## Background on the Brown Rule & the Time Rule Formula

A California court case from 1976 established that non-vested retirement benefits were community property, subject to division upon dissolution of marriage.  This case was In Re Marriage of Brown (1976) 15 Cal. 3rd 838.  After the Brown case, courts started utilizing a formula to divide retirement benefits – over time, this formula became known as the Time Rule Formula or the Brown Rule.  The court in a dissolution of marriage action is authorized to divide community property equally, and must utilize a formula that will accomplish an equal division.

## What is the Time Rule Formula?

When the Time Rule Formula is utilized, the community property interest in retirement benefits is determined by a fraction whose numerator is the employee’s length of service from the date of marriage through the date of separation, and whose denominator is the employee’s total length of service at retirement.

As a simplified example, if a spouse was married for 10 years during which time she worked for the same employer and accrued retirement benefits, but then retired after 20 total years of service with said employer, the community property interest in the retirement benefits would be 10/20 or 50%.  The remaining 50% would be the employee’s separate property.  Further, the community interest is divided equally between the parties, so the non-employee spouse would receive 25% of the total retirement benefits, and the employee spouse would receive 75% of the total retirement benefits.

## Are the Brown Rule and Time Rule Formula Really the Same Thing?

Although many divorce attorneys use the terms “Brown Rule” and “Time Rule Formula” interchangeably, they are not actually the same thing.  A 2007 case, In Re Marriage of Gray, established that the term “Brown Formula” was not always accepted as having the same meaning as the “Time Rule.”  Instead, the court held that the basic principles from the Brown case were that i) nonvested pension rights are community property subject to division and ii) that the court may achieve division either by cashing out the nonemployee spouse through the reduction of the rights to the present value or by retaining jurisdiction to achieve the division later as the pension benefits accrue and are subject to payment.  The Gray court determined that the Brown case, on its face, did not actually establish or promote what came to be known as the Time Rule formula, or any other specific formula, for dividing pensions in divorce.  If it is the parties’ intention to utilize the formula described above, the Martial Settlement Agreement should state that the retirement benefits will be divided pursuant to the “Time Rule” not the “Brown formula.”

## When Should the Time Rule Formula be Used?

The Time Rule Formula should only be used for defined benefit plans where the amount of retirement benefits is substantially related to the number of years of service.  If the amount of benefits is related to another factor, a different formula may be needed.  It should also be noted that the Time Rule is inappropriate for defined contribution plans, like 401(k) plans, because the benefits paid out at retirement are directly related to the contributions made and are not substantially related to the number of years of service.  Further, the contributions made during the marriage are likely not equal to the contributions made before or after marriage.

## Questions About Your California QDRO or the Time Rule or Brown Formula?

If you have questions about the division of retirement benefits in your divorce, or if you would like to get started on your QDRO today, please call QDRO Helper at 619-786-QDRO (619-786-7376) or click here to request a new client package.

DISCLAIMER: Any legal information on this blog has been prepared by QDRO Helper for informational purposes only and should not be construed as legal advice. The material posted on this website is not intended to create, and receipt of it does not constitute, an attorney-client relationship, and readers should not act upon it without seeking professional counsel. Note also that sending an e-mail to QDRO Helper does not create an attorney-client relationship, and none will be formed unless there is an express agreement between the firm and the individual. We strongly advise against sending confidential or privileged information to QDRO Helper until you can establish such a relationship.

## SDCERS & Divorce: DROs for the San Diego City Employees’ Retirement System

##### SDCERS OVERVIEW

Employees of the City of San Diego, San Diego Unified Port District, and San Diego County Regional Airport Authority participate in SDCERS, and are “members” of the retirement system.  SDCERS is a defined benefit plan which provides for a monthly benefit upon retirement.  If employment is terminated, a member may withdraw his/her contributions; however, funds contributed by the employer cannot be withdrawn by the member.  If a member contributes to SDCERS while married, then his/her spouse will have a community property interest in the retirement benefits.

