Retirement Plans and Divorce: Five Things to Discuss with your Attorney

A divorce is a time of division in every sense of the word. The parties and their attorneys spend considerable time negotiating and drafting agreements which divide time with their children, divide their income, and divide their assets and debts.  With all the attention spent on dividing things in divorce proceedings, it never ceases to amaze us at Las Vegas QDRO as to how little time is spent dividing the parties’ retirement.  Divorce decrees will go on for paragraphs about how the parties will divide their homes and home furnishings but spend only a couple of sentences dividing the parties’ pensions and retirement accounts which (unbeknownst to the parties) are often the most valuable asset of their marriage.

          If you are in the midst of a divorce, we at Las Vegas QDRO would like to provide you with at least 6 “always” and “nevers” to discuss with your divorce lawyer before your case is settled or taken to trial. 

          1.       Never use the “time rule” to divide a defined contribution plan. It is important to know that the so-called “time rule” promulgated in various appellate courts in the United States, including Nevada, do not apply to defined contribution plans such as 401(k), 403(b), and other such individual retirement plans with a  readily identifiable account value.  If you attempt to divide such plans in accordance with the time rule you invite dangerous ambiguity in the property division and could create an unintentional windfall in favor of one party over the other. For this reason, the community and separate property interests in defined contribution plans should be clearly established in the settlement.  The decree or marital settlement agreement should divide the account by way of  specified dollar amount or percentage.   

          2.       Always address loans when dividing a defined contribution plan.  Many defined contribution plans allow for the participant to take loans against the account balance.  The plan administrator views these loans as an asset and includes them in the total account balance.  For example, if a 401(k) account contains $80,000 in stocks and bonds and also has an outstanding loan balance of $20,000, the plan administrator would view the account as having a total balance of $100,000.  If in this example, the divorce decree merely provides the alternate payee 50% of the 401(k) account balance, the plan administrator might interpret such language as providing $50,000 (i.e. 50% of $100,000) to the alternate payee.  This interpretation would leave the plan participant with $30,000 in stocks and bonds and a $20,000 loan to repay.  In most circumstances, the participant, in this example, will likely not be happy with this outcome. Of course, there might be times when such an outcome would be appropriate (for example when a participant borrows from a retirement account without the other spouse’s knowledge or is in violation of a joint preliminary injunction).  The point is that, when dividing a defined contribution retirement account, the divorce lawyers should know whether there is a loan against the account and be intentional on how that loan is to be treated in the overall retirement division.

          3.       Always address gains and losses when dividing defined contribution plans.  The account balances in defined contribution plans are almost always invested in some form of security.  As such, the account balances fluctuate (increase or decrease) with market forces. It is, therefore, important that your attorney address in the divorce settlement whether the alternate payee’s share of the retirement account will be subject to those market forces. This issue becomes particularly important if the qualified domestic relations order is not entered at or near the time of the divorce decree. The longer the period between the entry of the decree and segregation of the retirement funds, the greater the likelihood of a significant increase (or decrease) in the retirement account.    

          4.       Never divide a military retirement account without addressing the Survivor Benefit Plan. When a military retiree passes, so does the retirement pay.  Because the former spouse’s share of the retirement ends upon the retiree’s death, attorneys representing former spouses need to be aware of the Survivor Benefit Plan (“SBP”).  The SBP is an insurance plan which will provide monthly annuity payments to a former spouse if the retiree predeceases him or her.  If the former spouse is to receive the SBP, it must be stated in the decree. 

          5.         Always identify the appropriate survivor benefit option when dividing a PERS pension. Every qualified domestic relations order dividing a pension through the Nevada Public Employee Retirement System (PERS) must designate one of six options pertaining to the survivor benefit, if any, that will apply in the case of the participant’s death. Unfortunately, we see many decrees which merely divide PERS benefits by way of the “time rule” and fail to address the survivor benefit option.  This causes LVQ to go back to the client to identify the appropriate option.  This often causes the client to go back to the attorney who drafted the decree.  These clients are typically not very happy.  It is, therefore, imperative to address the survivor benefits at the time of settlement or trial.

          6.         Always address survivor benefits when dividing traditional pensions. Under current Nevada law, a decree which divides a pension in accordance with the “time rule” does not automatically divide the pension’s survivor benefits.  As such, every marital settlement agreement should address how the pension’s preretirement and post-retirement survivor benefits are to be allocated. 

          The foregoing, of course, is not an exhaustive list of the issues that should be addressed when dividing retirement upon divorce.  They are, however, some of the most common we at Las Vegas QDRO encounter when preparing QDROs. Don’t trust your most valuable asset to  your family lawyer’s one-size-fits-all decree of divorce.  Call Las Vegas QDRO today (702) 263-8438 for a free consultation.


There are countless articles that cover how people should save and budget for retirement. Undoubtedly, the suggestions those articles provide are important and potentially critical to sufficiently save for retirement. However, there is an entire other aspect of retirement that is touched on less often than the financial aspect of retirement. The emotional and mental aspect of retirement is discussed less but is just as important as the financial aspect of retirement. As a result, this article addresses what people should do to emotionally and mentally prepare for retirement so they can enjoy themselves and maintain a positive outlook on life.

Stay Busy. Once you retire, you will likely switch from a full-time, 40-hour a week job to a schedule with no set start time and no set end time. This might seem attractive to you pre-retirement and you will likely enjoy this freedom at first, but there is a strong chance you will become restless once the honeymoon period passes and the reality of retired-life sets in. For some retirees, this honeymoon period lasts years, while for others it only lasts weeks. The best solution is to find your own personal preferred amount of busy and plan your schedule accordingly. If you find you enjoy a routine that is booked from sun-up to sun-down, then schedule your days appropriately. If you prefer to spontaneity, then leave some time in your schedule to embark on your new adventures. If you are the type of person who is most productive when you wake up early, drink your coffee, and start in on your daily tasks, then set an alarm and keep to this schedule as best as you can. If you prefer to sleep in and tackle your tasks in the later part of the day, then plan your schedule so you do not have to wake up first thing in the morning. Regardless of which type of person you are, just remember that staying somewhat busy will likely make you feel better and more energized. If you provide yourself some predictability to your days, you will thank yourself later.

