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SCERS DROs: Dividing Sacramento County Employees’ Retirement System Benefits in Divorce

by Madeline Hill | Mar 20, 2013 | General QDRO Info, Public Employee Plans, SCERS - Sacramento County

SCERS & DIVORCE – WHAT IS A DRO?

Employees of Sacramento County are members of the Sacramento County Employees’ Retirement System (SCERS). SCERS benefits take the form of a defined benefit plan, which means that the benefits paid to retired members are based upon a formula. Retirement payments are based upon three factors: the member’s age at retirement, years of service, and salary. In order to be vested in SCERS, members must have 10,440 service credits; members earn one service credit for each hour of pay. Members make contributions to SCERS through regular payroll deductions and it is not possible to borrow funds from the SCERS retirement fund account.

Retirement benefits acquired during marriage, such as SCERS benefits, are subject to division during divorce. The division of these benefits is accomplished by a special court order called a Domestic Relations Order or DRO. SCERS must have a valid, court-filed DRO that has been signed by both the parties and the judge in order to make payments directly to a non-member spouse. Distributions of SCERS benefits are governed by Article 8.4 of the County Employees’ Retirement Law of 1937, which begins at Section 31685 of the California Government Code. This legislation provides for the division of the community property interests of SCERS Members in accordance with the provisions of a Court order setting forth the terms and conditions of the dissolution of a Member’s marriage issued pursuant to Section 2610 of the Family Code.

MANDATORY JOINDER & OBTAINING INFORMATION

Joinder is a legal process that names a third-party claimant to a divorce case and notifies the retirement plan that a former spouse has a right to a portion of an employee’s benefits. SCERS requires a joinder to be filed and served on the plan before a Domestic Relations Order can be approved and implemented. Both a joinder and DRO will be required before a non-member can begin receiving payments from SCERS. Your family law attorney may have already completed a joinder; however, QDRO Helper also offers joinder services for an additional fee.

As soon as a dissolution of marriage action is filed in court, the parties should notify SCERS in writing about the pending dissolution, including the parties’ date of marriage and separation, names, dates of birth, social security numbers and current contact information. SCERS is required to maintain confidentiality of member’s records; however, either upon subpoena or written authorization from the SCERS member, the plan will provide a valuation of the Member’s account. The valuation will specify the approximate community property interest that the former spouse can either withdraw or receive as a monthly retirement allowance for life when eligible.

DIVISION OF BENEFITS

The most common method of division for a non-retired member is to award the non-member spouse 50% of the accumulated retirement contributions and service credit attributable to the period of service from the parties’ date of marriage through their date of separation. Prior to the member’s retirement, a Nonmember may elect to establish a separate account and may exercise the same rights as a Member, except that a Nonmember is not eligible to apply for or receive a disability retirement allowance, a Nonmember’s pre-retirement death benefits shall consist of return of the contributions and interest in the Nonmember’s account, and a Nonmember is not eligible to participate in the election of trustees. A Nonmember may retire and elect optional allowances. SCERS will ensure that the combined benefits payable to the Member and Nonmember are the actuarial equivalent of the value of the benefit to which the Member would have been eligible had no division of the community property interest occurred. Each party will have a separate account and will have exclusive control over his/her own account.

If a member is already retired at the time that DRO is implemented, SCERS will split the Member’s benefits and a separate account will not be created for the Nonmember. Instead, the Nonmember will receive a portion of each payment made to the Member, typically the portion is based upon the Time Rule Formula.

NEED A SCERS DRO?

If you have questions about the division of SCERS benefits due to your California dissolution of marriage or legal separation, or if you would like to get started on your Domestic Relations Order today, please call QDRO Helper at (619) 786-QDRO / (619) 786-7376. You can also request a new client package by sending an email to a friendly California QDRO attorney at info@qdrohelper.com. We proudly assist clients throughout California and no in-office appointments are required.

If you have questions about your particular SCERS retirement benefits, you can contact SCERS at (916) 874-9119 or request information in writing addressed to Sacramento County Employees’ Retirement System, 980 9th Street, Suite 1900, Sacramento, CA 95814.

