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SDCERA & Divorce: SDCERA DROs Explained

by Madeline Hill | Jul 25, 2012 | General QDRO Info, Public Employee Plans, SDCERA

The San Diego County Employees Retirement Association (SDCERA) has very specific guidelines regarding how to divide SDCERA benefits during divorce, pursuant to a Domestic Relations Order (DRO). Generally, a member’s spouse will have a community property interest in SDCERA benefits if the member worked for the County of San Diego during the parties’ marriage. As soon as a legal separation or marital dissolution action is filed, the parties should notify SDCERA in writing, especially if the nonmember believes that he/she has a community property interest in the member’s benefits.

Joinder Requirement

Joinder is the legal process that names a third-party claimant to a court case. SDCERA requires a joinder to be filed and served on the plan before a Domestic Relations Order can be implemented. Joinder is the first step in obtaining an Order to divide SDCERA benefits. Joinder also notifies the plan of the nonmember’s interest and will ensure that the member cannot begin receiving payments until a DRO is in place or until the joinder is withdrawn.

The Domestic Relation Order (DRO)

A Domestic Relations Order is a document that is signed by all parties and a judge which identifies how retirement plan benefits should be divided. To be accepted by SDCERA, the DRO must meet certain legal requirements and comply with the terms of the retirement plan.

SDCERA Methods of Division

The methods of division available for SDCERA depend on the employee spouse’s (or member’s) status, i.e. whether the person is already retired or not.

Active and deferred (i.e. non-retired) members have two options for division of the member’s account: 1) Separate Account Method or 2) Shared Payment Method. With the Separate Account Method, the member’s service credit and contributions are divided into two separate accounts – one for the member, and the other in the name of the nonmember spouse. When the parties choose the Shared Payment Method, separate accounts are not created; instead, the nonmember receives a portion of each payment made to the Member after retirement. The other differences between these methods are summarized in the chart below.

	SEPARATE ACCOUNT METHOD	SHARED PAYMENT METHOD
Retirement date & receipt of benefit payment	Each party decides independently when to apply for retirement and begin receiving monthly benefits from his/her account.The nonmember can retire either when he/she reaches the minimum age and service requirements to retire or when the member meets said requirements.	The parties begin receiving benefits when the member retires.
Payment Options	Both parties make independent benefit payment option elections.Nonmember can choose to receive a refund of the member’s accumulated contributions, plus interest, instead of a monthly benefit.	Member MUST select Option 4 and name nonmember as a beneficiary, which provides the nonmember with a lifetime benefits based on his/her percentage interest in the member’s benefits. Nonmember will receive monthly benefit payments.
What happens when either party dies PRIOR to retirement?	On the member’s death, standard death benefits are available based on the years of service remaining in the member’s account.On the nonmember’s death, his/her beneficiary receives a refund of accumulated contributions.	The nonmember will receive his/her community property percentage interest in the death benefits for life.The member can name another lifetime beneficiary (incl. a new spouse) for the remaining portion of benefits.Note: Many of these options will require an actuarial reduction in benefits.
What happens when either party dies AFTER retirement?	The continuance of benefit payments to the member’s or the nonmember’s beneficiaries depends on the option selected at retirement.	When the member dies, nonmember’s benefit will not be affected by the member’s death. Further, member can name an additional beneficiary for member’s remaining interest.When the nonmember dies the benefits will stop unless an actuarial reduction was made for nonmember’s benefits to continue to member or another beneficiary.

Whatever method of division is chosen, the nonmember generally receives his/her community property interest of the benefits, i.e. he/she will receive one half of the contributions made from the date of marriage through the date of separation. However, benefits earned during the marriage do not have to be split this way, and the parties or court can decide on any other division possible under the terms of the plan.

Retirement Benefit Division for Dissolution of Domestic Partnership

Pursuant to Assembly Bill 205, which extends the rights and duties of marriage to individuals registered as domestic partners, SDCERA will allow a division of a member’s account due to the dissolution or legal separation of domestic partnership.

