Everyone knows the famous Gloria Gaynor song “I Will Survive” and if you, like me, took Evidence with the then-Professor Jack Sabatino now the Judge of the Appellate Division, you learned all of the Hearsay exceptions to the theme of “I Will Survive”, but what does the mean in terms of your pension?
Pensions are a dying breed of retirement accounts. It used to be that employers offered their employees a pension plan as a benefit of their employment and upon their retirement, they got a gold watch and a right to collect their pension. Now, very few employers still offer pension plans, but a still few do, including the State of New Jersey. New Jersey offers the Public Employees Retirement System (PERS), Teachers’ Pension And Annuity Fund (TPAF), State Police Retirement System (SPRS) And Police And Firemen’s Retirement System (PFRS) just by way of example.
These pensions are extremely valuable and can be worth up to several hundred thousand dollars, it not more. They are oftentimes the single biggest asset in a divorce, often worth more than the home in which the parties reside. Therefore, it is extremely important that pensions be treated with the care which they mandate.
There are two ways to divide a pension: a shared interest approach and a separate interest approach. A separate interest means that the interests of the Plan Participant and Alternate Payee (the spouse of the Plan Participant) are separated and the Alternate Payee’s right to a share of the pension is independent from that of the Plan Participant. The Alternate Payee’s interest is determined based upon their life expectancy, as opposed to that of the Plan Participant and is paid out as a lifetime benefit to the Alternate Payee. The death of the Plan Participant after the Alternate Payee’s benefit commencement date should not affect the Alternate Payee’s rights to continued benefits. There is no need negotiate post-retirement joint & survivor protection in the QDRO for the benefit of the Alternate Payee because the Alternate Payee is already guaranteed a lifetime of actuarially adjusted benefits (once they commence).However, there is still a need to protect the pre-commencement benefits in the event the Plan Participant dies before the Alternate Payee can claim their interest.
New Jersey does not recognize the separate interest approach to distributing state pensions. This, consequently, requires the use of a shared interest approach. A shared interest approach provides that the interest of the Alternate Payee is tied to that of the Plan Participant. The Plan Participant will receive their pension benefits until they die. Unless the Alternate Payee secures that interest, when the Plan Participant dies, the pension benefits will end. If the Alternate Payee lives longer than the Plan Participant and they haven’t secured their interest, they have just lost out on what could have been a significant benefit. For example, let’s say the Plan Participant’s monthly pension benefit was $4,000 per month and the entirety of it was acquired during the marriage, making the Alternate Payee’s benefit $2,000 per month and the Plan Participant died after 3 years, but the Alternate Payee is expected to live another 20 years. 20 years at $2,000 per month is $480,000 to which the Alternate Payee just lost their right.
There are two ways to secure the Alternate Payee so that this does not happen: life insurance to secure the value of the Alternate Payee’s interest in the pension in the event of the Plan Participant’s death and the election of survivorship interests. Survivorship interests are generally an option through the Pension Plan, but 1) must be negotiated within the terms of any divorce matter and 2) must be elected by the Plan Participant when it comes time to retire. If they are not specifically negotiated in the divorce agreement, or sought and granted by the Court at the time of any divorce trial, they cannot be later imposed unless the parties so mutually agree. The Order necessary to effectuate the distribution of retirement funds- a Qualified Domestic Relations Order (QDRO)- only mirrors the underlying terms of the Final Judgment of Divorce, either as a result of a Property Settlement Agreement or judicial determination. The QDRO cannot include any additional terms that do not already existing in the underlying, generating agreement from which the QDRO stems. Therefore, it is essential that if you are the Alternate Payee you expressly negotiate survivorship interests in your divorce action. Coming back to add them later on if/when you remember them is too late if the Plan Participant is unwilling to agree.
The second hurdle is making sure that even if you do specifically negotiate and agree on survivorship interests at the time of the divorce, that the Plan Participant actually elects them at the time of retirement. Once the election is made, it cannot be changed so if the Plan Participant doesn’t elect the Alternate Payee, it cannot be undone and the interest will again be unsecured unless there is a provision for back-up life insurance specifically to protect the Alternate Payee’s interest in the pension in the event the Plan Participant doesn’t make the correct election.
Pensions are no laughing matter. As Gloria Gaynor sings: “Did you think I’d crumple? Did you think I’d lay down and die? Oh no, not I. I will survive.” Just make sure you’ve got your pension survivorship benefits protection in place in your divorce and you WILL survive.
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