DISCLAIMER: ADVERTISEMENT. Any legal information on this blog has been prepared by QDRO Helper for informational purposes only and is not legal advice and does not constitute a guarantee, warranty, or prediction regarding the outcome of your legal matter. The information provided is intended to comply with Rule 1-400 of the California Rules of Professional Conduct. Any links in this website are included only to help you locate other Internet resources that may be of interest to you; QDRO Helper is not associated with any such links. The transmission and receipt of information contained on this website via the Internet or e-mail or in any other manner does not constitute or create an attorney-client relationship, and you should not act on the information contained herein without obtaining legal counsel. QDRO Helper has a strict policy of entering into attorney-client relationships with its clients only though the execution of a written fee agreement acknowledged by QDRO Helper. As such, you should not send QDRO Helper any confidential information in response to this web page until such a relationship is established and expressly acknowledged by QDRO Helper.

QDROs & Loans: How Loans on Retirement Accounts Affect Divorce

by Madeline Hill | Mar 1, 2013 | Defined Contribution Plans, General QDRO Info

RETIREMENT PLAN LOANS & DIVORCE

Participants in defined contribution retirement plans often have the option of taking out loans. These loans are usually paid back via paycheck deductions over a period of years and these loans usually cannot be assigned to any other party for repayment. If a defined contribution plan, such as a 401(k), is divided during a divorce or legal separation, it is critical to address any outstanding loans.

HOW TO FIND OUT IF THERE IS AN OUTSTANDING LOAN

You should first look for an outstanding loan balance on the account statement. Sometimes there will be a clearly labeled section for loans. Other statements can be a bit more difficult to read, for example a statement may show an “account balance” of $25,000 but list the “total account value” at $35,000 elsewhere, which would indicate a $10,000 outstanding loan. Plan administrator’s usually consider outstanding loans as assets which should be added to the value of the account to determine the account’s true value. The participant in the plan is also required to make full disclosure of assets and obligations during a divorce and the marital settlement agreement should clearly address outstanding loans. If the participant represents that there are no loans, the settlement agreement should include a statement that the party “represents and warrants that he/she has not taken any loans or withdrawals from the [insert plan name] account, and he/she shall be prohibited from taking any loans or withdrawals until a QDRO is implemented by the plan, creating a separate interest for [the other party].” If a withdrawal or loan, in violation of the automatic temporary restraining order, is feared by the non-employee spouse a notice of adverse interest to the plan, or a joinder, will often cause a hold to be placed on the participant’s account pending receipt of a QDRO by the plan administrator.

IS A LOAN SEPARATE PROPERTY OR COMMUNITY PROPERTY?

If there is an outstanding loan, it must be determined whether the loan is community or separate property. Parties sometimes view any loan taken out from the date of marriage through the date of separation as community property; other parties will agree to look at what the loan funds were used for to determine if the loan is community property or separate property.

Separate Property Loans in QDROs

If a loan is determined to be the participant’s separate property, then the QDRO needs to be drafted carefully to award the correct amount to the former spouse (or “alternate payee”). For example, if a QDRO awards 50% of the participant’s account balance to the alternate payee as of the parties’ date of separation, but does not address loans, the alternate payee’s share could unintentionally be reduced by the value of the outstanding loan. By way of an example, if the account balance at the date of separation was $50,000, but there was an outstanding loan of $10,000, which would bring the total account value to $60,000, then the alternate payee may accidentally be awarded $25,000, instead of the $30,000 to which she is entitled due to a separate property loan. To ensure that the alternate payee’s share is not reduced by the other party’s separate property loan, the QDRO must include the loan balance in the account balance prior to calculating the 50% award to the alternate payee.

Community Property Loans in QDROs

Since it is usually not possible to make an alternate payee responsible for loan repayment under a QDRO, if a loan is determined to be community property, the QDRO must be carefully drafted to ensure that the alternate payee’s share of the account is reduced by an equal portion of the outstanding community property loan.