Request for Estimate / Statement of SDCERA Account Due to Legal Separation or Marital Dissolution

The contents of a member’s file are confidential and can only be provided to the member or the member’s authorized representative. In order for the nonmember to receive information about the Member’s account, SDCERA must be joined to the action, and either i) a subpoena duces tecum must be served or ii) the member must provide SDCERA with a written authorization to release information to the nonmember or the nonmember’s attorney. SDCERA has a release form that will allow the nonmember to receive an estimate/statement of account due to legal separation or marital dissolution. The form must be signed by the member, and can be obtained by calling SDCERA at 1-888-473-2372.

Need help?

If you need assistance with an SDCERA DRO and/or joinder, please call QDRO Helper at 619-786-7376 today!

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.

Article Published at ScoopSanDiego.com: How Divorce Affects Retirement Benefits

by Madeline Hill | Jul 24, 2012 | General QDRO Info

Visit ScoopSanDiego.com to read about how divorce affects retirement benefits in this article written by Madeline L. Hill, Esq., owner of QDRO Helper.

Divorce and Your Thrift Savings Plan (TSP)

by Madeline Hill | Jul 16, 2012 | Military Retirement / TSP

Many federal employees and members of the uniformed services participate in the Thrift Savings Plan (TSP). This is an asset that is subject to division during divorce, and the contributions made during the time of the marriage are considered community property in California. The TSP is a defined contribution plan that is similar to the 401(k) plans offered by private employers.

Just like FERS and CSRS plans, ERISA does not apply to the Thrift Savings Plan, so instead of being called a QDRO, the Order dividing these benefits is called a Retirement Benefits Court Order (RBCO). A RBCO can be utilized only for a spouse, former spouse, child or other dependent of the TSP participant.

METHODS OF DIVISION

Any award under a RBCO must be stated as either a specific dollar amount, a percentage of the account, or as a formula which accounts for contributions made during the marriage (where all variables in the formula are available on the face of the order or from TSP account records). Usually this percentage, dollar amount, or amount arrived at by a formula are awarded as of the “valuation date.” The valuation date is often the date of separation. In their judgment or marital settlement agreement, the parties should also address whether earnings and losses from the valuation date to the date of actual account division should be included as part of the award to the non-participant spouse (“Alternate Payee”).

Minimum Account Balance. It is also important to note that for an account balance of less than $3,500, the entire amount is distributed to the participant upon retirement and the Federal Retirement Thrift Investment Board cannot make any payments directly to an Alternate Payee if the account is worth less than $3,500. If the account is below this amount, a RBCO is not appropriate and the non-participant spouse will need to seek other remedies with the assistance of his/her family law attorney. Under California law an Alternate Payee is still entitled to his/her community interest in the account, but he/she will have to obtain it in another way, such as an equalizing payment at the time of divorce or a payment directly from the participant upon retirement.

LOANS

The treatment of any loans that are outstanding with the plan as of the date of account division is also critical when dividing a TSP account as it can have a huge effect on the amount awarded to the Alternate Payee. When a percentage of the account is assigned to the Alternate Payee including an outstanding loan in the account balance, i.e. adding the amount of the loan back in, it will result in a larger portion for the Alternate Payee. Subtracting or excluding the outstanding loan from the account balance will reduce the amount paid to the Alternate Payee. Usually, the parties will evaluate when the loan was taken out by the Plan Participant and what the funds were used for to determine if the loan should be considered a community loan (included in the account) or the Participant’s own loan (excluded for the purposes of calculation).

ACCOUNT FREEZE / INJUNCTION

Due to the Participant’s ability to take out a loan before a court order dividing the account can be filed, it can be wise to file a separate order freezing the TSP account, or a preliminary injunction prohibiting loans or withdrawals.

QUESTIONS?

If you need help or have a question about dividing a TSP due to your divorce or legal separation, call 619-786-7376 to speak with one of our California QDRO attorneys today 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.

