Pensions

What is a DRO?

1 any judgment, decree of order 2. relating to the provisions of child support, alimony or marital property rights of 3. a spouse, former spouse, child or other dependent 4. of a participant 5. made pursuant to state domestic relations laws

What is a QDRO

1. A DRO 2. that creates or recognizes an alternate payee's rights 3. to receive all or a portion of the benefits 4. payable to the participant 5. under the plan

Definition of "Domestic Relations Order

1. A judgment, order or decree 2. that relates to the provisions of child support, alimony or marital property rights of 3. a spouse, child or other dependent 4. of a plan participant 5. made pursuant to state domestic relations laws

What are social security benefits?

1. Are a form of social insurance. 2. Exempt from equitable distribution by fed law. 3. If a portion of a party's pension is in lieu of SS, then that portion is exempt from division 4. A court should consider a party's anticipated receipt of SS benefits in equitable distribution esp. when the other party is not going to receive any. 5. However, if neither of them are going to receive SS, then an adjustment to the pension benefits is not appropriate. 6. A spouse is entitled to the "Spouse's Social Security Benefit" a. up to 50% of the worker's retirement benefit b. provided that the divorced spouse is age 62 or older c. the marriage lasted at least 10 years d. the parties have been divorced for at least 2 years e. divorced spouse can receive this amount even if the worker remarries f. a subsequent spouse of a worker may also qualify for these same benefits

What are the characteristics of military retirement benefits?

1. Up to 50% of disposable retired pay can be paid to a former military spouse provided the parties were married for at least 10 years. 2. the Uniformed Services Former Spouses' Protection Act does not afford complete protection to a non-military spouse b/c military retirement pay that has been waived to receive veterans' disability payments is exempt from distribution as marital property b/c it is compensation for lost wages and is therefore not property to be divided. 3. Military retirees can unilaterally exclude a portion of their retirement benefits from the marital estate by simply converting to disability payments. 4. The Survivor Benefit Plan permits a retiree to provide an annuity to a former spouse. The election must be made in writing, be either the retiree or the former spouse, within one year of the divorce decree.

What is a QDRO?

1. a DRO 2. that creates, recognizes or assigns to an AP 3. the right to receive all or a portion of the participant's pension plan benefits 4. when the plan is an ERISA plan 5. and a qualified plan under the Internal Revenue Code 6. ambiguities resolved under state law; interpretation is by the plan 7. a divorce action need not be involved as long as entered in accordance with state "domestic relations law."

Define "plan administrator:"

1. an individual, committee or business entity 2. responsible for deeming a DRO to be qualified 3. If plan documents do not designate an PA, then it is the employer 4. PA's interpretation of the order is entitled to deference by the court

Define "participant":

1. any current or former employee 2. who is or may become 3. eligible to receive benefits 4. under the plan

To be qualified, the DRO...

1. cannot alter the amount or form of the plan benefits and 2. must contain certain required information.

Actual receipt of pension benefits that have not matured and are not in pay status is contingent upon what 2 things?

1. continued employment of the participant 2. whether the participant lives to retirement age

How is the value of a defined contribution plan determined?

1. easy to value b/c each 'ee has an account 2. the value is the total 'er and 'ee contributions + earnings 3. court can award a fixed percentage or $ amount 4. no need for a present value calculation b/c the value is the current balance

What are the two ways to distribute a DBP and when do you use them?

1. immediate offset -sometimes preferable b/c it ends the relationship b/t the parties -can be used when there are sufficient assets to do an offset -reduced to present value (estimate of current worth of future pymts) 2. deferred distribution -preferred method b/c no need to establish PV and the risk of non-receipt of benefits is distributed to both parties -use when there are insufficient assets for an offset

How do you value the marital portion of the a defined benefit plan?

1. marital portion determined by application of a coverture fraction denominator is total number of months of earned service and numerator is the total number of months of marriage during pension-credited years 2. valuation is complex 3. actuaries have developed a number of methods for determining present value, but they are not scientifically precise and are estimates based on probabilities

What are 4 uses for a QDRO?

