DEFINED BENEFIT PLANS
What is it?
A defined benefit plan is a retirement plan that qualifies under ERISA and the Internal Revenue Code.
A defined benefit plan, as opposed to a defined contribution plan, provides a specific monthly benefit to a Participant at the Participant’s projected date of retirement (usually age 65) which continues for the Participant’s lifetime.
Benefits are based on a formula composed of Participant’s years of service and final average of compensation.
What Do I Do With It?
After the parties or the court determines a just and right division of the retirement benefits, the benefits are assigned to each party pursuant to a qualified domestic relations order (QDRO).
What information do I need to prepare the QDRO?
1. Name, address and phone number of plan administrator
2. Position(s) Participant held during entire employment and the dates of each position
3. Date(s) of employment
4. Participant’s employee I.D. number
5. Date of Participant’s termination of employment
6. Beginning date of participation in the plan
7. Date of termination of participation in the plan
8. If the employee is receiving benefits
i. The monthly amount paid
ii. Whether or not a Qualified Joint and Survivor Annuity (QJSA) is available to the alternate payee spouse
9. If the employee is not currently receiving benefits, the earliest date the employee becomes eligible to receive benefits
10. The amount of vested benefits of the employee
11. Employment status of employee (hourly, salaried, active, laid-off, retired, or other)
Where do I get the information I need?
1. Summary plan description
2. Plan documents
3. Summary Annual Report
4. Statement of Accrued Benefits
5. Written procedures from plan for qualifying a domestic relations order thus making it a QDRO
How do I calculate it?
A spouse who is a participant in a defined benefit retirement plan has a separate property interest in the monthly accrued benefit the spouse had a right to receive on normal retirement age, as defined by the plan, as of the date of marriage, regardless of whether the benefit had vested.
Tex. Fam. Code §3.007(a).
The community property interest in a defined benefit plan shall be determined as if the spouse began to participate in the plan on the date of marriage and ended that participation on the date of dissolution or termination of the marriage, regardless of whether the benefit had vested.
Tex. Fam. Code §3.007(b).
Who gets paid?
Spouse, former spouse, child or other dependent of Participant for payment of child support, alimony payments or marital property rights
How does the spouse get paid?
ERISA generally prevents benefits of ERISA retirement plans from being assigned or alienated. However, a Qualified Domestic Relations Order (QDRO) is an exception to the anti-alienation provision. A QDRO is an order, judgment or decree that relates to child support, alimony or property rights of a spouse or former spouse, child or dependent of the Participant pursuant to state domestic relations law.
The QDRO must:
1. comply with 414(p) of the Internal Revenue Code and 206(d)(3) of ERISA
2. provide the following for Participant and Alternate Payee
- name
- address
- birth date
- social security number
3. contain the correct plan name (obtain from the plan administrator)
4. contain language that:
- the order is entered pursuant to the authority granted in the applicable domestic relations laws and the marital property laws of the State of Texas
- the purpose of the order (marital property rights, child support or spousal support)
- constructive trust for inadvertent payments to Participant instead of Alternate Payee
- the court retains jurisdiction to clarify the order
5. state the amount, percentage or formula of Participant’s benefits paid to Alternate Payee
6. state the manner of determining the amount, percentage or formula of Participant’s benefits paid to Alternate Payee
7. provide the number of payments or period for which payments are to be made (the period is often based on Participant’s or Alternate Payee’s lifetime)
8. address tax treatment for the distribution which will generally be Alternate Payee’s responsibility, except in the case of child support in which Participant bears the burden
9. state the effect of the plan’s termination on Alternate Payee’s rights
10. address the Alternate Payee’s survivorship rights
- Qualified Joint and Survivor Annuity – protects Alternate Payee’s interest if Participant dies while benefits are being paid
- Qualified Pre-Retirement Survivor Annuity - protects Alternate Payee’s interest if Participant dies prior to benefits being paid, but after benefits are vested (otherwise, Alternate Payee receives nothing if Participant dies prior to payment)
11. contain the Judge’s signature (parties’ signatures not required)
QDRO cannot require plan to:
1. provide any type or form of benefit or option not provided under the plan
2. provide increased benefits
3. pay benefits to an Alternate Payee that are payable to another Alternate Payee under a prior QDRO
Useful Tidbits:
1. A QDRO can be used to assign benefits for child support; such a QDRO need not be issued in a divorce proceeding.
2. If an alternate payee is a minor or is legally incompetent, the order can require payment to a person with legal responsibility for the Alternate Payee (a guardian, trustee, or party acting in loco parentis)
Finally:
Be certain to submit a certified copy of the QDRO to the plan administrator for division.
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