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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.