If you have a case where your client or the opposing party is applying for retirement during a pending divorce, watch out. Retirement is a significant time where the form of benefits elected under a pension plan (both for lifetime benefits and survivor benefits) are irrevocably set.
If your client is the participant who wants to retire, you want to protect them from allegations that he or she violated ATROS by retiring and interfering with the options of the former spouse by retirement.
If your client is the non-employee spouse, you want to make sure that their claims to benefits, choice of form of benefit, and survivor benefits are protected.
First issue: form of benefit in defined benefit plans
Most ERISA defined benefit plans and government plans (which pay a monthly benefit over the participant’s lifetime) allow for the division of this type of benefit into two separate accounts — one for the participant and one for the non-employee spouse — so that each party can receive benefits over their respective lifetime and at a time of their choosing within the rules of the plan. This avoids the need for purchasing a survivor benefit because the benefits are automatically paid over each parties’ lifetime. Parties also like this approach because of the flexibility of the start date. Non-employee spouses can start benefits when they are eligible regardless of whether their ex-spouse has commenced benefits. The participant in turn does not need to worry about a Gillmoreelection because his or her former spouse can commence benefits even if the participant continues to work. A separate interest approach is almost always the most favorable approach with some exceptions for CalPERS and CalSTRS. However, the separate interest approach is only available if the participant has not retired yet.Whether knowingly or unknowingly, the retirement of a participant can eliminate the possibility of the parties to use the separate interest approach. Therefore, to protect both parties, the retirement benefits should be addressed before a party retires and commences benefits in a pension plan pending divorce or before the final QDROs are prepared.
Second issue: irrevocably eliminating the survivor benefit
Not only does retirement from a pension plan fix the form of benefit, it also fixes the election of the survivor benefits. For ERISA plans, the election of a survivor benefit (whether in favor of the former spouse or not in favor) is irrevocably set. (Carmona v. Carmona 603 F.3d 1041 (2010).) For government plans, the survivor benefit election is equally as important. An election should be made which provides for a survivor benefit payable to the former spouse when he or she is no longer a spouse (i.e. not a spouse-only survivor benefit), consistent with Family Code section 2610. Many parties mistakenly elect a spouse survivor benefit only to find out this benefit disappears upon divorce because the parties are no longer married.
In conclusion, if a either party is going to retire, family law attorneys beware, this is a red flag for issues pertaining to the form of lifetime benefits and the election of survivor benefits.