Qualified Domestic Relations Orders and Pension Evaluations
Pension Evaluations Qualified Domestic Relations Orders QDRO's QDRO Tutorial Pension Evaluation Contact Us
QDRO
QDRO Forms
Pension Evaluation
Additional Services
QDRO Administration Services
Seminar/Lecture Services
CLE Courses
Fee Schedule
Learning Tools
Newsletters
Relevant and Cited Cases by our Staff
FAQ's
Glossary
About Us

Name:
Email:
Phone:
--
Message:
Make a Payment
We support Apraxia-KIDS

FLORIDA RETIREMENT SYSTEMS
NEGOTIATING DROP BENEFITS IN DIVORCE

PART II

This article presumes the FRS employee has not entered DROP at the time of divorce.

Emphasis.

The fact that the FRS employee is not DROP eligible at the time of divorce does not mean that the employeeEs potential to subsequently enter DROP is not to be a component of negotiations regarding the division of an FRS employeeEs retirement benefits incident to divorce. It is suggested that DROP be a component of negotiations whenever an FRS employee is one of the parties to the divorce.

CAUTION: Omission of DROP from Marital Settlement Agreement. The informed practitioner is aware that failure to mention DROP in the Marital Settlement Agreement does not bar a Former SpouseEs DROP participation. To the contrary! Absent the specific denial of DROP to a Former Spouse in the Marital Settlement Agreement, FRS will

automatically give to the FRS employeeEs Former Spouse a portion of the retireeEs DROP.

At the time of divorce there is no certainty that the employee will upon becoming eligible, enter the DROP. However, what is probable is that failure to recognize the possibility of DROP participation results in the FRS AUTOMATICALLY deeming that the Former Spouse has a DROP entitlement and also determining the amount of DROP that is payable to the Former Spouse. Only appropriate drafting can Avoid this loss of control.

Surprise!

At the time of divorce the FRS employee should be clear on the portion of her or his monthly retirement allowance that will be paid to the Former Spouse. Presuming Boyett is followed, the FRS employee will have fixed in mind the precise monthly amount due to the Former Spouse. If DROP is not mentioned, the FRS employee is likely to presume that the DROP (which is clearly a post-divorce accumulation), is her or his sole and exclusive property. Not So! The view of the FRS is as follows:

FRS DROP CALCULATION

A Former Spouse's share shall be computed as follows:

Step I. 1

  • Years married (up to the agreed End of Marriage Date), divided by
  • All Years of FRS service up to the agreed End of Marriage Date

The resulting fraction is the marital part of the DROP.

Step II.

  • The marital part of the DROP shall be multiplied by 50 percent

The product of this calculation is the portion of the DROP paid to the Former Spouse.

Expectancy and Reality.

Two FRS employees are illustrated to make clear to attorneys the
magnitude of an unanticipated DROP award to a Former Spouse.

BASIC EMPLOYEE STATISTICAL DATA

Regular Class Special Risk

Date of Birth

7/1/1963

7/1/1972

Date of Marriage

7/1/1990

7/1/1994

Date of Hire

7/1/1988

7/1/1995

Date Action Commenced

7/1/2013

7/1/2013

Valuation Date

7/1/2014

7/1/2014

Valuation Date Age

51.00

42.00

Life Exp @ VD

30.5

36.4

NRD 2

7/1/2023

7/1/2020

Coverture Fraction

92%

100%

Numerator

23

18

Denominator

25

18

Normal Retirement Age (NRA)

60

48

Time to NRA

9.00 Yrs.

6.00 Yrs.

Benefit accrual rate

1.60%

3.00%

Final Avg. Pay

$65,000.00

$78,000.00

1 This Step I, presumes the parties have agreed to a "Boyett" formula. With increasing frequency this is not the case. Due to the economic impact of an "anti-Boyett" formula this is discussed in the next DROP article: "DROP Part III".

2 NRD: Normal Retirement Date

Based on the above Statistics, the employee's monthly accrued benefit at the agreed End of Marriage Date (EOMD) is:

Regular Special

Mo. Benefit at EOMD $2,166.67 $3,510.00

Marital $1,993.33 $3,510.00

(Based on Coverture Fraction) (23 ÷ 25 = 92%) (18 ÷ 18 = 100%)

Clarification:

Recall, the FRS formula, 50% of the marital part of the benefit is the basis for the calculation of the Former Spouse's DROP award. Therefore:

Regular Class: 92% ÷ 50% = Special Risk Class: 100% ÷ 50%

To Former Spouse (Mo.)

Regular Class: $1,993.33 * 50% =

=

$996.67

$996.67

46%
50%

$1,755.00

Special Risk Class: $3,510.00 * 50% = $1,755.00

* is used to denote "multiplied by

What Happens when the Deferred Retiree enters the DROP? Based on the above Statistics and discussion:

Regular Class

Mo. Benefit at NRA

$3,468.54

3

Full DROP Worth @ 60 months:

$214,904.75

4

Unanticipated Reductions

Former Spouse.

Contribution to DROP for each of 60 months:

$996.67

Worth at end of 60 months @ 1.3%:

$61,751.76

Lump Sum Paid to Retiree:

$153,152.99

Percent of Reduction to Retiree:

28.73%

3 Calculation not shown.

4 Based on sixty monthly deposits of $3,468.54 @ 1.3%.

Special Risk Class

Mo. Benefit at NRA: $5,490.04 5

Full DROP @ 60 months: $340,153.59 6

Unanticipated Reductions Former Spouse.

Contribution to DROP for each of 60 months: $1,755.00

Worth at end of 60 months @ 1.3%: $108,736.80

Lump Sum Paid to Retiree: $231,416.80

Percent of Reduction to Retiree: 31.97%

The above values of the DROP are estimates. Actual worth at the end of the 60 month period can vary from the above approximations.

Conclusion.

It is suggested that the attorney representing the Employee Spouse consider in matters involving a FERS employee, making clear to her or his client that although the DROP is a prospective benefit that may or may not be realized it should be understood that if the employee enters the DROP subsequent to divorce and the Marital Settlement Agreement did not mention nor award the Former Spouse any portion of a future DROP, upon participation in the DROP the Former Spouse will be entitled to a portion of the DROP as illustrated in this article.

Complexity Continues.

This is not the end of the story. Increasingly, settlements regarding the division of the FRS pension are settled with an "anti-Boyett" formula. The economic significance of this deviation from the Florida Supreme Court's decision is dramatic. This is the subject of the third DROP article.

5 Calculation not shown.

6 Based on sixty monthly deposits of $5,490.04 @ 1.3%.