1. marital property division 2. collect child support, spousal support or other dependent support 3. collect alimony on behalf of a former spouse 4. enforce property settlement agreement

Defined "Defined Benefit Plan"

1. premised upon a guarantee by the employer 2. that the employee will, 3. at retirement, 4. receive a specific benefit 5. determined in advance 6. by a pre-established formula, 7. usually payable on a monthly basis. 8. employer's contributions actuarially determined 9. on the basis of the benefits expected to be payable

To be "qualified" what are the 5 things a DRO cannot do:

1. require the plan to provide any type or form of benefit not otherwise provided for/permitted in the plan 2. require the plan to provide increased benefits to the AP determined on the basis of actuarial value 3. require the payment of benefits to an AP that are to be paid to another AP under another order previously determined to be a QDRO 4. give the AP greater rights than the P, but the AP can choose options the P does not (example: if the plan provided for lump sum or annuitized payments, the AP can choose lump sum even if P chooses annuity) 5. give the AP the right to select the survivor annuitant option with a subsequent spouse

Define "alternate payee":

1. spouse, former spouse, child or other dependent of a participant 2. who is recognized by the DRO 3. as having a right to receive all or a portion of 4. the participant's benefits 5. a beneficiary of a QDRO is the AP

What are the tax consequences for distributions from a pension plan pursuant to a QDRO when it is used to pay a former spouse his/her portion of the pension benefits?

1. taxable income to the AP 2. can be rolled over, tax free, to an IRA 3. Plan must withhold 20% for taxes unless directly rolled into another qualified plan or IRA account. 4. There is no 10% premature distribution penalty that typically applies to distributions before age 59 ½ as long as the distribution is per a QDRO. 5. Excess distributions over $150,000 in a single year are subject to an additional 15% excise tax

What are the characteristics of a survivor annuitant?

1. the AP can be designated the survivor annuitant even if the parties are no longer married, provided they were married for at least a year 2. if a former spouse is designated the surviving spouse in the QDRO for either the QJSA or the QPSA, a subsequent spouse a subsequent actual spouse may not be treated as the surviving spouse for that purpose

To be a qualified DRO, what must it set out?

1. the name and last known address of the Participant 2. the name and last known address of the AP 3. Amount or percentage of the participant's benefits to be paid to AP OR the manner in which the amount is to be calculated 4. the number of payments or periods to which the order applies 5. identity (name) of each plan 6. should have the court retain jurisdiction for modifications or in the event of a problem, such as a disqualification of the plan, but this is not a requirement.

What are the duties of a Plan Administrator after receiving a DRO?

1. the plan admin must give each person specified in the order prompt notice of the receipt of the DRO and of the procedures of the plan for determining if the order is "qualified" 2. during the waiting period while the PA is determining if the DRO is "qualified" the benefits which would have been payable to the AP must be separately accounted for 3. the PA may not pay benefits contrary to the provisions of the proposed QDRO during the 18 month period that commences with the date on which the first payment would be required under the proposed order. 4. If the DRO is "qualified," the PA must pay separately accounted for funds, called "segregated amounts" to the AP. 5. If the DRO is not "qualified" the AP can distribute to the P as though there was no Order.

What is a vesting schedule?

A typically incremental schedule of vesting with the plan being fully vested at the end of a fixed # of years; typically 3 or 6 years/20%

What is the mechanism for an an allocation from a pension plan to an alternate payee?

An allocation of benefits happens by the use of a QDRO

Can you determine when the maturity date will be?

Cannot determine maturity date in advance because you do not know when the employee is going to retire because an employee could be offered accelerated or deferred retirement and this effects the amount of payment to be received.

In a defined benefit plan are there separate accounts for each employee?

No

In a defined benefit plan, are funds segregated for a particular employee?

No

In a defined benefit plan, does the employee have a specific percentage of the whole plan?

No

What is a survivor option?

Participant to takes less during his lifetime to ensure that payments will continue to his beneficiary/surviving spouse after the participant's death.

How is a defined contribution plan funded?

The contributions by the employee and employer

What does it mean that the pension has "matured"?

The employee is eligible to receive payments, generally at retirement age.

What happens to the funds in a defined contribution plan at retirement?

The participant can withdraw the entire amount in accordance with the plan

ERISA requires, as a condition of plan qualification, the inclusion of spendthrift provision that prevents the assignment or alienation of pension benefits. True/False

True

What is the definition of "vested"?

When an employee has an absolute unforfeitable right to receive payment at retirement even if the employee terminates employment prior to normal retirement age.

When do you use a "coverture fraction?"

When an employee's post-termination years of service, but not separate contributions, determine the retirement benefit because post-termination separate contributions are not marital property and may not be included in the marital value. You can include increases to the basic amount that are not a result of the employee's separate contributions like employer funded early retirement inducements and increases due to post-separation years of service.

Are the funds segregated by employee in a defined contribution plan?

Yes

Is there a minimum requirement of time on the job before an employee is eligible to participate in a pension plan, whether it be defined contribution or defined benefit?

Yes, it is determined by the plan.

How long are the payments of a defined benefit plan to be made?

the life of the participant

Do you consider interest and inflation in valuing a defined benefit plan?

using an inflation factor is appropriate only if the plan makes provisions for inflation