POTENTIAL FOR QDRO REJECTION DUE TO OUTSTANDING PLAN LOANS

Most retirement plans will not distribute funds in excess of the outstanding loan. If the parties have agreed to equalize assets and award the alternate payee 100% of the participant’s account, they should determine exactly what the dollar amount of the distribution will be under the terms of the plan before filing the QDRO. For example, if there is $30,000 in an account, plus a $5,000 outstanding loan, the plan will likely only distribute a maximum of $25,000 to the alternate payee. Alternatively, if a QDRO awards the alternate payee $30,000 in the same example, the QDRO will likely be rejected by the plan because the maximum that can be distributed under the plan’s terms would be $25,000.

QUESTIONS ABOUT LOANS AND QDROs?

If you have questions about the division of defined contribution plan accounts due to your California dissolution of marriage or legal separation please call QDRO Helper at (619) 786-QDRO / (619) 786-7376. You can also request a new client package by sending an email to info@qdrohelper.com.

DISCLAIMER: ADVERTISEMENT. Any legal information on this blog has been prepared by QDRO Helper for informational purposes only and is not legal advice and does not constitute a guarantee, warranty, or prediction regarding the outcome of your legal matter. The information provided is intended to comply with Rule 1-400 of the California Rules of Professional Conduct. Any links in this website are included only to help you locate other Internet resources that may be of interest to you; QDRO Helper is not associated with any such links. The transmission and receipt of information contained on this website via the Internet or e-mail or in any other manner does not constitute or create an attorney-client relationship, and you should not act on the information contained herein without obtaining legal counsel. QDRO Helper has a strict policy of entering into attorney-client relationships with its clients only though the execution of a written fee agreement acknowledged by QDRO Helper. As such, you should not send QDRO Helper any confidential information in response to this web page until such a relationship is established and expressly acknowledged by QDRO Helper.

SBCERA DROs: Dividing San Bernardino County Employees’ Retirement Association Benefits in Divorce

by Madeline Hill | Feb 13, 2013 | Defined Benefit Plans, General QDRO Info, SBCERA San Bernardino

SBCERA & DIVORCE – WHAT IS A DRO?

Employees of San Bernardino County are members of the San Bernardino Employees’ Retirement Association (SBCERA). SBCERA is a public agency created to administer retirement benefits. These retirement benefits take the form of a defined benefit plan, which means that the benefits paid to retired members are based upon a formula, not monetary contributions to an account (like a 401k plan). Retirement payments are based upon the member’s age at retirement, years of service credit, highest 12 consecutive months of compensation, and the benefit formula. There are two types of members under SBCERA: General member and Safety Members.

Retirement benefits acquired during marriage, such as SBCERA benefits, are subject to division during divorce. The division of these benefits is accomplished by a special court order called a Domestic Relations Order or DRO. The DRO directs the SBCERA to pay benefits directly to the non-employee spouse. SBCERA cannot legally make payments to a member’s former spouse without a valid, court-filed DRO that has been signed by both the parties and the judge.

JOINDER REQUIREMENT

Joinder is a legal process that names a third-party claimant to a divorce case and notifies the retirement plan that a former spouse has a right to a portion of an employee’s benefits. SBCERA requires a joinder to be filed and served on the plan before a Domestic Relations Order can be approved and implemented. Joinder is the first step in obtaining an Order to divide SBCERA benefits. Your family law attorney may have obtained a joinder; however, QDRO Helper also offers joinder services.

DIVISION OF BENEFITS & RETIREMENT OPTION

Usually the non-member former spouse’s award is calculated as one-half of the benefits attributable to the member’s service in SBCERA during the time period from the parties’ date of marriage through their date of separation. Your Domestic Relations Order (DRO) must specify the retirement option the member is to select at the time of retirement to provide for a continuance to a former spouse. There are four options that can be used to provide survivor benefits, namely:

1. Unmodified Option –provides for a 60% continuance to an eligible surviving spouse. The former spouse may be entitled to a portion of a surviving spouse’s continuance. However, if the unmodified option was selected by the Member at retirement, but prior to the member’s divorce then the spouse named as the beneficiary at the time of retirement, which is now the former spouse, will no longer qualify for the unmodified continuance. This is pursuant to Government Code section 31760.1 or for death benefits under Government Code sections 31765, 31765.1, or 31786.

