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COLA & Other Benefit Enhancements


Guest kji

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The PA was presented a separate interest DRO that provided the AP a pro-rata interest in any COLA, early retirement subsidy, or other future benefit enhancement. The plan in question does not provide for a COLA or early retirement subsidy. The PA has told the AP that the DRO can not be qualified because the DRO seeks to provide the AP benefits that are not otherwise provided for under the plan. The AP has objected and stated that if the COLA or early retirement subsidy is never paid, then the matter is moot, but that the provision in the DRO protects the AP in the future should the plan be amended to provide for such benefit enhancements.

The PA has an addtional concern - if the AP commences before the participant, wouldn't the AP's benefit need to be re-calculated? This seems to provide the AP another bite at the apple? Before any one responds, this is not a California DRO (so I don't believe the PA has to worry about the Marriage of Lehman). So, who is correct on this one - the PA or the AP?

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Interesting.

Isn't the point of a separate interest DRO to provide that the AP rides the coattails of the participant and receives a share of the ultimate benefit? Why would an increase in benefits pursuant to compensation not yet paid (clearly contemplated) be any different from an increase in benefits pursuant to an amendment to the plan not yet contemplated?

I think the PA is misreading 414p. The AP isn't asking for a share of benefits that are not provided (such as demanding a subsidy that exists but this participant doesn't have a right to), but is asking for a share of benefits as they may be constituted.

I side with the AP.

If I were a judge and asked to rule on this I would not be kind to the PA.

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I think I will retract my statement about not being kind to the PA. In retrospect, I think it is closer than such a reaction would be reasonable for. But I still think the balance tips to the AP.

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I think I will retract my statement about not being kind to the PA. In retrospect, I think it is closer than such a reaction would be reasonable for. But I still think the balance tips to the AP.
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I think I will retract my statement about not being kind to the PA. In retrospect, I think it is closer than such a reaction would be reasonable for. But I still think the balance tips to the AP.

I assume from your responses that you'd have the PA re-calculate the AP's benefit if the AP was already in benefit status when the benefit enhancement became later available (without allowing the AP to change the previously elected form of payment)? Thanks for the feedback!

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As long as the DRO was clear as to how to handle the calculations (a daunting task, I might add), yes, the additional benefit can be divided once it is accrued.

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I agree that it would be a daunting task to describe in detail in the order how to compute a cola or subsidy, but I do not think it would be difficult for the plan to provide a reasonable calculation based on a general description once the terms of the COLA or subsidy are known. Generally, the AP's interest will get its actuarial equivalent proportional share, applied to the form of benefit.

It can be tricky if the enhancement applies only to or for benefits accrued after a specified date. Depending on how the division of benefits is framed, the AP's interest may not be eligible at all, or may be limited, under the terms of the enhancement because the interest that was divided was all or partlyaccrued before the specified date. Application to so called "marital portion" divisions could be especially controversial.

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I think the PA may need to get further clarification from the parties. Eventhough the plan in question doesn't currently provide for a COLA or early retirement subsidies, it seems that more and more DROs are being drafted to capture the future possiblity of such enhanced benefits being made available by subsequent plan amendment.

This was my first time in this forum - thanks again.

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