Pensions & Divorce
The Basics Of Pension Plans: It is not the purpose of this overview to furnish legal or accounting advice. It should be considered a somewhat detailed "sketch" and can serve as a reasonable guideline, although its accuracy is compromised both by new legal decisions and by factors which have been omitted for the sake of brevity.
How Pension Benefits Can Be Divided: The "Immediate Offset" Approach method, where present value of the pension benefits are calculated and a determination is made as to that portion of the present value that was earned during the marriage. The court awards the pension to the employee spouse, and the non-employee spouse receives other marital property of offsetting value.
How Defined Benefit Plans are Valued: In order to determine the value of a benefit under a Defined Benefit Plan as of a specific date, the valuator actuarially determines the present value of receiving a future pension benefit (monthly income upon retirement).
Frequently Asked Questions About Valuing Defined Benefit Plans: If the pension holder started receiving benefits at age 60 instead of 62, would the present value be higher or lower? If the Interest Rate used in the valuation process was 5.00% instead of 6.00%, would the present value be higher or lower? What is a 'Coverture Fraction"? These questions and more are answered in this section.
How Defined Contribution Plans are Valued: The value of a benefit under a Defined Contribution Plan on any date is the sum of the market values of all investments in the plan on that date. The services of a pension appraiser normally would not be required to determine the value of this type of plan, unless a coverture fraction needs to be applied to the value or opposing council needs confirmation of the value.
Frequently Asked Questions About Defined Contribution Plans: Can the Alternate Payee be awarded a lump sum dollar amount? If it is the intent of the parties that the Alternate Payee receive benefits for his/her lifetime, is it always necessary for the Participant to elect a "Joint & Survivor" annuity? These questions and more are answered in this section.
The Basics of Domestic Relations Orders: A DOMESTIC RELATIONS ORDER (DRO) or a QUALIFIED DOMESTIC RELATIONS ORDER (QDRO). This is a court order which instructs a pension plan to pay an Alternate Payee (or former spouse) a portion of retirement benefits accrued by a Participant due to an equitable distribution agreement in a divorce.