2. Option 2 – provides for a 100% continuance to the nominated beneficiary (i.e. former spouse).

3. Option 3 – provides for a 50% continuance to the nominated beneficiary (i.e. former spouse).

4. Option 4 – provides for various continuances to multiple beneficiaries, such as the former spouse and/or an eligible surviving spouse. Typically, the continuance is based on the calculation of a share of the benefit payable to the former spouse.

The DRO should also address pre-retirement death benefits in the event that the member dies during active employment. Typically the former spouse is awarded one-half of the death benefits attributable to the member’s service in SBCERA during the time period from the parties’ date of marriage through their date of separation.

Unlike some other county retirement plans which offer “shared” or “separate” methods of division, SBCERA is unable to create separate accounts for the member and his/her former spouse.

NONMEMBER’S DEATH

The nonmember spouse has the right to name a beneficiary, or beneficiaries, for the nonmember’s share of the SBCERA benefits. If the nonmember has not named a beneficiary, then the nonmember’s share of benefits will be paid to the nonmember’s estate.

NEED A SBCERA QDRO?

If you have questions about the division of SBCERA benefits due to your California dissolution of marriage or legal separation, or if you would like to get started on your Domestic Relations Order today, please call QDRO Helper at (619) 786-QDRO / (619) 786-7376. You can also request a new client package by clicking here or sending an email to info@qdrohelper.com.

DISCLAIMER: ADVERSTISEMENT. Any legal information on this blog has been prepared by QDRO Helper for informational purposes only and is not legal advice and does not constitute a guarantee, warranty, or prediction regarding the outcome of your legal matter. The information provided is intended to comply with Rule 1-400 of the California Rules of Professional Conduct. Any links in this website are included only to help you locate other Internet resources that may be of interest to you; QDRO Helper is not associated with any such links. The transmission and receipt of information contained on this website via the Internet or e-mail or in any other manner does not constitute or create an attorney-client relationship, and you should not act on the information contained herein without obtaining legal counsel. QDRO Helper has a strict policy of entering into attorney-client relationships with its clients only though the execution of a written fee agreement acknowledged by QDRO Helper. As such, you should not send QDRO Helper any confidential information in response to this web page until such a relationship is established and expressly acknowledged by QDRO Helper.

Valuation Dates for QDROS: A Common Mistake in Marital Settlement Agreements

by Madeline Hill | Jan 31, 2013 | Defined Contribution Plans, General QDRO Info

WHAT IS A “VALUATION DATE” FOR QDRO PURPOSES?

A QDRO (Qualified Domestic Relations Order) is a court order that divides retirement benefits due to divorce. The valuation date for QDRO purposes is the date as of which the funds are to be divided. For example, in a QDRO for a 401(k) plan awarding 50% to the non-employee spouse with a valuation date of September 30, 2011, the plan will look at the Participant’s account balance on September 30, 2011 multiply the account by 50% in order to determine the non-employee spouse’s share. The plan administrator will not look at the current account balance at the time of actual division of the account, but will look at the account balance as of the valuation date.

VALUATION DATE PROBLEMS IN QDROS

Unfortunately, an issue which often makes the QDRO process more difficult is the lack of a valuation date in the parties’ Marital Settlement Agreement (“MSA”). A missing valuation date can lead to litigation at a later date. Your MSA should always state the date as of which the benefits are to be divided, or reference a date which is known and agreed to by the parties, i.e. “Wife is awarded 50% of the account balance as of the date of separation” or “Husband is awarded 50% of the account as of December 15, 2012.” Absent a specified date, one party may argue for the date of separation to be used, while another party may argue that the date of dissolution should be used. As can be imagined, the value of retirement benefits could vary greatly depending on the valuation date chosen, particularly since the date of separation and the date of dissolution can be more than a year apart. Other potential valuation dates are the date that a divorce petition is filed, the date the MSA was signed.