Remain Flexible. If you planed ahead as well as experts suggest, you likely started saving for retirement sometime in your twenties or thirties. Once you are around three to five years out from retirement, you should begin to think about what your schedule will look like after you retire. You may want to revisit this schedule a few times over the next few years and modify it as needed. Once you are about a year out from retirement, you should have your retired-life schedule planned. However, as we all know, life has a way of throwing us curve balls. As a result, you should remain flexible so if you need to adjust your retired-life schedule, you are able to do so without much stress. Even if life does not throw you any major curve balls, you may find that you simply do not find fulfillment in the activities you expected yourself to enjoy. If you come across this type of situation, step back and reassess your schedule. It is okay to modify it as you see fit and change your activities over the course of your retirement. Remember, this period of your life will likely last upwards of 25 years, so you need to find your way to enjoy it.

Be Kind to Yourself. If you are like most of working-America, you spent your life dedicated to a certain schedule and career path. You may have joined the workforce right out of high school or maybe you went off to college and completed graduate school. Either way, you spent anywhere between 20 and 50 years working away, week after week, month after month, year after year. Adjusting to retired life takes time, patience, and grace. It is not the same as taking a month-long vacation, when you know you must return to work at the end of your trip. Once you retire, that is it. You do not have to go back to work, unless you decide you want to, or you choose to get a part-time job. Consequently, you should remind yourself that you might not love retirement the way you expect you will love retirement. You might enjoy the freedom, but also feel a sense of hopelessness. In a moment such as this, be kind to yourself. All new adventures and all new lifestyle changes require you to adjust and find your new normal. Retirement is no different. Save this article and refer back to it when you feel down. Try to remind yourself that humans often find purpose in companionship, so phone a friend and schedule a lunch.

Maintain Self-Awareness. Many people who are anxiously awaiting retirement cannot wait to say goodbye to the mundane routine they followed their whole lives. Although spontaneity can be a positive thing, the loss of structure often brings about feelings of sadness and depression for many people. Remember to stay aware of this risk so if you find yourself feeling hopeless or sad, you might just need to reintroduce some structure back into your life. At the bare minimum, reach out to your doctor. Additionally, do not underestimate the power of social connection. If you feel alone, you might just need to increase your social circle. Start a new hobby, schedule regular outings with friends and family, or volunteer with a local organization. Whatever activities bring you the most joy and purpose, do them and do them often. You will be much happier in your retired life if you fill it with activities and people you enjoy.

Now that you are more emotionally and mentally prepared for your retirement, ensure your financial affairs are in order. Speak to your financial planner to ensure your retirement and social security will cover your expenses for longer than you plan to live because you do not want additional financial stress in this period of your life. Also, revisit your estate plan and ensure that you have a will, a durable power of attorney, a medical directive, and possibly a trust if needed. If you find you need these documents updated, schedule an appointment with an attorney as soon as possible so you can ensure your assets go where you want them to go after you are gone.

Dividing Retirement Plans After a Divorce

In general, retirement plan benefits including 401(k) plans, profit sharing plans, pensions plans, and other Internal Revenue Code 401(a) qualified plans are not assignable or attachable by creditors or others under Internal Revenue Code Section 401(a)(13).  The Retirement Equity Act of 1984 changed this on January 1, 1985 by creating a right to assign retirement benefits to persons other than a plan participant.  The Law created the term “domestic relations order” which it defines to be any judgment, decree or order, including a property settlement agreement relating to provisions of child support, alimony payments or marital property rights to a spouse, former spouse, child or other dependant of a participant, and is made pursuant to a State domestic relations law, including community property laws.  These same benefits were extended to governmental plans, church plans, deferred compensation plans under Internal Revenue Code Section 457(b), and Internal Revenue Code Section 403(b) plans.  The Code Section does NOT apply to US Government Plans including military retirements, which have a separate Federal Statute called the former Spouses Pension Protection Act passed in 1985.  Thus, most retirement plan benefits are subject to assignment by a court made pursuant to a State domestic relations law for a spouse, former spouse, child or other dependant of a participant.

While a mechanism exists to allow assignment to a participant’s retirement plan benefits there is no one size fits all to achieve the goal of receiving funds from a participant’s account.  Each plan is allowed to have separate rules regarding how it administers and interprets the rules therefore, it is critical for each person who will be receiving funds from a retirement plan to have a proper order drafted by an experienced attorney familiar with that specific plan’s requirements so the supplemental order meets the plan’s specific rules, so the order is deemed to be a Qualified Domestic Relations Order (QDRO).  The proper term for a US Government FERS benefit is a Court Order Acceptable for Processing (COAP).  The Thrift Savings Plan is a TSP order, and a military benefit is sometimes referred to as a QMCO or a military order.  All retirement plans including 401(k) plans, profit sharing plans, pensions plans, and other Internal Revenue Code 401(a) qualified plans have administrative rules regarding so called QDRO’s which must be met for such domestic relations order to be deemed qualified.  Each state or local governments have even more specific rules for such domestic relations order to be deemed qualified.  These may include requiring the domestic relations order to be filed in the requisite state where the plan is located in order for the order to be qualified.  Knowing these rules and adhering to them is critical for the party who is going to receive funds from the participant’s account.  This person is generally referred to as an alternate payee for plans subject to the QDRO requirements.

US Government COAP’s, TSP’s and QMCO orders have extensive guides for attorneys to use in drafting these types of orders.  Again, it is critical to follow them in drafting up properly drawn orders because if the order is not drawn in accordance with the requirements it will be rejected by the appropriate agency which will delay the persons receipt of benefits or possibly cause more serious consequences.

Another issue arising out of the bifurcation of retirement benefits is when will the alternate payee receive funds from the plan, and more importantly for how long.  This issue depends upon the type of plan and the method of splitting up the retirement benefits.  Generally defined contribution type plans where there is an account balance reported as a single dollar amount are usually payable immediately to the alternate payee after an appropriate time period to review the order and adjust for earnings or losses, fees, etc.  In addition, most defined contribution plans will allow the alternate payee to designate beneficiaries to receive funds from the plan in case of their death prior to receiving their entire interest assigned from the plan.  A much bigger issue is found in defined benefit plans, especially governmental plans from states, municipalities, and the US Government.  It is called a separate interest QDRO versus a shared interest QDRO.  A defined benefit plan promises a monthly benefit amount calculated in accordance with some type of formula payable at a stated age.  A separate interest QDRO will split off a piece of the participant’s benefit permanently in favor of the alternate payee.  The amount toe alternate payee receives is usually adjusted for the alternate payee’s age, and once the split off benefit actually commences to the alternate payee it is gone forever from the participant.  This separate interest QDRO is preferred because it is not tied to or connected to the participant.  It allows the alternate payee to pick a different benefit starting date not tied to the participant and may allow a different form of benefit payment.  It also will usually continue on because it is usually based upon the alternate payee’s lifetime not the participant.

