Some clients and lawyers question why I am so meticulous in specifying certain details when I settle divorce cases. A recent unpublished decision of the Superior Court brilliantly illustrates the hazard of vague settlements involving marital property, justifying my fastidiousness. In Rissmiller v. Rissmiller, No. 124 MDA 2012 (February 26, 2013), Husband and Wife entered into a settlement agreement providing that Husband would convey half of the marital component of his federal pension benefit to his wife. Husband commissioned an expert to draft a Qualified Domestic Relations Order to transfer half of the marital component of his CSRS (Civil Service Retirement System) plan to his ex wife. She then asked for a QDRO that would pay her benefit in the form of joint and survivor annuity (rather than an annuity based upon Husband’s life expectancy, terminating her benefit when he should die). She even offered to pay for the survivor benefit from her share of the pension, and also requested to be designated as a beneficiary of the pre-retirement survivor benefit. Husband refused, so Wife filed a petition for enforcement, asking the trial court to enter her QDRO or schedule a hearing to get the issues on record. The trial court refused to schedule a hearing, denied Wife’s petition, and ordered the parties to enter a QDRO without a survivor annuity. Neither party appealed. A few months later, Husband filed a petition for the entry of a QDRO after Wife proferred a QDRO that removed language preserving Husband’s Cornbleth offset. Husband’s petition was granted, and Wife appealed, asking the appellate court to enter her QDRO with the survivor benefit. On appeal, the Superior Court held that Wife waived the issue by failing to appeal the first order.
What details should be specified in the settlement agreement when dividing a retirement benefit? While it varies from case to case, all of the following details must be investigated and agreed upon, to the extent they are relevant:
1. The name of the plan. In these days of internet account statements, it is common for employees to produce records that do not adequately identify the name and value of the plan. Every QDRO requires the exact plan name, so this detail cannot be overlooked. In fact, one major hospital plan in my area reports two separate retirement plans (a 401(a) and 403(b) plan) on its internet statements as though they are one plan, which can be deceiving. I always insist that employees obtain paper account statements from their benefits department or plan administrator, rather than internet reports.
2. The dollar value or percentage. One common mistake is to agree upon a dollar amount that represents a share of the total present value of an annuity pension (e.g., $30,000 from a pension that will pay the employee $500 per month, which has been valued at $100,000). Implementing these types of settlements can become a fight over details when the plan refuses to figure out how to carve out the proper share of the monthly annuity.
3. The date for the value to be used in dividing the account. It generally takes from six weeks to six months for most retirement plans to implement a settlement agreement and distribute funds to the non-employoee spouse. During that time period, the stock market could soar or crash. The market risk must be allocated between the parties, either in proportion to each party’s share of the account, or entirely by one party.
4. The form of payment. In pensions, as in physics, matter is neither gained nor lost. When a pensioner elects a survivor form of payment, the survivor benefit must be purchased with a reduction of the employee’s benefit, unless the survivor benefit is subsidized. With some pensions, the non-employee’s benefit terminates when the employee dies unless a survivor benefit is elected. With other pensions, the plan can segregate the non-employee’s benefit to a separate annuity that will pay over the non-employee’s lifetime regardless of the employee’s death. And some plans offer “survivor” benefits that are really life insurance, not survivor benefits. Don’t wait until it’s too late, like the parties in the Rissmiller case.