LACERS Benefits & Divorce: Los Angeles City Employees Retirement System
If a member earns Los Angeles City Employees Retirement System (LACERS) benefits during marriage, those benefits are community property and are subject to division due to divorce, legal separation, or dissolution of a registered domestic partnership.
If the dissolution or separation matter is filed in a California court, then LACERS must be joined. Joinder is a legal process that names a third-party claimant to a divorce case. The joinder will put LACERS on notice of the pending dissolution action and forthcoming DRO, and will give the court jurisdiction over LACERS. If needed, QDRO Helper can file the necessary LACERS joinder documents for you for an additional fee.
NONMEMBER SPOUSE NOTICE OF INTEREST
In addition to the Joinder, the nonmember should also notify LACERS in writing that he/she is claiming his/her community property interest if the member’s benefits. The letter should include the parties’ date of marriage and date of separation, as well as the member’s name and social security number. This letter can be mailed to LACERS at 360 East Second Street, 2nd Floor, Los Angeles, CA 90012-4207. However, please note that the nonmember spouse will not be able to receive benefits until a domestic relations order is drafted, signed by the parties, filed at court, and sent to LACERS for implementation.
HOW BENEFITS ARE DIVIDED: IN-KIND DIVISION OR SEPARATE ACCOUNT
For the “in-kind” division, the nonmember spouse is typically awarded one half of the community interest in the LACERS benefits. The community property interest is determined by the “time rule formula” – i.e. a fractional interest where the member’s service from the date of marriage through the date of separation (or “marital service”) is divided by the member’s total service. The Order may also specify that any service time purchased during the marriage be considered marital service. Although dividing the community interest 50/50 is the most common method of division, the nonmember could receive any percentage of the benefits awarded in the parties’ separation agreement or divorce judgment.
The nonmember may take his/her distribution “in-kind” which means that the nonmember will be paid a portion of the member’s pension for the member’s lifetime (and, if applicable, for the lifetime of the member’s surviving spouse). If the nonmember outlives the member (and the member’s surviving spouse) the payments to nonmember will cease. If the nonmember dies before the member (and the member’s surviving spouse), depending on the domestic relations order, the share would pass either to the nonmember’s beneficiary or heirs, or could revert to the member.
Alternatively, after the court order is filed, the nonmember spouse may elect to convert his/her “in-kind” interest to a life annuity based on the nonmember’s lifetime. This election will alleviate the risk of losing all benefits if the member (and/or the member’s then-current spouse) predeceases the nonmember former spouse. Upon the nonmember’s death, all benefit payments from LACERS stop.
If the DRO provides for the establishment of separate accounts, the nonmember has two options for distribution: 1) the nonmember can receive a refund of contributions and will relinquish any right to monthly benefits in the future or 2) the nonmember can receive a separate account allowance, payable for his/her lifetime. Note, that if the nonmember elects option 2, the allowance will be calculated based upon a formula using the member’s compensation at the parties’ date of separation, not the time that the allowance becomes payable. Another important restriction on the Separate Account method is that if the member never becomes eligible for a service retirement (due to death or disability retirement), then the nonmember cannot receive a separate account allowance (i.e. monthly payments), instead the only form of payment will be a refund of contributions.
It should be noted that a “refund of contributions” is a refund only of the contributions that the member paid in from the member’s salary, plus the interest on those contributions. This may not reflect the true value of the member’s benefits since a refund of contributions does not include any compensation paid for by the City.
It should also be noted that if the separate account method is used and if the nonmember spouse takes a refund of contributions, then the member can repay LACERS to restore his/her service credit under the Plan.
How Do I Decide Which Method to Choose?
There are pros and cons to both methods of division, and the best option for you will depend on your unique circumstances. The separate account method uses the member’s compensation at the date of separation while the in-kind division is based on the member’s compensation at the time of retirement. Since the member’s compensation at retirement is likely to be more than at the time of separation, the amount of the monthly benefit the nonmember receives with the separate account order is usually less than what he/she would receive with a typical in-kind division. However, the nonmember must wait for the member to retire before the nonmember can receive benefits under the in-kind division. The separate account allowance is paid for the nonmember’s lifetime, and will not be affected by the member’s death, while the in-kind division may or may not be payable, in this manner, depending upon whether the nonmember elects to take a life annuity at retirement.
One distinct advantage of the separate account method is that if the member is eligible to retire but is still working, the nonmember can start to get benefits before the member retires, assuming that all service retirement eligibility requirements have been met. This can be advantageous when the nonmember is significantly older than the member. If the nonmember can claim the separate account allowance now, the final compensation payable to the nonmember spouse over his/her lifetime may be similar what an in-kind order would provide. However, a distinct drawback to the separate account is that if the member never becomes eligible for a service retirement, due to death or disability, the nonmember can only receive a refund of contributions and interest paid in by the member, which would result in a loss of any employer contributions to the plan.
If you are unsure what option to choose, you should know that once a separate account is established by the Plan pursuant to the court order, the nonmember no longer has any right to an in-kind division. However, if an in-kind division is ordered by the court, and the court retains jurisdiction, then the order can be modified to establish a separate account in lieu of an in-kind division as long as the modification occurs prior to the member’s retirement.
The information provided here is only a basic summary. You should call LACERS at (213) 485-4917 if you have questions about your options.
NEED HELP WITH A LACERS COURT ORDER?
If you would like to get started on your LACERS DRO today, please call QDRO Helper at 619-786-QDRO (619-786-7376). Alternatively, you can click here to request a new client package for a LACERS court order. We proudly serve clients and attorneys throughout California – no in-office appointments are needed.
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