The shared interest QDRO is usually found in state or municipal retirement benefits, including COAP and military orders.  It ties the alternate payee’s benefit to the participant’s benefit including when it begins, how long it is paid, and if there are any survivor benefits payable to the alternate payee if they survive the participant.  In addition, if a QDRO order occurs after the participant retires almost all plans use the shared interest approach which utilizes the form of payment elected by the participant at retirement, including survivor benefits, if any.  This has the effect of putting alternate payees into a very tight box because of the inability to make elections regarding the benefit.

A further limitation on defined benefit plans is when the benefit may commence.  In general, a participant has to be eligible for early retirement for most defined benefit plans to commence monthly payments if a participant is employed by the plan sponsor.  There are other rules which might allow earlier payment if the participant terminated employment prior to that early retirement date.  In general, if a participant dies prior to being eligible for early retirement, there is usually no benefits payable from the plan even if a separate interest QDRO was in place.  Additionally, if an alternate payee dies before commencing benefits the plan may have such benefits forfeited back to the participant. These rules are in accordance with federal retirement benefit laws, rules and regulations, plus various federal and state laws. 

With all of these different laws, regulations and rules, it is imperative for participants and potential alternate payees to engage competent counsel in the negotiation stage, the decree of divorce, legal separation, property settlement agreements, or marital settlement agreements.  It is important to acquire various plan documents, benefit statements, etc. in the discovery phase to be able to properly negotiate for your client to achieve a good result.

          Las Vegas QDRO can assist with all of your pension and retirement needs.  Las Vegas QDRO prides itself on offering the best possible customer service.  Las Vegas QDRO does not have voicemail and you will always talk to a person.  Call Las Vegas QDRO for a free price quote.

Saving for Education: An Introduction to 529 Plans

It is no secret that higher education costs have increased dramatically in the past few decades. In 1987 the average annual tuition and fees for an in-state public institution was about $3,190. By 2017 that amount had more than tripled, to an average of $9,970.  The cost of a private school education more than doubled during the same time, from $15,160 per year to well over $35,000. As a result, saving for a child’s future education costs became an increasingly important financial goal for many parents.

          One vehicle designed to encourage savings for future higher education costs is known as a 529 Plan. Named after Section 529 of the Internal Revenue Code, 529 Plans gained their current tax advantages in 2001, and were expanded to include K-12 public, private and religious school tuition in 2017. American families have well over $300 billion saved in 529 Plans.

          There are two types of 529 Plans; prepaid plans and savings plans. Prepaid plans allow the purchase of future tuition credits at today’s rates. They are administered by the state or the academic institutions themselves. Ten states currently offer prepaid plans, including Nevada. The more tuition increases, the better the return on a prepaid plan.

          Savings plans are more like a standard investment account; growth is dependent on the market performance of the underlying investments, which are typically mutual funds. Savings plans are administered by the states, but the actual administrative services are often delegated to a financial services company.

          Contributions to a 529 Plan are considered gifts under federal tax regulations, so giving more than $15,000 per year ($75,000 over five years) for single filers, or $30,000 per year ($150,000 over five years) if filing jointly, will count against the gift tax exemption. Consult your tax advisor for more detailed information.

          Money from a 529 Plan can be used for qualified educational expenses at any accredited college, university or vocational school in the country, and some foreign universities as well. Qualified expenses include tuition, fees, books, computers, supplies, equipment required for study, and room and board, or off-campus housing costs up to the room and board allowance. Student loans and the interest on them do not qualify.


          Nevada does not have a state income tax, so the state income tax benefits that some states provide are not an advantage here. However, we can still take advantage of the primary 529 Plan benefits, which are the tax-deferred growth of principal and the exemption from tax on qualified distributions for the beneficiary’s college expenses.

          As the donor, you maintain control of the account, with the beneficiary having little or no rights to the funds. Although you can reclaim the money for your own use, if you make a “non-qualified” withdrawal, the earnings portion would be subject to income taxes and a 10% penalty.

          529 Plans are simple and convenient to establish. The assets are professionally managed, and the donor does not even receive a 1099 form until withdrawals begin. Investments can be changed and the account rolled over to a different state’s plan. Fees are generally low, there are few eligibility restrictions, and most states allow significant ($300,000 or more) amounts to be saved.

          It is also possible to use 529 Plans as an estate planning tool. The assets are not counted as part of donor’s estate, and as noted above, the donor still retains control over the account if the funds are needed.

          Unused amounts can be transferred to qualified members of the beneficiary’s family without incurring any tax penalty. This is known as a “Rollover” and is explained in detail in IRS publication 970, in the Qualified Tuition Program section. This section also details the family members who qualify for a Rollover.

          Finally, since the 529 Plan is treated as an asset of the account owner, which is usually the parent, it has little impact on the student’s financial aid eligibility.


          The investment options for 529 Plans are limited and IRS rules permit only two exchanges or reallocation of assets per year. Since the plans are offered on a state by state basis, the fees charged by your state’s plan may be higher than other alternatives. 529 Plans are not required to disclose their expense ratios in marketing materials, making it more difficult to comparison shop.

          As noted above, withdrawing money for use other than qualified college expenses will result in the earnings portion being subject to income tax and an additional 10% federal tax penalty. If any state tax credits or deductions were taken, these may be subject to recapture.

          If someone besides the parent owns the 529 Plan, paying qualified expenses from the account may affect a student’s eligibility for need-based financial aid. Paying qualified college expenses directly from a 529 Plan may also reduce eligibility for the American Opportunity Tax Credit.

          From a financial aid perspective, most advisors agree that the parents, rather than, say, the grandparents, should own the 529 Plan. Most colleges use the government’s FAFSA (Free Application for Federal Student Aid) form to determine what the family can afford to pay for college. Income, assets, and other obligations are all considered. If the parent owns or is the custodian of the account, it is considered at 5.64% of its value, which is far less than a student owned savings or brokerage account. Should someone else own the account, it will not show up on the FAFSA at all, but distributions will show up as untaxed income on the following year’s form, which could drastically affect financial aid eligibility. There are some alternatives, so be sure to consult your tax advisor.

