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.