##### FIRST STEPS: GETTING MEMBER INFORMATION & SENDING NOTICE OF ADVERSE INTEREST

All contents of a SDCERS member’s file are confidential.  However, the member, former spouse, and their attorneys can obtain information about the member’s benefits in order to determine the community property interests in a member’s account.  SDCERS will provide the member’s service credit and accumulated contributions, date of membership, refundable value, and statements of account as of the date of marriage and the date of separation.  If the member is already retired, the options selected at retirement, the named beneficiary, and the amount of the monthly allowance and any death benefit payable will be provided.  The member or his/her attorney can simply send a written request for this information to SDCERS.  The non-member spouse or his/her attorney will need to submit either (i) an authorization to release account information that is signed and dated by the member, or (ii) a subpoena for business records.

One of the first steps when dividing SDCERS benefits is to ensure that the retirement plan is aware of the pending divorce.  This can be accomplished by sending SDCERS a written “Notice of Adverse Interest.”  This will place a hold on the member’s account; but SDCERS will not pay the former spouse any share of benefits until SDCERS is joined (see below) and receives a Domestic Relations Order (DRO) instructing the Plan to pay benefits to the former spouse.  If the member is already retired, a Notice of Adverse Interest will ensure that SDCERS withholds the former spouse’s estimated share until the Plan receives the Joinder and DRO.  Further, SDCERS will withhold a portion of any return of contributions to the member.

##### SDCERS JOINDER REQUIREMENT

Like many other public employer plans, SDCERS must be joined to the marital dissolution proceedings before a DRO can be implemented.  “Joinder” is the legal process that names a third-party claimant to a court case; in this case, to legal separation or divorce proceedings.  Your family law attorney may have already prepared and filed a joinder for SDCERS.  However, if you need a Joinder for your SDCERS benefits, QDRO Helper can assist you with the joinder for an additional fee.

##### SDCERS DOMESTIC RELATIONS ORDERS (DROs) & THE TIME RULE FORMULA / BROWN FORMULA

SDCERS requires both a Joinder and a DRO before benefits can be paid to a non-member spouse due to dissolution of marriage.  The DRO is a court order that will instruct the plan how the retirement benefits should be divided.  The most common method of dividing a community property interest in SDCERS is by using a formula knows as the “Time Rule Formula” or “Brown Formula”.  Using this formula, the former spouse’s share of benefits is determined taking 50% of a fraction where the numerator is the service credit earned by the member during the marriage and the denominator is the member’s total years of service credit.

##### TIMING & GILLMORE ELECTION

SDCERS will only start paying benefits to a former spouse once the member retires and commences receiving monthly retirement benefit payments.  However, under California law, the former spouse may demand his/her share once the member is eligible to retire, by making what is known as a “Gillmore election”- named after the court case Marriage of Gillmore, 29 Cal.3d 418 (1981).  The member will be responsible for paying the former spouse directly until the member retires; then SDCERS will begin making payments directly to the former spouse.

##### DROP ACCOUNT

Some SDCERS members participate in the Deferred Retirement Option Program (“DROP”).  Usually, when a member enters DROP, he/she also agrees to retire within 5 years.  DROP allows a member to keep the retirement benefit earned as of the date of entry into DROP while also earning additional benefits which can be paid in a lump sum or as additional retirement income.

When calculating the member’s benefits, the Plan treats the member as if he/she had retired on the DROP entry date and credits the member’s monthly pension to his/her DROP account.  Additional member and employer contributions, as well as COLA increases and any annual supplements are added to the DROP account.  DROP should be addressed in all DROs for both active members and members who are already part of DROP.  The parties should also be aware that SDCERS cannot pay the former spouse any DROP account benefits until the member actually retires and exits DROP.

##### DISABILITY BENEFITS

Disability benefits should also be addressed in the parties’ DRO.  Once common way to address this issue is to state that if a member receives a disability retirement before being eligible for service retirement, then the former spouse will only be able to receive his/her community interest share once the member reaches the required service retirement age.  However, it is possible to state that the former spouse will receive a community property share of any disability retirement benefits.

##### SURVIVOR BENEFITS

Survivor benefits should also be discussed and negotiated by the parties prior to having a DRO drafted.  Members can designate beneficiaries to receive survivor continuance benefits; however, a member can only name one beneficiary for a survivor benefit.  Once a beneficiary is designated, the designation cannot be changed.  If a divorce takes place after retirement (or entry into DROP), the retirement option or beneficiary named at time of retirement cannot be changed.