          Most plans allow the owner to designate a successor in case of death, and/or allow a joint account owner. Some plans do not allow an ownership change. If your plan does, and you need to do that, be aware that this might affect the student’s eligibility for financial aid. Also, remember that the new owner has full control over the beneficiary’s money.

          If you and/or your spouse have set up a 529 Plan for your children and are now getting a divorce, you will need to determine what happens to this asset. Hopefully, since it was established for the benefit of your children, an agreement can be reached. Be sure to consult with an experienced family law attorney.

Social Security: At What Age Should One File for Benefits?

Retirement. Perhaps not as inevitable as death or taxes, but potentially much more pleasant. For those looking forward to this milestone, questions abound. Some of those questions will likely concern your expected Social Security benefits.

More than $1 trillion in Social Security benefit payments are made each year. These payments make up about one-third of all elderly income in this country. Social Security has helped reduce the number of senior citizens living in poverty from 50% at the program’s inception to 10% today. Many retirees depend on this program for most of their income. Whether this will be true for you or not, if Social Security benefits are part of your retirement planning, understanding how the program works will help you make good decisions.

A question faced by everyone heading toward retirement age is when they should file for Social Security benefits. Finding the answer is more complex than it seems. You have essentially three choices, and the best answer for you is not necessarily the correct answer for someone else. Your answer is important, and permanent; once you begin to receive checks, there are no mulligans.

          To help with this decision, let us first take a closer look at how the Social Security Administration calculates benefits. The amount of your monthly benefits is based on your Average Indexed Monthly Earnings or AIME. The government calculates your AIME by averaging your highest earning 35 years of annual income, indexed for inflation and capped at the maximum taxable income for FICA taxes ($132,900 in 2019). It then divides this indexed average annual income by 12 to get a monthly income.

          Your AIME is then run through a formula to calculate you Primary Insurance Amount (PIA). The formula always uses the same percentages, but the cutoff points change annually. At the time of this writing the PIA formula looks like this:

  • 90% of AIME of the first $895; plus
  • 32% of AIME greater than $895 but less than $5,397; plus
  • 15% of AIME greater than $5,397.

For example, if you averaged $60,000 per year for your entire working life and turned 62 in 2019, your AIME would be $5,000. The Social Security Administration would calculate your benefits as follows:

  • 90% of $895 = $805.50; plus
  • 32% of $4,105 = $1,313.60; plus
  • 15% of $0 = $0
  • Your benefits would be $2,119.10 per month.

However, if you file for benefits before your normal retirement age, that amount would be greatly reduced. Retiring at age 62 will permanently reduce the amount of your benefits by over 25%.

A Cost of Living Adjustment (COLA) is applied by the government to keep benefits current with the rate of inflation. It is also the figure used to adjust your benefits based on retirement age.

There is a maximum monthly amount that someone can collect. For a person retiring in 2019 at full retirement age, the maximum amount is $2,861. By waiting until age 70, that same person would collect $3,770 per month, the maximum a person can receive in 2019.

If you won’t be collecting the maximum amount, there are things you can do to increase your monthly payments. The obvious one is to delay filing for benefits. Waiting until full retirement age (66 or 67 depending on when you were born) will avoid the early retirement penalty. Your benefits will increase by 8% per year until age 70 if you can put off filing until then. A guaranteed 8% return is outstanding, and something to take advantage of if possible.

Delaying your retirement is also likely to increase your AIME. Since only the highest earning 35 years are used in the calculation, replacing some low-earning years from early in your working life with higher-earning ones will boost your average monthly earnings. This is especially important if you did not work in any of your top 35 years; you get credit for $0 earned in each missing year. Averaging in zeros will drag down your AIME in a hurry.

You can continue to work after filing for benefits, although this may reduce your current benefits if you are younger than full retirement age. For early retirees, earning over $17,640 in 2019 will lower your benefits by $1 for $2 earned above the cap. The earnings limit increases to $46,920 in the year you reach full retirement age, with benefits reduced by $1 for every $3 earned above the limit. After reaching full retirement age, the earnings limit goes away, as does the benefit reduction.

If you continue working after filing for benefits, and you are increasing your net highest 35-year earnings, you will also be raising your AIME. The Social Security Administration will recalculate your AIME as new information becomes available. Continuing to work has the added bonus of enabling additional contributions to your IRA, 401(k), or other retirement plan.

For a married person whose spouse earned significantly more than they did, spousal benefits may increase their Social Security income. In this case you can claim Social Security payments up to half of your partner’s benefit amount. If you survive your higher earning spouse, you are entitled to their full benefit payment. This would not stack with any existing benefits, however. Finally, the “File and Suspend” strategy is no longer a viable option. Congress closed this loophole in 2015.

So which option should you choose? Do you take reduced retirement benefits by retiring early, wait until full retirement at age 66 or 67, or further delay benefits until later, up to age 70? One way to tackle this question is to calculate your “break even” age. This is the age at which you would come out ahead by delaying your benefits. Generally speaking, one would need to live to age 77 or 78 to make waiting until full retirement age pay off versus retiring at 62, and to age 80 versus retiring at age 70. One would need to live to age 82 or 83 to make retiring at age 70 pay off versus retiring at full retirement age.

The average life expectancy for men in this country is 76 and is 81 for women. Of course, those are just averages, and making the “right” choice depends on you making a fairly accurate guess about your own lifespan.

Even if you expect to live well past the average age, it may be that you need the income before your age of full retirement. Check with your financial advisor before filing for Social Security benefits. It may be that drawing from other retirement sources would be more valuable than filing early for Social Security.

There are two other common reasons given for taking early retirement. One is the rationale that you could invest your Social Security benefits and avoid leaving money on the table if you were to die early. However, to match the rate of return you would get by waiting, you would likely need to invest most of the funds in stocks, which would subject you to market fluctuations without the long-term ability to recover your losses. You would also need to avoid the temptation to spend the income.

Others are concerned that Social Security won’t be around when they retire or will be paying reduced benefits. While the trust fund is expected to have a shortfall in 2034, that still gives Congress 15 years to come up with a solution.

