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Integrated Pension Plan and Divorce


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The husband is a Participant in a Plan that will reduce his pension annuity benefits when he begins to draw Social Security benefits, that is, it is an "integrated" plan.  The parties have agreed that the wife will receive 50% of the marital portion of his retirement benefits (and are agreeable to either a shared interest allocation or a separate interest allocation). 

The question is whether or not it's possible to somehow freeze the wife's share of the husband's pension annuity so that her share will not be reduced when the Social Security causes the reduction in the husband's pension benefits.  As you may know, Social Security benefits are not considered to be "marital property", so if I cannot fix the problem her share of his benefits will decrease, and his benefits will increase, by an amount of his Social Security benefits not paid to his wife.  It is too late to consider workarounds like paying alimony equal to the wife's net loss. 

I have prepared QDROs for 33 years and never seen this addressed in any QDRO packages prepared by any Plan Administrator, or any any of the QDRO treatises I have on my desk.  

Thanks for your thoughts.

David    

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It seems like it should be possible, as long as you know the dollar amount of the husband's accrued benefit (AB) and social security (SS). I am speaking about this from a purely theoretical standpoint as I have never actually encountered this situation.

I think you could do it either as separate interest or shared payment. Set it up so that the husband's benefit (before the social security supplement) is equal to (AB - SS) / 2, and the wife's is (AB + SS) / 2.

Putting some numbers on it, let's say the AB is $5,000 and the SS payment is $1,500. Without the QDRO, payments would be $6,500 prior to SSRA and $5,000 after SSRA.

With the QDRO, payments to the husband will be (5000 - 1500)/2 + 1500(for the SS supplement) = 3250 prior to SSRA and 1750 after SSRA. Payments to the wife will be (5000 + 1500)/2 = 3250 both before and after the husband's SSRA.

 

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C.B. Zeller is right, but, the Participant's retirement is far off in the future and we cannot predict how much his retirement will be.  And I don't know if any Plan Administrator will allow a two stage formula, one before the SS offset kicks in and one afterwards.  The separate interest seems like a better option if the Alternate Payee's commencement date starts before the Participant starts his commencement date and before the SS offset kicks in, but, as noted, I have never seen that be addressed. 

I suppose the QDRO could say that the Alternate Payee's benefit reduction when the SS benefit kicks in will be limited to 50% of the SS benefit reduction,  but that would be tantamount to a dollar for dollar offset for SS benefits that most states hold to be non-marital property and not subject to division in divorce (although it can be "considered" whatever that means - they never say). 

I have no idea if a Plan Administrator would be willing to implement the foregoing.   Let me lay it out - using a shared allocation.  

"The Alternate Payee is hereby awarded 50% of the "marital share" of the Participant's benefits whereby the "marital share" is equal to a fraction, the numerator of which is the number of months during the marriage that the Participant accrued creditable service toward retirement, and the denominator of which is the number of months of creditable service accrued by the Participant at the time of his commencement of benefits; provided, however, that any reduction of benefits received by the Participant by reason of his receipt of Social Security benefits shall not result in a reduction of benefits payable to the Alternate Payee greater than 50% of the gross amount of such Social Security benefit reduction." 

Note that this complies with IRC 414(p)(2)(B) requiring that a DRO must specify - "the amount or percentage of the participant’s benefits to be paid by the plan to each such alternate payee, or the manner in which such amount or percentage is to be determined,"

What do you think?  Any Plan Administrators out there buying that?  

David        

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