL-348.
7. You should not divide pursuant to the “Brown Formula” after In re Marriage of Gray (2007), 155 Cal. App. 4th 504; 66 Cal. Rptr. 3d 87.
8. Union Plans may not want to use the Time Rule when not based on time, but based solely on covered earnings whose value of changes depending on when worked. (AFTRA, Southwest Carpenters).
9. In most cases, for Public Plans that offer shared interest division or separate interest division, Time Rule division means Shared Interest division. But we would not use Time Rule for Separate Interest division. You may want to use general division language from JC Form FL-348 if you’re not sure how to divide that public plan.
1. Even though it’s provided by law under CFC §2610, it’s always best to include survivorship language in Judgment in case participant dies or retires before QDRO entered.
2. There may now be problems getting survivor benefits in QDRO prepared post-death or even post-retirement if the Judgment does not specifically award that survivor benefit and participant retired with a second spouse. See Carmona v. Carmona, 603 F.3d 1041 (9th Cir. Nev. 2010) which followed Hopkins v. AT&T Global Solutions Corp., 105 F.3d (4th Cir. 1997). See also In re Marriage of Padgett (2009) 172 Cal.App.4th 830.
3. There are major issues with military [Survivors Benefit Plan (“SBP”)] and federal employee plans [Former Spouse Survivor Annuity (“FSSA”)] – a Draconian effect for failure to award survivor benefit in Judgment if employee retires or dies before division order served on those plans. You’ll also need proper forms timely served for military SBP.
4. For private ERISA plans, often only a former spouse qualifies as survivor for preretirement survivor annuity if the participant dies single and preretirement. If the participant dies preretirement, a QDRO is not filed and no award of survivor benefits in Judgment exists, many plans will not allow payment to former spouse with a post death QDRO, especially if participant remarried. In re Marriage of Padgett (2009) 172 Cal.App.4th 830.
Joinder – A Good Idea, But Sometimes Not Necessary
1. It may be necessary to join public California plans, as some private plans require based on their own procedures. See Judicial Counsel Form FL-318.
2. Military and federal plans will not accept joinders.
3. Are there administrative holds on pensions with joinder? Many plans will place a temporary administrative hold on disbursements upon receipt of joinder pleadings, a notice of adverse interest, or a draft QDRO, but do not assume this. ERISA does not require a plan to suspend payment of benefits before it receives a signed “domestic relations order” or “DRO” (i.e. Raytheon, TIAA-CREF will not withhold until served with DRO). Plan procedures should indicate whether a plan will place a hold on the account with joinder. So filing the joinder may be a good idea to protect against withdrawals or distributions before the QDRO is filed with the court but no guarantees plan will withhold.
4. Once filed to plan, it’s always a good idea to send Judgment of Dissolution because most plans will treat it as a DRO to be reviewed and place a hold if QDRO not yet filed and served on the plan.
1. No Gilmore language needed in Judgment for most private ERISA plans.
2. IRA does not need QDRO. However, they can do IRC §408 Order to divide that asset incident to divorce if Judgment language is not sufficient.
3. SEP-IRA should have QDRO per DOL regulation.
4. You can always do QDRO for Support (child and/or spousal) on a defined contribution plan. For a defined benefit plan, you can do QDRO for Support when the participant is in pay status and sometimes when the participant is not in pay status, but is eligible to retire.
5. You can get attorney’s fees related to at least support pursuant to Trustees of The Directors Guild of America-Producer Pension Benefits Plans v. Tise, 234 F.3d 415 (9th Cir. 2000).
What do You Call Them in Judgement?
1. For public plans, they are not called “QDROs,” just DROs or domestic relations orders. For Federal employees, they are called “Court Order Acceptable for Processing” or “COAP.” In Judgment, there is often reference to preparing a “QDRO” regardless of the plan type (ERISA private plans, public plans, IRAs and SEP-IRAs.)
2. Be sure to reserve jurisdiction broadly (i.e.“The Court shall retain jurisdiction over the preparation or amendment of any domestic relations orders to effectuate the division of pension benefits herein and shall make any and all orders necessary to effect an equal division of the community interest herein.”)
Before Closing Your Case File…
1. Make sure the QDROs are completed and served on the plan. At the very least, make sure you serve the plan with a copy of the Judgment of Dissolution. The best practice is to retain QDRO attorney before the Judgment of Dissolution entered.
2. If you represent the plan participant, make sure your client has contacted the plan and completed a new beneficiary designation form. A recent US Supreme Court decision held that even if the Judgment of Dissolution clearly revokes the beneficiary designation of the former spouse, unless the participant changes that beneficiary form naming the former spouse with the plan, the plan will be required to distribute benefits to the former spouse. Kennedy v. Plan Adm’r for DuPont Sav. & Inv. Plan, 129 S. Ct. 865, 172 L. Ed. 2d 662 (U.S. 2009)
LEGAL DISCLAIMER: This material is for general informational purposes only and is not intended to be legal advice. The intention is to provide accurate general information, but since laws change frequently and may become out of date, there is no guarantee that the information provided herein is accurate or appropriate for an individual’s specific situation.
Lousie Nixon is founder and president of QDRO Counsel Inc., a professional law corporation. Ms. Nixon’s law firm focuses on retirement benefits, specifically determining the community or marital interest in pension benefits earned through employment and in consulting and/or drafting appropriate orders for the division and disposition of those interests. Her firm’s website is: www.qdrocounsel.com.