If you don’t need the income early, most financial planners suggest waiting as long to possible before filing for Social Security benefits. Be sure to check with your advisor before making this important decision. 8

PERS of Nevada What you and your attorney should know in a divorce case

The Public Employees Retirement System of Nevada (PERS) is a retirement plan established for state workers. PERS was formed in 1947, substantially revised and modified in 1993, and now has 105,000 active members and 64,000 people receiving benefits, with an average monthly benefit of over $2,800. As of June 30, 2017, PERS controlled over 38 billion dollars in assets.

          PERS is a defined benefit plan, more commonly known as a pension plan. Upon the public employee’s retirement, PERS will provide monthly income for the life of the former employee. It is important to distinguish between a pension and a defined contribution plan, such as a 401(k). A defined contribution plan, at any point in time, has a definite balance or value. While it is possible to determine the current “value” of PERS future monthly payments to a retiree, they do not have an individual account per se that can be accessed like a 401(k).

          In a divorce, the community’s assets must be divided between the now separate parties. Often, retirement plans are the largest asset to be considered. Dividing a 401(k) is relatively simple: whatever amount exists as of a chosen date (usually the date of divorce) is divided according to the parties’ agreement by a Qualified Domestic Relations Order. The amount that each party receives is known and usually easy to calculate. A PERS plan is more complicated.

          If the parties agree that the person with the PERS retirement plan can keep their pension in exchange for an offset from another asset, an actuary or certified public accountant would need to be hired to calculate the value of their pension. PERS does not provide this calculation.

          It is more common that the PERS benefits will be divided between the parties. In this case, a Qualified Domestic Relations Order (or QDRO) would need to be prepared. A QDRO is a court order, signed by a judge, that directs a retirement plan to assign a portion of the plan participant’s benefits to their ex-spouse. You cannot receive your share of your ex-spouses’ PERS without a properly prepared QDRO, and a QDRO cannot be properly prepared unless the correct information is provided in your Decree of Divorce. More on this later.

          The community’s portion of a PERS retirement benefit is typically calculated by dividing the service credits earned during marriage by the total service credits. For example, if the participant has 30 years of service credits, with 15 of those during marriage, the community portion is 15 divided by 30, or 50%. The ex-spouse would then be entitled to half of the community interest, or 25%.

          A participant must contribute to PERS for five years before being eligible for retirement benefits. Base pay, longevity pay, shift differential pay, and call-back pay are all subject to retirement contribution. Benefits are based on the participants highest 36 consecutive months of salary during employment, the number of service credits, the age of the participant and beneficiary at the time of retirement, and the survivor benefit option selected.

          There are seven survivor benefit options to choose from:

          Option 1: Provides the full monthly allowance that the participant has earned for the life of the participant, but with no survivor benefits. This option will pay the greatest amount to both the participant and the ex-spouse during the lifetime of the participant, but all benefits cease when the participant dies.

          Option 2: Provides a reduced monthly allowance with continuing benefits to the beneficiary on the death of the participant. For example, if the participant were entitled to $2,000 per month under this option, and their ex-spouse was to receive 25%, the participant would get $1,500 and the ex-spouse $500 until the participant’s death. If the ex-spouse survives the participant, they would get $2,000 for the rest of their lifetime.

          Option 3: Is the same as Option 2, with the exception that the beneficiary would receive 50% of the benefit ($1,000 in the above example) after the death of the participant. The original allowance would be more than Option 2, but less than Option 1.

          Option 4: Is similar to Option 2, with the exception that the beneficiary (the ex-spouse in a divorce) may not receive the benefits on the death of the participant until they reach age 60. During the period between the death of the participant and the time the ex-spouse reaches 60 years of age, the ex-spouse would receive nothing.

          To help understand this, in Options 2 – 7, there are two separate benefits. There is the retirement benefit, that can be divided in a divorce, and the survivor benefit, that is determined by the option selected. In all cases, when the participant dies, the retirement benefits cease. Therefore, in Option 4, there may be a period where the ex-spouse receives no benefits. If they are under 60 when the participant dies, their share of the retirement benefits ends, and the survivor benefits do not kick in until age 60.

          Option 5: Is the same as Option 4, except that the beneficiary receives one-half of the survivor benefit when the beneficiary reaches age 60.

          Option 6: Provides a reduced monthly allowance with the ability to designate a specific sum, rather than a percentage, to be paid to the beneficiary upon the participant’s death.

          Option 7: Is the same as Option 6, with the exception that the beneficiary may not receive survivor benefits until age 60.

          In summary, Option 1 offers the maximum payment with no survivor benefits, while Options 2 – 7 contain different survivor benefits with a reduced retirement allowance.

          Selecting an option is often overlooked and misunderstood in divorce cases involving a PERS retirement. Even experienced attorneys routinely neglect to specify an Option in a divorce decree. This creates a problem, because a QDRO cannot be prepared for a PERS retirement without the preparer knowing which option to reference. PERS will not accept a QDRO that does not include a retirement option.

          If the Decree of Divorce has already been entered, the parties must then agree to an option. Since it is always in the participant’s best financial interest to select Option 1, and another option might be better for the ex-spouse, this is not always possible without a return to court.

          If the Decree has been finalized but not entered, there is still an opportunity to add an option, but the issue of competing interests may disrupt the agreement. Choosing a retirement option for a PERS plan should be part of the negotiation of the divorce settlement, not left as an afterthought when all else is completed.

          There are other situations that should be considered and resolved in the final Decree of Divorce. If the ex-spouse dies before the participant, the ex-spouse’s share will revert to the participant, and payments will continue under Option 1, even if a different option was originally chosen. However, the parties may agree, or the court has the discretion to order, that the ex-spouse’s share will go to their estate.

          PERS will not make this payment, nor will they calculate the amount of the payment. Once the ex-spouse dies, PERS will only send benefits to the participant. It then falls on the participant to determine the share to send to the ex-spouse’s estate. There may be tax consequences, so be sure to consult your tax advisor.

          Your attorney may recognize this situation from the 1997 case Wolff v. Wolff. It is important to realize that the court has the discretion, but not the obligation, to order that the ex-spouse’s estate continue to receive survivor benefits after the ex-spouse’s death. As PERS will not send payments to the ex-spouse’s estate under any circumstances, this issue should be dealt with in the Decree of Divorce, not the QDRO.

