DB QDRO allocation

[Draper55]

i have been asked to weigh in on the following situation:

participant is in a contributory career average plan for 20 years(part A). the plan is then amended to a cash balance plan with the pay credits based on a combined age and service schedule. for the first five years of the cash balance plan the participant will accrue under the contributory career average formula if greater(transition benefit)(part B). the participant retires 8 years after the cash balance effective date with three years cash balance accumulation(part D).

the benefit is then described as A+B+D(pre cb plus transition plus cb). Note if first five years of cash balance is bigger it is called C. Participant marries five years before the cash balance effective date and divorces shortly after retirement. for simplicity the cutoff date is being deemed the retirement date. When participant went into receipt he was told what A,B, and D are. Counsel for alternative payee proposes marital portion to be (13/28*A) +B+C with spouse to get 50%. I think 13/28(A+B+C)is more fair and equitable. In any event counsel should use 5/20*A+B+C to even have the summation approach make sense. Any thoughts?

note:accrued benefit at date of marriage is not known.

[Lou S.]

i have been asked to weigh in on the following situation:

participant is in a contributory career average plan for 20 years(part A). the plan is then amended to a cash balance plan with the pay credits based on a combined age and service schedule. for the first five years of the cash balance plan the participant will accrue under the contributory career average formula if greater(transition benefit)(part B). the participant retires 8 years after the cash balance effective date with three years cash balance accumulation(part D).

the benefit is then described as A+B+D(pre cb plus transition plus cb). Note if first five years of cash balance is bigger it is called C. Participant marries five years before the cash balance effective date and divorces shortly after retirement. for simplicity the cutoff date is being deemed the retirement date. When participant went into receipt he was told what A,B, and D are. Counsel for alternative payee proposes marital portion to be (13/28*A) +B+C with spouse to get 50%. I think 13/28(A+B+C)is more fair and equitable. In any event counsel should use 5/20*A+B+C to even have the summation approach make sense. Any thoughts?

note:accrued benefit at date of marriage is not known.

I'm not sure fair and equitable come into play. It's what the 2 parties can agree upon and whether or not the DRO is a QDRO that can be administered by the plan.

[QDROphile]

A representative of a plan should not get involved in suggesting anything that involves the fairness or propriety of a division of the value of the benefit. The plan can comment on technical aspects, such as the division must address the A, B, and C components, but not how much of any component should be assigned to the alternate payee.

You stated that the participant "went into receipt" so I assume that he is receiving annuity payments and the exercise is directed at determining the amount of each payment that will be paid to the alternate payee instead. If anyone is concerned about value down to the decimal point, the form of benefit should be taken into account. If the alternate payee is the contingent annuitant under a J&S annuity form of benefit a 50 percent (of anything) share would not necessarily represent an "equal" division. But that is of no concern to the plan. The plan is agnostic.

[My 2 cents]

Fairness and equity, while presumably taken into account in establishing the division, are nowhere to be found in the requirements for a QDRO. QDROs giving 100% to the alternate payee can be acceptable. Equal divisions, while often used, are not automatic. This is not a matter of calculating what is and what is not community property (where the end results are based on portions earned during the marriage, distinguishing between what is separate property and what is not).

As noted in one of the posts above, it comes down to what the parties can agree to and whether it is structured in a way that can be administered and that violates none of the requirements for a proper QDRO (such as verifying that the order does not result in the plan having to pay a more valuable benefit).

[Draper55]

the benefit is in payment status..so this is a "discussion" over what the shared payment in the QDRO

will be. The Actuarial Standards Board statement talks about the allocation method but does not give any

blessing on using the time rule or otherwise. Lawyers seem to talk about bright line versus foundational

building in terms of whether the marital benefit is really earned over the entire career or just during the marriage.

Ultimately, as has been pointed out I guess it comes down to an agreement by the two parties.

[K2retire]

Keep in mind that determining what is marital property to be divided and what is the amount that will be awarded in a DRO are totally separate calculations. Even if all marital property is divided 50/50, one person may prefer to receive a house and let the other have the retirement account.

[My 2 cents]

Agreed - in a domestic relations order, "earned" while married is secondary in the allocation of the pension benefits. If necessary to properly provide for support of dependents, the entire pension could be in play, however much may have been earned prior to the marriage.

[Mike Preston]

draper1, "weigh in" is remarkably uninforming. The other responses all seem to assume you are advising the Plan in some respect. Is that the case? Or are you being asked by the participant's counsel to provide an opinion? Or, are you being asked by a neutral party such as a judge or arbitrator?

It matters.

You mention the standards so I assume you are an actuary. If you review them in detail you will find that in order to be qualified to practice in this area as an advisor one must be familiar with jurisdictional law. Your lawyers can argue until they are blue in the face about whether something is earned over this period or that, but if your state law is clear on the issue you are bound by the standards to both know and to communicate what you know.

In California, for example, the landmark case is in re: Brown. Brown and its successors make it clear that a defined benefit's "benefit" is attributable to a participant's entire work history and no discrete period of employment is given greater weight than another. Unless an attorney is intending to make law by arguing that established legal precedent should not be applied they are usually asking somebody to "weigh in" by applying existing precedent.

[Draper55]

i am retained in this case by the plan participant..my understanding is that everything else has

already been "equitably" distributed. so there is no offsetting against other assets at this point. As far as jurisdiction goes my research and that of the participant's general divorce consultant is that there is no on point precedent in this case. However, neither of us are lawyers so we cannot give legal opinions. What alternate payee's counsel has proposed would go against the California Brown decision referred to in MIke's post but this is not a California case.

That being said, I am being asked, in a sense, if I think a defined benefit pension plan is earned over a participant's work history..In this case, the cash balance grandfather/transition benefit/formula is identical to the pre cash balance conversion benefit/formula, yet alternate payee counsel is applying a different weighting to these pieces which does not make sense to me..

[Mike Preston]

The thing that jumps out at me is that the participant retaining your services has a divorce consultant and you, but no counsel while the alternate payee has counsel. That needs to be addressed.