Dividing FERS / CSRS Benefits in Divorce or Legal Separation

by Madeline Hill | Jul 11, 2012 | CSRS / FERS, General QDRO Info

This article addresses the options for dividing a member’s Federal Employees’ Retirement System (FERS) or Civil Service Retirement System (CSRS) benefits in the event of divorce. FERS covers federal employees hired after 1983; those hired prior to 1983 are covered by CSRS. Orders dividing ERISA governed retirement benefits are commonly referred to as QDROs (Qualified Domestic Relations Orders); however, FERS and CSRS are not governed by ERISA and an order dividing FERS or CSRS due to divorce is called a “court order acceptable for processing” or COAP. The paragraphs below cover, in general terms, the most common issues addressed in COAPs for CSRS and FERS benefits.

Methods of Division

Court orders must provide a method of computing the former spouse’s interest, i.e. the order must provide a formula that can be implemented by the Office of Personnel Management (OPM). The former spouse’s share should be expressed as either a fixed amount or a percentage or fraction of the employee annuity. All variables in any formula submitted to OPM must be ascertainable from the face of the COAP or in OPM records, such as the employee’s periods of creditable service and basic pay rates. The most common method of division for a COAP utilizes a “marital fraction.” Using this formula, a former spouse would receive a share of the employee’s annuity or refund of employee contributions equal to 50 percent times the fraction created by the number of months of civilian and military service performed by the employee during marriage (from date of marriage through date of separation) divided by the total number of months of civilian and military service performed by the employee. This would be described as the former spouse’s “pro rata share.”

Survivor Benefits

To qualify for “surviving spouse” benefits, a former spouse must have been married to the employee for at least 9 months, or a child must have been born of the marriage, or the employee’s death must have been accidental.

Survivor Benefits can be paid to both a former spouse and the employee’s spouse at the time of death (if the employee remarried). However, an Order directing OPM to provide survivor benefits to a former spouse will not be honored if it would cause the total of survivor annuities payable under the Plan to exceed 50% of the employee’s unreduced basic annuity. Typically a former spouse will be awarded at least a portion of the survivor benefits to ensure that all payments to the former spouse do not cease upon the employee’s death.

It is also important to note that if the employee’s former spouse dies or remarries before reaching age 55, then there will be no payment of a survivor annuity.

Survivor benefits will only be awarded if the employee makes an election at the time of retirement that provides for survivor benefits – he/she cannot choose a self-only annuity. There are a myriad of annuity options that can be affected by divorce and remarriage which are beyond the scope of this article; however, employees should contact an attorney or OPM to fully understand their options.

Gross Annuity / Net Annuity/ Self Only Annuity

If a court order states the former spouse’s share of the employee annuity as a formula, percentage, or fraction, OPM must be able to determine which of the 3 types of annuity defined below on which to apply the calculation. OPM will apply the formula to gross annuity unless the COAP states otherwise. Thus, if the parties want to use a net annuity or self-only annuity for the COAP calculation, it should be agreed to by the parties during the dissolution or legal separation process.

Gross annuity means the monthly annuity payments by FERS or CSRS that are payable after reducing the self-only annuity to provide for a survivor annuity, if any, but before any other deduction. Unless the court order provides otherwise, gross annuity also includes any lump-sum credit payments.

Net annuity means the monthly annuity payments under FERS or CSRS that are payable after deducting from the gross annuity any amounts owed by the employee to the United States, for health and life insurance premiums, and for withheld state and federal taxes (excluding excessive exemptions), and amounts payable to another person under another COAP or a child support enforcement order. Other terms used for net annuities include “disposable annuity” and “retirement check.

Self-only annuity, as mentioned in the survivor benefits section, means the monthly annuity payments under FERS or CSRS to a retiree who has elected not to provide a survivor annuity to anyone. This type of annuity is also called “life rate annuity,” “unreduced annuity,” or “annuity without survivor benefit.”

For further reading, the rights of former spouses under qualifying court orders and COAPs that award FERS and CSRS benefits at divorce are detailed in the Code of Federal Regulations. Part 838 of Title 5.

If you need help with a FERS or CSRS Order, please call QDRO Helper at 619-786-QDRO / 619-786-7376 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.

