Richard Tate

Yes it would raise the value of the business

Loserson- Thank you very much for your input and your answers on the QDRO..your answers very much align with my thinking. The divorce is not finalized but both parties are close to settlement. This "overfunding" issue is one of the final pending issues that is in dispute....obviously both sides would like to avoid costly litgation The major problem is that this is such a niche issue, there really isn't much legal precedent on it. Logically, the overfunding has value to it (how much debatable of course, I like your idea of "most valuable possible use") but since really there is scant legal precedent for splitting the value of overfunding in a divorce, Husband is staying very firm on refusing to give the wife anything...that's why I asked if anybody knew of any legal cases or precedent regarding it. I guess to win this argument in court or in settlement negotiations, one would need to bring in an expert witness, either a valuation expert, or actuary to actually give expert testimony and/or assign a numerical value to the Overfunding as accretive to the value of the company (or to the Husband). Would you (or anyone else) know of any actuaries or experts that might be able to put together a specific valuation of the overfunded portion of pension assets that would be acceptable to a court?

David, If the situation was cooperative, then yes, making the wife a participant in the plan would be an excellent way to soak up the overfunding. However, wife is divorcing husband, so this is an adversarial situation where husband is trying to avoid giving wife as much as possible. He is soaking up a significant portion of the overfunding by having the pension plan buy term life insurance policies for himself and employee plan participants. Wife has requested that he make her (or her heirs) 1/2 beneficiary of death benefits of his policy, which of course he has refused. Bottom line is the pension plan has significant overfunding, that overfunding has some value to it and I am trying to think creatively to see how wife can capture any of that value in the context of divorce proceedings. Another poster suggested that there is a value to the overfunding and ultimately that value is part of the company valuation. The tricky part is A) how to come to a value that is presentable to a court of law and 2) how to transfer that value to the wife -Rich

Moderator - My multi-part story/question got deleted from the forum, I guess because I posted it in 3 different forums as it has multiple topics to it....I will keep this question limited to the QDRO issue, so hopefully you can keep this post active in this forum Situation - Pending Divorce, and QDRO has not been filed yet. Husband owns 100 percent of company with 4 employees in pension plan. Husband (age 70) owns about 90 percent of pension plan's total vested benefits. Employee #2 has about 10% of vested benefits. Employee 3&4's shares are nominal. A dollar amount about equal to Husband vested benefits is owned by the pension plan that is not applied towards anyone's share, which is the "overfunding" (this number is substantial, in the 7 figures). Question - Does anyone know if any portion of this "overfunding", whether in cash or pension plan assets can be transferred to the wife via her QDRO? Can it be done either voluntarily by the Pension Plan trustee or by court order? Any help or thoughts are much appreciated -Rich

CuseFan, Thanks for the reply. The QDRO has not been filed yet, but life insurance can't be bought for Mother as she is not an official employee...really the only way she could benefit from the life insurance is if she was made a 1/2 beneficiary of the policy that is being bought for Father....which he refuses to do. Term life insurance is generally not considered a marital asset so I don't think the judge could force Father to name Mother half beneficiary. Legally speaking, like you said the "value" lies in the overfunding, which could be assigned a number when dividing the estate. Do you have any suggestions of methods and manners to come to that value number? I would say floor is 10 cents on the dollar (reversion to company after excise/income tax) and ceiling is 60 cents on the dollar (what the company would net if it sold the overfunded pension as part of a company sale to another company, assuming maybe a 20 cents discount on the pension assets and a 20 cents capital gains tax)...The real value lies somewhere in between...do you (or anyone) know of any case law or instances where overfunding has been valued in a legal setting? Would I be able to hire an Actuary to value that overfunding? Tymesup, In a cooperative situation, the plan could be amended to officially hire the Mother, Unfortunately this is an adversarial situation where the Father is trying to avoid paying Mother anything, so any solution would need to past legal muster as being enforceable by a judge to compel Father to do so.....or at the very minimum Father needs to think a judge could force him to do so, so he settles. I don't think a judge could force him to hire Mother.

Here’s the situation, and I apologize for the length and if I am not getting all the terminology correct as I am not a professional. Mother and Father (from now referred to as M & F) are nearing end of divorce that started years ago. For reasons I’d rather not get into on this forum, I’m helping M. F, age 70, is 100 percent owner of company (4 plan participants including himself) with a defined benefit pension plan that is significantly overfunded. He has the vast majority of pension vested benefits. His vested benefits are 10 times that of employee #2 (longtime 30 year employee), employee #3 (family member), employee #4 (new employee). Despite M working for free for years for the company, she was never an official employee that had any interest in the pension plan. The pension overfunding is so large that it almost equals the amount of F’s current vested benefits. To soak up overfunding, F shifted a couple hundred thousand dollars into employee #3’s plan , which didn’t make much of a dent in overfunding, and since he is only 30 years old, maxed him out on his future expected benefits. F is trying to soak up the rest of the overfunding by having the plan buy term life insurance for employees, and pay the yearly premium. The plan has more than enough overfunding to pay the upfront premiums and pay the yearly premiums for the 30 year duration of the policies. As per law, the death benefit on the policy can be 100 times the monthly salary of the plan participant…so figure that as long as F doesn’t live till 100, his designated beneficiaries get a hefty life insurance payout. If he lives till 100, all the premiums went down the toilet, but hey he won anyways, he lived till 100! As part of divorce settlement, F has agreed to give M half of his vested benefits of pension plan in a QDRO. However there is significant value in the overfunding that F is extracting via life insurance purchases for his choice of beneficiary, and possibly other ways to monetize overfunding in future (such as selling the company or a part of it, and the overfunding)… at bare minimum, overfunding reverts to company at 10 cents on the dollar after excise/income tax. F refuses to make M or her choice of heirs a ½ beneficiary of this life insurance he is purchasing, and refuses to compensate M not even 1 dollar for the value of the overfunding. M is upset because it was through F’s own foolishness that he built up overfunding with their money and effort over the years and now he is getting value out of it and he is refusing to give her anything. Questions are as follows 1) Is there a way to transfer any portion of this Overfunding into M’s QDRO, whether through cash or pension assets? If so what are the legal ways to do it? 2) Can a judge order the pension plan trustee to transfer Overfunding cash or assets into a Wife’s QDRO? 3) Does anyone know of any instances in which Overfunding has been valued in a courtroom setting, and more specifically in marital law? For instance, at the very minimum that overfunding is worth 10 cents on the dollar if all the money reverts to the company and excise/income tax is paid…but F is purchasing life insurance with the overfunding to avoid the excise tax., and there is an expected value to that death benefit his choice of beneficiary is receiving. There also other creative options for monetizing overfunding. .Does anyone have any experience with convincing a judge or negotiating a settlement based on pegging a value to an employee’s interest in his pension plan’s overfunding? 4) Any other suggestions that would help M get value from pension overfunding that F is getting benefits from and may monetize in the future, but refuses to share with M? I have talked to a lawyer in pension funding, who has helped me get this far, but as you can see this is a very niche issue and any fresh perspectives or experience would be much appreciated. Thank you! -Rich