DIVIDING THE PENSION PLAN
by Aaron Dishon, Esq.
In many cases the parties pension plan, 401(k), 403(b) or other retirement plan is one of the largest assets in the divorce, following the family residence.
While taking an early distribution from such a plan would most likely trigger a serious tax penalty, federal law allows spouses to divide such plans without incurring any tax liability.
Under the Employee Retirement Income Security Act of 1974 (ERISA) a Qualified Domestic Relations Order "QDRO" may be ordered by a state court that will divide an ERISA-qualified employee benefit plan pension plan between two parties. A QDRO essentially directs the plan to pay certain benefits to the other party.
A QDRO or DRO must contain certain general information about the two parties, such as their addresses, social security numbers, dates of birth, as well as, specific information that would be set forth in the guidelines of the plan to which the order applies. A QDRO or DRO cannot instruct a pension plan to disburse benefits to an alternate payee or give an alternate payee any rights or privileges that are not set forth in their guidelines.
It is also possible to evaluate the current value of a pension plan and allocate that plan to one party while allocating additional offsetting assets to the other party.
Its easy to determine the value of a defined-contribution plan such as a 401 (k) plan since the plan has a given value on any certain date based upon the value of the underlying funds or investments on the stock market.
However, where a party holds a defined-benefit plan where a certain dollar amount is paid after retirement until time of death, the parties should seek the assistance of an actuarial expert in valuing the present value of the plan.
Its surpassingly easy to obtain an actuarial report that bases the present value of the plan on such factors such as expected life expectancy and expected rate of return.
Obtaining such an evaluation is the only way to ascertain the present value of a defined-benefit pension plan.
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