Typically, in California, the parties’ date of separation is viewed as the date that the community interest in the asset stops accruing. [In re Marriage of Bergman, 168 Cal. App. 3d 742 (1985)] However, other states view community property differently. For example, in Arizona, the accrual of community property typically terminates upon the service of the divorce petition on the other party; in Nevada, community property usually terminates upon the date of divorce.

Valuation dates are also an issue because often with QDROs for defined contribution plans, gains and losses are included in the alternate payee’s share from the valuation date to the date that the plan administrator actually segregates the account. Therefore, the further back the valuation date is from the date of account segregation, the greater the potential change in value of the alternate payee’s benefits.

If the parties are awarding the non-employee spouse a flat dollar amount, then the valuation date should be the date of account segregation by the plan administrator and the QDRO should specify that the parties do not intend for any gains or losses to be included in the alternate payee’s award.

Provisions should also be made in the event that the retirement plan only allows certain valuation dates. For example, some plans only allow valuation dates that are the last day of a month, or have valuation dates that can only be days that the New York Stock Exchange allows trading (i.e. excludes weekends or holidays). Ideally, the MSA should provide a valuation date and then also state “or the nearest valuation date under the Plan”.

The best practice is to ensure that the MSA clearly states the valuation date for dividing retirement assets and also allows for variations due to the valuation dates allowed under the terms of the retirement plan.

QUESTIONS ABOUT VALUATION DATES IN QDROS?

If you have questions about valuation dates in QDROs or if you would like to assistance with your MSA language or drafting your QDRO, please call QDRO Helper at 619-786-QDRO (619-786-7376) or email us at info@qdrohelper.com.

DISCLAIMER: ADVERSTISEMENT. Any legal information on this blog has been prepared by QDRO Helper for informational purposes only and is not legal advice and does not constitute a guarantee, warranty, or prediction regarding the outcome of your legal matter. The information provided is intended to comply with Rule 1-400 of the California Rules of Professional Conduct. Any links in this website are included only to help you locate other Internet resources that may be of interest to you; QDRO Helper is not associated with any such links. The transmission and receipt of information contained on this website via the Internet or e-mail or in any other manner does not constitute or create an attorney-client relationship, and you should not act on the information contained herein without obtaining legal counsel. QDRO Helper has a strict policy of entering into attorney-client relationships with its clients only though the execution of a written fee agreement acknowledged by QDRO Helper. As such, you should not send QDRO Helper any confidential information in response to this web page until such a relationship is established and expressly acknowledged by QDRO Helper.

Waiver QDRO: Do I Need a QDRO if my Spouse Waives all Retirement Benefits?

by Madeline Hill | Jan 18, 2013 | General QDRO Info

WHAT IS A WAIVER? WHAT IS A QDRO?

Sometimes during divorce, the parties will agree that one spouse will forever waive his/her interest in the other spouse’s retirement plan. Often this is done as part of an equalization of property, other times the parties simply agree that they will each keep their own retirement plan. This “waiver” of one party’s community property interest in the other party’s retirement benefits is usually written out in the parties’ marital settlement agreement. A “waiver QDRO” can also be prepared to waive one party’s interest in retirement benefits.

The division of retirement benefits due to divorce is normally accomplished via a Qualified Domestic Relations Order or “QDRO.” A QDRO is a particular type of court order that divides retirement plan benefits between parties due to marital dissolution or legal separation. A QDRO creates and/or recognizes an employee’s former spouse’s right to receive all, none, or a portion of the benefits payable with respect to an employee under a retirement plan. QDROs are made pursuant to state domestic relations laws (such as California community property laws) and under federal law, such as the Internal Revenue Code and The Employee Retirement Income Security Act (ERISA).

DO I NEED A WAIVER QDRO?