          If your divorce involves a PERS retirement, addressing these issues before the divorce is final will allow the orderly preparation of a QDRO, and may preempt a return to court.

Traditional IRA vs Roth IRA: When an Account Owner Should Hold Off on a Conversion

Upon divorce, retirement accounts that existed during marriage are frequently divided through a Domestic Relations Order. After a Domestic Relations Order is signed by the parties, submitted to the court for signature, and filed as an official order of the court, it is then sent to the Plan Administrator for approval. Once the Plan Administrator approves the Domestic Relations Order, it then becomes a Qualified Domestic Relations Order, which is frequently referred to as a “QDRO.” The retirement account is then split, at which time both parties will own their portion of the retirement account as separate property. If the retirement account is a Traditional IRA, the split of the account upon divorce puts a lot of people who are not familiar with retirement accounts in an interesting situation because they have the option to convert their Traditional IRA to a Roth IRA.

The full or partial conversion of a Traditional IRA to a Roth IRA was first allowed by congress in 2010. This financial decision became increasingly popular over the years because many IRA owners wanted to reap the many benefits that come with having a Roth IRA rather than a Traditional IRA. In fact, there have been more than one million conversions and more than $75 billion in Traditional IRA funds that have been converted to Roth IRA funds since that time. Some of the many benefits of converting a Traditional IRA to a Roth IRA include moving the retirement funds into an account that provides tax-free growth, offers tax-free withdrawals, and the person who owns the account is not required to take payouts at a particular age. Additionally, Roth IRAs also yield income that does not raise reported income in a way that reduces other tax breaks, raises Medicare premiums, or increases the levy on net investment income. Traditional IRAs, on the other hand, also provide tax-free growth, but the withdrawals are usually taxed at ordinary income rates at the time of the withdrawal. Moreover, an account owner of a Traditional IRA who is 70½ years or older is required to take payouts that will deplete the account over time.

After a divorce, converting the Traditional IRA a person received in a divorce to a Roth IRA is a popular financial decision for many people. However, even though this is frequently a smart decision to make, it may not always be the best decision. There are multiple scenarios where converting to a Roth IRA is not necessarily in the account owner’s best financial interest. The following are some questions you may want to ask yourself to help you decide if you should convert your Traditional IRA to a Roth IRA:

Is your tax rate going down?
Generally speaking, it would not make sense to convert all or part of your Traditional IRA to a Roth IRA if your tax rate will be lower when you make the withdrawals. For example, if your federal tax rate is low one year because you are a student working part time, this would be a great time to convert because you will pay taxes on your conversion based on your current tax rate. However, if you are well into your career making substantial income and your federal tax rate is on the higher side, you may not want to convert that year because you will pay taxes on your converted funds at that higher tax rate. It is usually best to convert your IRA funds in years where your tax rate is lower, so you do not have to pay more money in taxes.

Do you have enough money in your checking or savings account to pay the taxes on the converted money?
If you do not have enough “outside funds” to pay the taxes on your converted money, you should probably hold off on fully or partially converting your Traditional IRA to a Roth IRA. The reason for this, is that paying the taxes with money from the IRA shrinks the account value, which results in a reduction in the amount that can grow tax free. Consequently, it is best to hold off on the conversion until you have the outside cash to pay the taxes.

Will you need the funds from the Traditional IRA soon?
Much of the benefit of a Roth IRA comes from leaving the account untouched and allowing the funds to grow for years. If you anticipate that you will need to take payouts from your IRA sooner rather than later, then converting the funds to a Roth IRA may not be the best financial option for you. It would be best to leave the Traditional IRA as is, so you do not lose money on the conversion.

Will converting your Traditional IRA to a Roth IRA substantially increase your income and affect a financial aid award?
Retirement accounts are frequently excluded when institutions are determining financial aid awards. However, income from a conversion would not be excluded. If the income you receive from converting your Traditional IRA to a Roth IRA will prevent you from qualifying for a financial aid award for yourself or your child, you should consider holding off on your conversion until you already receive the financial aid you need.

What does all this mean for you? Upon divorce, if you and your spouse obtain a QDRO and split a Traditional IRA in two, you should examine your option to convert your Traditional IRA to a Roth IRA. If you are fairly young, do not have substantial income, and expect your tax rate to be much higher when you are older, then converting your Traditional IRA to a Roth IRA may be the best choice for you. However, if you are older, earn quite a bit of income, and your tax rate is on the higher side, then maintaining your Traditional IRA as is may be the best option for you. If you are unsure or have questions, you should reach out to your CPA or financial planner to determine what would be best for your financial position and your future. There is no doubt that this decision should not be taken lightly, and you should ensure you make an informed decision.