At retirement, a member may select either the “maximum benefit” or one of four separate settlement options (aptly named Optional Settlement 1, 2, 3 and 4).  Detailed information about the various options can be obtained from SDCERS.  If the parties legally separate or divorce prior to the member’s retirement or entry into DROP the member can still provide a survivor benefit to the former spouse by elections one of the settlement options.  If the member does not elect to provide for survivor benefits when an option is selected, then SDCERS will stop payments to the former spouse upon the member’s death.

##### DEATH OF FORMER SPOUSE

Once the DRO is in place, the former spouse can name a beneficiary to receive his/her share of the benefits.  The former spouse’s share of benefits can instead revert to the member if the DRO specifically states that is the parties’ intent.  This is another issue that should be part of the divorce or legal separation negotiations.

##### SDCERS DEATH BENEFITS

SDCERS provides various death benefits, including benefits for death when the member was eligible to retire, industrial death benefits, active member death benefits, DROP death benefits, and death benefits after retirement.  Information about these death benefits can be obtained from SDCERS; however, it is important to note that even if the member has named a beneficiary other than the former spouse, the former spouse may have a community property interest in the death benefits.  The DRO should clearly state whether the former spouse will be entitled to any death benefits, and if so, then to what extent.  Often, parties will provide death benefits to the former spouse up to a pro-rate share based on the same “time rule” or “Brown formula” discussed above.

If you have additional questions or if you would like to get started on a DRO for your SDCERS benefits, please call 619-786-7376 to speak with an attorney at QDRO Helper.  You can also get started by visiting our forms page, or by emailing info@qdrohelper.com.

DISCLAIMER: Any legal information on this blog has been prepared by QDRO Helper for informational purposes only and should not be construed as legal advice. The material posted on this website is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Note that sending an e-mail to QDRO Helper does not create an attorney-client relationship, and none will be formed unless there is an express agreement between the firm and the individual.

## OCERS QDROs: Orange County Employees Retirement System Benefits & Divorce

##### BASIC PLAN INFORMATION

Employees of Orange County earn retirement benefits under the Orange County Employees Retirement System (OCERS).  Both employers and employees (or “members”) make contributions to OCERS.  Upon retirement, OCERS provides a monthly benefit that is based on the type of plan, the employee’s age at retirement, average monthly earnings during employment, and the number of years of service.  Upon divorce, parties will require a Domestic Relations Order (or “DRO”) to divide the community property interest in OCERS benefits.  A DRO is a court order that provides the retirement plan with instructions about how to divide the benefits, and when to pay them, to the employee’s former spouse.

##### JOINDER REQUIREMENT

In order for OCERS to implement a Domestic Relations Order (“DRO”) the must be joined to the divorce proceeding.  Joinder is a legal process that names a third-party to an existing court case.  A joinder is the first step in obtaining a DRO to divide an OCERS benefit.  Your family law attorney may have prepared a joinder already; however, QDRO Helper can assist you with the preparation and service of a joinder for an additional fee.

##### TYPICAL DIVISION OF OCERS BENEFITS: TIME RULE / BROWN / JUDD FORMULA

OCERS benefits, like many traditional pension plans, are most often divided using what is known as the
“Time Rule Formula”, “Brown Formula” or “Judd Formula”.  All three terms refer to a formula which utilizes a ratio between the time of employment during marriage and the total time of employment in order to calculate a former spouse’s share of retirement benefits.  Under these formulas, the community property portion of the accrued retirement benefit payable by the Plan is determined by a percentage of the benefit determined by a fraction, the numerator of which is the number of months the Member earned a benefit under the Plan during the marriage and the denominator of which is the total number of months the Member earned a benefit under the Plan through date of the Former Spouse’s benefit commencement date.  The Former Spouse’s benefit is determined by multiplying the community property portion by one-half.

Other options for division can be discussed as part of the divorce settlement process; however, your judgment or marital settlement agreement should not specify a specific lump sum dollar amount payment, as that is not a payment option under OCERS and any DRO specifying a lump sum payment will be rejected by the Plan.

