Judith Deer, Esq. delivered a spirited talk to 15 members of the Collaborative Divorce Association of North Jersey at its recent brown-bag lunch on April 3, 2019. The presentation included all aspects of division of retirement plans as part of the divorce process. Ms. Deer is the president of All-Pro QDRO, an organization dedicated to assisting law firms in negotiating and drafting a Qualified Domestic Relations Order (“QDRO”).
Various types of retirement plans were reviewed. Ms Deer discussed in detail the difference between Defined Contribution Plans (such as a 401(k) or savings plans) and Defined
Benefit Plans (such as traditional pension plans). The various mechanisms of division of Defined Benefit Plans were addressed including the martial coverture approach (Marx Formula) and the immediate offset approach.
A most informative part of the talk included division of a 401(k) pre-judgment, without any early withdrawal penalty. By the use of a QDRO, qualified payees which are limited to a spouse, former spouse or a dependent can utilize a QDRO pre-judgment for certain purposes including payment of legal fees. In these instances the alternate payee satisfies any taxes which might be due.
Ms. Deer reviewed the four things which should be included in the Property Settlement Agreement, to then be incorporated into the QDRO. These include the following:
- 1.Qualified Pre-Retirement Survivor Annuity so the alternate payee receives the funds even if the participant dies before the plan goes into effect.
- 2. Marx Formula (martial coverture fraction).
- 3. Cost of living increases.
- 4. Early retirement subsidy.
Ms. Deer pointed out that if these items are negotiated between the parties, which unfortunately is often not the case, it can avoid problems later on when preparing the QDRO. If the early retirement subsidy, for example, is not included in the Property Settlement Agreement, it can result in litigation at a later point.
Ms. Deer also discussed New Jersey state plans as opposed to Federal plans; public plans as opposed to private plans; and provided a general overview of TIAA-CREF. The mechanism by which various plans set up separate interest accounts for the alternate payee was also reviewed. Ms. Deer pointed out that once an election has been made for the creation of the separate interest account, such elections are irrevocable.
We were also treated to a discussion of the unique Police Fire Retirement Pension which is the only plan in New Jersey that does not allow for survivor benefits. Ms. Deer recommended that if a PFRS plan is involved, the best approach is to value the pension so that the alternate payee can be bought out or if necessary life insurance can be purchased to avoid the problem of the participant dying before the alternate payee.
Judy had an audience which was quite interested in the presentation. She endured questions which went on well past the usual ending time. An enjoyable and educational experience was had by all.
By: Daniel Hoberman, Esq.