New Decision Means Changes for PERS Recipients

On October 18, 2018, the Nevada Supreme Court published Public Employees’ Retirement System of Nevada v. Nevada Policy Research Institute, Inc., which will mean big changes for those who are part of the Nevada Public Employees’ Retirement System (“PERS”).
The Nevada Policy Research Institute, Inc. (“NPRI”) made a public records request to PERS to obtain payment records for retired government employees for the year 2014. NPRI planned to post this information, including the names of the retirees, on their website for public viewing.
PERS had given NPRI the same information in 2013 but refused to disclose it for 2014. PERS claimed it had no duty to create a new document for NPRI, as PERS’ own data did not contain retiree names, which had forced them to create a new list with names for NPRI.
In response, NPRI revised their records request to only retiree names, years of service, the gross pension benefit amount, their year of retirement, and their last employer. PERS, however, still refused to release that information, so NPRI filed a petition in the district court for the information.
In the district court case, NPRI argued that the information they sought was not confidential because it was a public record. There was an evidentiary hearing (essentially, a bench trial) in the district court, and the district court found that the information was not confidential, and that any risks associated with its disclosure did not overcome the public’s interest in access to the records. The district court also found that PERS had a duty to create the document with the requested information and ordered PERS to release the requested information to NPRI. PERS then appealed the decision to the Nevada Supreme Court.
PERS argued that the information sought was confidential, and that the risks in making this information public outweighed the public interest in the record. PERS also argued that it was improper to force it to create a new document to respond to NPRI’s request per the Nevada Supreme Court’s previous decisions on the matter.
In response, NPRI argued that the information requested was, in fact, a public record because the information is stored on a governmental computer. NPRI cited a previous decision, Las Vegas Metropolitan Police Department v. Blackjack Bonding, Inc., which involved NRS 239.010 – the statute that dictations that governmental agencies must make nonconfidential public records within their legal custody available to the public.
In Blackack Bonding, a bonding company made a public records request to the Las Vegas Metropolitan Police Department (“LVMPD”), for call records from the Clark County Detention Center (“CCDC”), specifically seeking call records for calls between bail bond agents and CCDC inmates. LVMPD denied the request, claiming it did not have the records because a private telecommunications provider provided the telephone services for CCDC.
The Nevada Supreme Court stated that the records did fall under the Nevada Public Records Act (NRS 239.010) which states:
[A]ll public books and public records of a governmental entity, the contents of which are not otherwise declared by law to be confidential, must be open at all times during office hours to inspection by any person, and may be fully copied or an abstract or memorandum may be prepared from those public books and public records.
The Nevada Supreme Court concluded in Blackjack Bonding that the records were public and had to be disclosed (as long as the inmates’ names and numbers were redacted).
In PERS v. NPRI, the Court noted that the Nevada Public Records Act was originally put into place to “foster democratic principles” and “promote government transparency and accountability by facilitating public access to information regarding government activities.” Due to the importance of this goal, the Act’s provisions are to be “liberally construed to maximize the public’s right of access” to information.
There is a presumption in favor of the disclosure of information in such circumstances. The governmental entity seeking to withhold the records is the one with the burden of overcoming the presumption by showing, by a preponderance of the evidence, that the information requested in confidential. In order to be confidential, a statute must state the information is confidential or that the interest in nondisclosure clearly outweighs the public’s interest in access to the information.
The Court concluded that the information requested by NPRI was limited in scope and “helps promote government transparency and accountability by allowing the public access to information that could reveal, for example, if an individual is abusing retirement benefits,” and, thus, was not confidential pursuant to statute.
The Court then addressed whether the request improperly required that PERS create a new record. It stated that PERS was correct in its assertion that a public agency does not have a duty to create a new record in response to a public records request but disagreed that NPRI’s request required that.
The Court cited to decisions from other states that distinguished between requests that simply required an agency to search its electronic database and requests that required an agency to compile a document or report about the information contained in the database. The Court held that the Act does not require an agency to compile a document or report about the information, but that it does require an agency to “search its database to identify, retrieve, and produce responsive records for inspection[.]”
Finally, PERS argued that satisfying the request would cost staff time and money. This argument was also negated because the statute allows for PERS to charge NPRI for the cost of providing copies of the records.
The Court concluded that PERS would need to produce the requested records. The case was remanded to the district court, however, to determine whether PERS could fulfill the document request, as the record indicated that the PERS database is “not static” and that PERS “may not be able to obtain the information as it existed when NPRI requested it in 2014.”
Four Nevada Supreme Court Justices signed off on the majority opinion for PERS v. NPRI. Three other Justices, however, issued a dissenting opinion. The dissenting Justices argued that the decision would force PERS to create records “so long as a court determines that the agency has the technology to readily compile the requested information” against the Court’s previous decision. They argued that the information requested by NPRI “goes far beyond” simply requiring PERS to search its electronic database, and also that the database itself is confidential (though not all of the information contained in it is necessarily confidential).
This decision has major ramifications for PERS employees and retirees. The public will now, presumably, be able to locate a retiree by name and obtain information about how long they held their PERS-qualified position, how much they get each month for their pension, when they retired, and the name of their last employer.

How to Get the Most Out of Your Retirement

Here is a shocking statistic: Nearly half of all American families have no retirement savings at all. This is astounding, considering many of these people do not want to work when they are of retirement age. The big question is WHY? Why are there so many people who do not save for retirement, but do want to retire? Many Americans believe they will just be able to live off social security, but social security was never intended to be the sole source of income. It is only supposed to be a supplement.

It is crucial that everyone begin to save for retirement today. Not tomorrow. Not next week, or next month. Today, because otherwise they will continue to put off saving for retirement until it is too late. Here are five steps you can take to set yourself up for the best possible retirement:

1. Get Advice

Whether you get your advice from a financial advisor, a parent, a mentor, a friend, or the internet, you absolutely must get advice. There are people who spend literally years researching and studying to be able to become financial advisors. Ask around to find someone who can help you. Ask your friends or colleagues if they recommend anyone. If not, think of the most financially savvy person you know, and ask that person. You would be surprised at how willing people are to help others who want to help themselves.

As a last resort, or if you truly are an excellent researcher, resort to our great friend, Google. The number of financial institutions that provide completely free financial advice on the internet is mind-blowing. Simply Googling “how to save for retirement” or “the best retirement account for [insert whatever you are – elderly, college student, executive, etc.]” and you will be shocked at the number of articles and completely free advice that populates onto your screen. If you still do not know what to do, go talk to someone who works at your bank.

2. Create and Stick to a Financial Plan

This step cannot be stressed enough. It is essential to your financial future that you come up with a plan. This will allow you to create an end goal, as well as mini-goals throughout your working years. Additionally, the most benefit is gained from compounding interest. If you have never heard of this term, follow Step 1 above.

A fantastic tool for you to use as you formulate your financial plan is to utilize a retirement calculator. This will help you come up with the amount you will need at retirement, and the amount you must save monthly or yearly to reach that goal. Again, Google is the perfect resource for this, as you can google “free retirement calculator” and numerous options will pop up. Additionally, most banks provide free retirement calculators on their websites.

Once you have formulated a financial plan, it is best if you put it in writing, rather than just keep the information in your head. You may want to place the plan, which should include some goals, somewhere easy to access so you can review it regularly. Decide on how often you would like to review your financial plan, and then stick to your schedule. You might want to look at the plan quarterly, bi-annually, or annually to assess your progress, or maybe you have the personality that would like to review your plan every month. Whatever you decide, stick to your plan.

3. Max Out Contributions

This step is frequently skipped by people. Many people are too afraid that they will need the money, so they decide to only save a very small amount from their earnings. This is more common in lower-income households. This is a huge mistake. What often ends up happening, is that the “money that might be needed” just ends up getting spent. You are far better off coming up with a monthly budget that includes a maxed-out amount that will be dedicated to retirement, and then forcing yourself to stick to your budget. If you need to have a reserve savings account, then do that for emergencies. If you max out your contributions, you are maximizing the amount you will have at retirement. If you dislike working now, imagine how you will feel in 30 or 40 years. The last thing you will want when you are older is to need to work just so you can survive.