Some retirement plans will require a QDRO even when the parties’ judgment or settlement agreement clearly states that the non-employee spouse has waived his/her right to any benefits. If the terms of the retirement plan require a QDRO, then the employee will not be able to retire and begin receiving payments until a QDRO is received by the plan. In that situation, a waiver QDRO should be prepared as soon as possible.

Many retirement plans do not require a QDRO in the case of a waiver of benefits; however, it is still the best practice to ensure that a waiver QDRO is filed with the court and submitted to the plan administrator. Filing a QDRO as close as possible to the date of dissolution will ensure that a waiver of benefits will be valid and will not become problematic at a later date.

One example of how a waiver in a divorce settlement agreement is not always effective is from the Supreme Court case of Kennedy v. Dupont, 129 S.Ct. 865 (1/26/2009). In that case, the parties had a valid divorce decree which stated that the Wife would not receive any interest in the Husband’s retirement benefits. However, many years prior to the divorce, Husband had completed a beneficiary designation with the plan administrator naming Wife as his beneficiary in the event of death. After the divorce, Husband never changed his beneficiary form to remove Wife. When Husband died, the plan paid his benefits to his former spouse, instead of his daughter. The retirement plan administrator followed the plan procedures and paid benefits to the named beneficiary, regardless of the divorce decree which included a waiver of the benefits. The Supreme Court held that the retirement plan administrator acted correctly, and that the parties’ divorce decree was not sufficient to serve as a QDRO; therefore, the plan document was controlling on what would happen to the deceased employee’s benefits. If the parties had prepared a QDRO which waived Wife’s right to any and all retirement benefits, then the plan would have paid the benefits to the employee’s daughter, instead of his former spouse.

Most divorce decrees or settlement agreements incorporated into judgments do not have the language required to qualify as a QDRO. To be recognized as a QDRO, an order must be: A judgment, decree, or order (including the approval of a property settlement) that is made pursuant to state domestic relations law (including community property law) and that relates to the provision of child support, alimony payments, or marital property rights for the benefit of a spouse, former spouse, child, or other dependent of a participant. Further, in order to be a QDRO, the court order must contain QDROs must contain the name and last known mailing address of the participant and each alternate payee; the name of each plan to which the order applies; the dollar amount or percentage (or the method of determining the amount or percentage) of the benefit to be paid to the alternate payee, and the number of payments or time period to which the order applies. There are additional provisions that a court order must not contain in order to qualify as a QDRO, such as:

The order must not require a plan to provide an alternate payee or participant with any type or form of benefit, or any option, not otherwise provided under the plan;
The order must not require a plan to provide for increased benefits (determined on the basis of actuarial value);
The order must not require a plan to pay benefits to an alternate payee that are required to be paid to another alternate payee under another order previously determined to be a QDRO, and;
The order must not require a plan to pay benefits to an alternate payee in the form of a qualified joint and survivor annuity for the lives of the alternate payee and his or her subsequent spouse.

If your divorce decree does not have all of the necessary provisions required to qualify as a QDRO, it is best to have a waiver QDRO prepared to ensure that the spouse’s waiver is truly valid pursuant to the retirement plan’s procedures.

BENEFICIARY DESIGNATIONS

It is critical that, after a divorce, the plan participant fills out a new beneficiary designation with each retirement plan in which he/she participates. Even if a Marital Settlement Agreement contains a waiver of all retirement benefits, the plan may still pay benefits to the participant’s former spouse if the former spouse was still listed as the beneficiary in the plan’s records. The recent case of Andochick v. Byrd in the Fourth Circuit Court of Appeals is one example of the problems that are created with inconsistent beneficiary designations and divorce judgment and settlement agreement language.

QUESTIONS ABOUT A WAIVER QDRO?

If you have questions about waiver QDROs, dividing retirement benefits due to divorce, or if you would like to get started on your QDRO today, please call QDRO Helper at 619-786-QDRO (619-786-7376). Alternatively, you can email info@qdrohelper.com and 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.