##### DEATH AND SURVIVOR BENEFITS

If the Former Spouse dies before the Member, then all payments that would have been payable to the Former Spouse will be paid instead to the Former’s Spouse’s beneficiary or estate.

If the Member dies before the Former Spouse, the Former Spouse will receive a pro-rata share of any survivor benefits available under the Plan.  The pro-rata share will be determined using the same formula as was used to determine his/her community interest in the plan, such as the Judd Formula described above.

##### NEED HELP WITH AN OCERS DRO?

If you need help with an OCERS Domestic Relations Order, call QDRO Helper today at 619-786-7376.  You can also send an email to info@qdrohelper.com to request new client packet to divide an OCERS benefit.  Get started on your QDRO today by downloading forms here.  By utilizing technology, we are able to offer attorney-drafted QDROs to clients in Orange County, California, including Santa Ana, Irvine, Huntington Beach, Garden Grove, Fullerton, Costa Mesa, and Anaheim without any in-office appointments required.

DISCLAIMER: Any legal information on this blog has been prepared by QDRO Helper for informational purposes only and should not be construed as legal advice. The material posted on this website is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Note that sending an e-mail to QDRO Helper does not create an attorney-client relationship, and none will be formed unless there is an express agreement between the firm and the individual.

## CalSTRS QDROs: Methods of Division, Registered Domestic Partners, Joinders & Death Benefits

We will be writing a series of blogs on specific retirement plans and their unique provisions.  We are starting with the California State Teachers’ Retirement System, more commonly known as CalSTRS or STRS.  For this article the terms “Stipulation and Order Regarding California State Teachers’ Retirement System (CalSTRS)” and “QDRO” are used interchangeably.  If you would like to request a blog on a specific plan, please email us at info@qdrohelper.com.

CalSTRS provides three different retirement plans: Defined Benefit Program, Defined Benefit Supplement, and a Cash Balance plan.  Members can have any one of these plans, or even all of them.  For the Defined Benefit Program, upon retirement members receive a lifetime benefit based on their years of service credit, final compensation, and age.  Defined Benefit Program members who have earned service credit after the year 2000 will also have a Defined Benefit Supplement account, which can provide additional funds to members upon retirement or if they leave STRS covered employment.  The Cash Balance Benefit Program is designed for part-time, temporary and substitute teachers.  Upon retirement, members can choose to receive the contributions and interest on the Cash Balance Benefit as a lump-sum payment of if the account balance exceeds \$3,500, it can be rolled over into another qualified plan.

##### METHODS OF DIVISION

The  methods of division available depend on the type of plan and the status of the employee spouse or “member”.  For non-retired members who participate in the Defined Benefit plan and/or the Defined Benefit Supplement plan, there are two methods of division available, the “Time Rule Formula” or the “Segregation Method”.  For retired members of the defined benefit type plans, the only option for division is the Time Rule Formula.

Below is a chart comparing the differences between the “Time Rule Formula” and “Segregation Method” for CalSTRS.

 SEGREGATION METHOD TIME RULE FORMULA When is it an option? Only if the member is not retired and is not receiving disability benefits. Can be used if member is retired or active. How is the Award Calculated? Typically, the nonmember spouse is awarded 50% of the member’s service credit, contributions and interest from the date of marriage through the date of separation. The nonmember spouse is awarded a percentage of the member’s monthly benefit, and the percentage can be calculated by CalSTRS based upon the service credit earned during marriage. Are there legal holds on the account? After the court filed QDRO is received by the plan, holds are removed unless there is a longevity bonus or other account enhancement.  Each party will have and control his/her own account with the Plan. Holds remain on the account and the nonmember spouse can request benefit estimates at any time.  The nonmember spouse can only receive benefits when the member is receiving a benefit (i.e. there is only one account in which both parties have an interest). When can the nonmember spouse get benefits? The nonmember spouse can apply to commence monthly benefits at age 55 or older.  Benefits are not dependent on the member since the nonmember spouse will have his/her own account. CalSTRS will not pay the nonmember spouse until the member retires.  The nonmember spouse shares the member’s account. Is there a lump-sum distribution option? Yes, the nonmember spouse can apply for a refund of contributions & interest at any time. No – the nonmember spouse cannot obtain a refund and does not have access to contributions or interest. How does the monthly benefit work? At age 55 or older the nonmember spouse can apply for a lifetime monthly benefit, which will be calculated using the member’s salary on the date of separation, the nonmember spouse’s age on the effective date of the benefit, and the service credit awarded to the nonmember spouse. A proportionate share of the member’s monthly benefit is paid to the nonmember spouse by CalSTRS each month once the member applies for and begins receiving benefits.  The benefit is calculated using the member’s salary at the time of retirement. What happens to Defined Benefit Supplements and Cash Balance accounts? A member’s Defined Benefit Supplement account or Cash Balance account can only be divided by a specified flat percentage. These accounts contain only contributions and interest. Service credit does not apply to these types of benefits. Nonmember spouse receives a proportionate share of member’s account if specified in the court order. This share is usually determined by the percentage derived from the time rule formula when calculating the nonmember’s percentage of the Defined Benefit account. What happens to the nonmember spouse’s award of service credit, contributions and interest? They are removed from the member’s accounts and form a new account for the nonmember spouse. They remain in the member’s account.