Additionally, you should undoubtedly make the most of your employer match, if any. A lot of employers provide retirement contributions as a benefit of employment. If your employer does this, and say matches up to 5% of your salary, then you should contribute 5% of your salary to your retirement at a bare minimum. If you can afford to contribute more, then you should, as that is how you will get the most benefit out of the compound growth of your account. The beauty of a 401k is that it miraculously allows you to reap the benefit of compound growth tax-free. You contribute pretax money to the 401k, which lowers your income taxes. The amount in your 401k then grows tax-free. Who could possibly complain about that?

4. Avoid Loans and Distributions

This step is also frequently skipped by people. What good is it to put money into an account that grows tax-free and is intended for retirement, if you are just going to take the money out now? If you take a loan against your account or take distributions, then the amount of money that would otherwise grow tax-free is reduced, thus decreasing the amount that could be available to you at retirement if you just left the account alone. Similarly, you should have your distributions reinvested into your retirement account. There is no reason to take this money when you can instead just reinvest it into your future. It is important to break the cycle of immediate gratification, and instead look at your life from a long-term perspective.

5. Start Saving

All this information is useless unless you actually start saving for retirement. Start today. You can begin getting advice after you finish this article. As you get advice, create your financial plan. Write it down. There is no shame in revising your plan as you acquire new information, but you must create and then stick your financial plan. Next, max out your contributions and take advantage of your employer’s contributions, if any. This is free money that you miss out on if you do not invest at least the percentage of your salary they will match. Last, now that your plan is in effect, avoid taking loans or distributions from your retirement account. As you save for retirement, compound interest will be your best friend. Let your best friend grow and you will reap the benefits when you are of retirement age and you do not want to work anymore.

Your 401(k): Some Considerations Before Removing Money

As a group, Americans are not particularly good at saving money. The national savings rate has hovered between 3 and 5% for the past 25 years, a far cry from the world’s better savers. Coincidentally, 3% is also the default percentage for many workers when they initially enroll in their company’s 401(k) plan. Although more people are enrolling in optional retirement savings plans, the average amount in 401(k) plans has changed little in the past ten years, staying around the $100,000 mark.

“Compound interest is the most powerful force in the universe,” is a quote often attributed to Albert Einstein, by all accounts a reasonably bright guy. While it seems unlikely that Dr. Einstein said that, the sentiment is correct. Time and compounding market returns are your retirement account’s best friends. While it is possible to take money out of your 401(k) before you retire, this is not a decision to be made lightly. However, for many Americans, their 401(k) represents a significant portion of their personal wealth, and certain circumstances may dictate that tapping into that asset is the best, or only, financial choice.

Most 401(k) plans allow pre-retirement access to funds by way of loans and withdrawals. Generally speaking, if you must take money out, a loan is the better option. With a 401(k) loan you are, in essence, borrowing money from yourself. You are generally allowed to borrow up to 50% (with a maximum of $50,000) and have five years to repay the loan. The loan is repaid back to the plan with interest. While that interest rate is likely lower than the rate of return the funds would have earned had they remained invested, it’s at least something, and you are able to return the entire principal balance back into your retirement account. This is a big deal. If you take a withdrawal, you will not be able to return that amount later, and you may even be restricted from making contributions for a period.

In addition, the amount you withdraw will be treated as taxable income. The plan administrator will withhold 20% of the amount for income taxes, and if you are under the age of 59 ½ you will also trigger a 10% penalty.

Your plan may allow a “hardship distribution.” Keep in mind that plans are not required to offer this option. The IRS defines a hardship as an unforeseeable emergency, with a distribution permitted “on account of an immediate and heavy financial need of the employee, and the amount must be necessary to satisfy the financial need.” This distribution will be taxed as income and may even be subject to a penalty.

If you must take money from your 401(k), use a loan instead of a withdrawal to avoid taxes and penalties. Here are a few situations that might warrant tapping into your retirement account.
You may be faced with an emergency and not have any other source of cash. (If you do have an emergency fund, use that first.) It is hard to say what might constitute an emergency for any individual. One example might be a need to pay the deductible on your high deductible health care plan.
You may have an urgent cash need, but your poor credit score makes you ineligible for a competitive interest rate on a loan. Most 401(k) loans charge 1 to 2% over the prime rate, which is currently 5%. A loan at 7% is likely better than the rate on an unsecured personal loan. Try not to borrow more than you need and consider what amount you will be comfortable paying back in the next five years. 401(k) loans do have the advantage of not being reported to credit agencies or triggering a credit search. And since you are repaying the loan to yourself, the “interest” you are paying is really just a transfer of funds from one pocket to another.

You might already be saddled with high interest debt that is hampering your long-term financial goals. If you are in pay down debt mode, then you are looking for the cheapest interest rate and the opportunity to get your debt down or paid off as quickly as possible. Be careful here – if you borrow from your retirement plan and fail to repay the loan, your finances will be in even worse shape.
If you plan on leaving your current job in the next five years, you may want to reconsider taking a 401(k) loan. Whether you leave voluntarily or not, you may have to repay the balance of the loan to avoid having that amount considered a taxable distribution. The new tax law extended the time to repay the balance of the loan from 60 days to October of the following year.
Just because you have borrowed from yourself, do not ignore your debt to income ratio. The classic rule of thumb is that no more than 36% of your gross monthly income should go toward servicing debt. You should treat your plan loan as you would any other extension of credit.

Your retirement plan will have its own rules for loans. They may limit the number of loans available, and the amount that is available for you to borrow. Your plan can also establish their own repayment schedules, which you will need to follow. Remember that the loan payments will come out of your paycheck, reducing your take home pay.
If you or your spouse take a loan from a 401(k), and you get divorced while the loan is still active, be sure that your Decree of Divorce properly accounts for the loan. A Qualified Domestic Relations Order (QDRO) will need to be prepared based on information taken from the Decree, in order to divide the asset. If this is incorrectly worded, you may get stuck with the entirety of the loan, or the account may be divided in a manner which treats the loan as an asset not a liability. Make sure you have an attorney with experience in QDRO preparation draft the QDRO to ensure that your intentions are accurately reflected.