QDROS for 401(k), 403(b) and 457 Plans

by Madeline Hill | Jun 27, 2012 | Defined Contribution Plans

The two most common types of retirement plans are defined benefit plans and defined contribution plans. Defined contribution plans have an account balance, such as 401(k), 403(b) and 457 plans. Defined benefit plans are commonly known as pension plans and pay a monthly benefit in the future with the amount payable determined at the time of retirement.

This blog will briefly discuss the most common issues involved with dividing defined contributions plans due to divorce. These issues are: defining the community property interest, determining how the plan will treat investment gains and losses on the alternate payee’s portion, and deciding how to treat outstanding loans.

DIVISION OF COMMUNITY PROPERTY INTEREST

Parties to a divorce can agree to transfer any percentage or dollar amount to the non-employee spouse (a.k.a. the “Alternate Payee”). Often, funds from 401(k), 403(b) or 457 plans are used to equalize other marital assets during divorce. However, the most common division is the community interest division. This means that the Alternate Payee will receive one-half of the contributions from the date of marriage through the date of separation. Usually, the plan administrator can calculate this amount; however, in some situations the record keeper for the plan will not have records that date back to the date of marriage. If the record keeper does not have adequate records, then this information will need to be supplied by the parties via old plan statements, or the parties can hire an actuary or accountant to estimate the community property interest, and then can stipulate to the amount to be transferred.

GAINS & LOSSES

Typically, gains and losses (or “earnings”) attributable to the amount assigned to the Alternate Payee are also applied to the amount. However, the parties can come to an agreement where earnings are not awarded on the Alternate Payee’s share. If the parties determine a flat dollar amount to be assigned to the Alternate Payee, gains and losses are usually not included. Gains and losses can make a significant difference in the amount of the benefit awarded to the Alternate Payee, so this issue should be considered seriously by the parties.

PLAN LOANS

Another important issue is the treatment of any loans that are outstanding with the plan as of the date of account division. When a percentage of the account is assigned to the Alternate Payee, including an outstanding loan in the account balance, i.e. adding the amount of the loan back in, will result in a larger portion for the Alternate Payee. Subtracting the outstanding loan from the account balance will reduce the amount paid to the Alternate Payee. Usually, the parties will evaluate when the loan was taken out by the Plan Participant and what the funds were used for to determine if the loan should be considered a community loan (included in the account) or the Participant’s own loan (excluded for the purposes of calculation). It is important to know that loans from retirement plans are not assignable, the Participant must pay the loan back even if loans are included for purposes of division. This also means that if 100% of a plan is being assigned to the Alternate Payee, there must not be any plan loans. If there are any outstanding plan loans, then an amount sufficient to cover the loan must be left in the account.

TIMING & TAX ISSUES

Parties should also be aware of timing and taxation issues for defined contribution plan QDROs. Plans will usually allow an immediate distribution to an Alternate Payee. The Alternate Payee may roll the assigned amount to an IRA, take it in cash, or do some combination of IRA rollover and cash distribution, subject to the terms of the plan. If the Alternate Payee is allowed to leave the funds in the plan, the funds usually cannot be accessed without penalty until he/she reaches age 59 ½.

Regarding the taxation of benefits upon distribution, Alternate Payees are responsible for the income taxes on any distributions made to them pursuant to a QDRO. The distribution from the plan is taxable to the participant for distributions made for child support or distributions made without a QDRO. The plan will withhold 20% of any immediate cash distribution for federal income tax, but there is no 10% excise tax when an alternate payee takes a distribution from a qualified plan pursuant to a QDRO. This can help an alternate payee who needs cash before they turn age 59 ½.

Almost all defined contribution plans are divisible by QDRO. The parties’ judgment, divorce decree or marital settlement agreement should address the issues listed above since the QDRO should reflect the judgment and having a written agreement prior to drafting a QDRO will allow for the QDRO process to run more smoothly and efficiently.

Need Help?

Call QDRO Helper at (619) 786-QDRO to speak with a helpful California QDRO lawyer today or click here to get started. You can also 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.