Cash Balance plans must be divided using the Segregation Method and the QDRO must specify the percentage or flat dollar amount that will be awarded to the nonmember spouse.

##### DOMESTIC PARTNERSHIP & CALSTRS

CalSTRS benefits are considered community property under California law and upon termination of a registered domestic partnership, CalSTRS benefits can be divided.  However, the federal government does not currently recognize domestic partners as spouses for tax purposes, so parties should consult with a tax advisor to determine how the division of these retirement benefits will affect each party.

##### JOINDER

CalSTRS must be joined to be bound by the terms of a QDRO.  This means that a joinder must be filed with the divorce court which makes CalSTRS a party to the divorce action, and then CalSTRS must be served with these documents.  The joinder will put a legal hold on the account and prevents a member who is not yet retired from making account changes, including changing beneficiaries.  A joinder also allows the nonmember spouse to obtain specific account information without a subpoena or the member’s written permission.

##### WHAT HAPPENS UPON THE MEMBER’S DEATH? / OPTION ELECTION

One-Time Death Benefit

A one-time death benefit is available; the amount paid to the beneficiary(ies) depends on what coverage the member selected and whether the member’s death occurs before or after retirement.  Either all or only a community property portion of the one-time death benefit can be awarded to the nonmember spouse under a QDRO.  If only the community portion is awarded to the nonmember spouse, then the member can designate another beneficiary for the remainder of the one-time death benefit.

Option Election

If the parties use the Time Rule Formula to divide CalSTRS benefits, the nonmember’s benefits (which are a portion of each monthly payment to the member) will also terminate.  If the parties agree that the nonmember spouse is entitled to monthly benefits after the member’s death, the member must elect an “option” naming the former spouse as a beneficiary; he/she cannot choose a Member-Only Benefit.  There are four options to choose from to provide benefits for a former spouse:

• 100% Beneficiary Option: This option will provide the beneficiary with 100% of the amount the member was receiving.
• 75% Beneficiary Option: This option will provide the beneficiary with 75% of the amount the member was receiving.
• 50% Beneficiary Option: This option will provide the beneficiary with 50% of the amount the member was receiving.
• Compound Option:  This option allows the member to name one or more beneficiaries for specifically allocated percentages of the monthly benefit.  This option allows a member to name both a former spouse and current spouse as death benefit beneficiaries.
##### COMMUNITY PROPERTY STATEMENT OF ACCOUNT

Before making any decisions about the division of a CalSTRS account, the parties should request a Community Property Statement of Account from CalSTRS, which can be obtained by using the request form here.

##### GET STARTED TODAY!

If you need help with a CalSTRS Order, please call QDRO Helper at 619-786-QDRO or email us at info@qdrohelper.com.

DISCLAIMER: Any legal information on this blog has been prepared by QDRO Helper for informational purposes only and should not be construed as legal advice. The material posted on this website is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Note that sending an e-mail to QDRO Helper does not create an attorney-client relationship, and none will be formed unless there is an express agreement between the firm and the individual.