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PENSIONS AND DIVORCE

THE INTENT OF BOYETT

To better appreciate the content of this Newsletter, a short Tutorial about Survivor Annuities prefaces our discussion.

SUBJECT OF THIS TUTORIAL

Difference Between Retirement Annuity and Survivor Annuity

Definitions

Retirement Annuity: Periodic payments commencing with the retirement of the employee and payable over the lifetime of the retiree. Absent the designation of a survivor beneficiary these payments terminate upon the death of the retiree.

Survivor Annuity: Periodic payments beginning on the month following the death of the employee (preretirement) or retiree (postretirement) and continuing until the death of the survivor annuitant. It is to be noted that "survivor" benefits may begin before the retirement of the employee in the form of a Qualified Preretirement Survivor Annuity (QPSA).

ERISA [1] DEFINITIONS: SURVIVOR ANNUITIES.

(b) Definition of qualified joint and survivor annuity. For purposes of this section and section 401(a)(11) [26 USCS § 401(a)(11)], the term "qualified joint and survivor annuity" means an annuity--

(1) for the life of the participant with a survivor annuity for the life of the spouse which is not less than 50 percent of (and is not greater than 100 percent of) the amount of the annuity which is payable during the joint lives of the participant and the spouse, and

(2) which is the actuarial equivalent of a single annuity for the life of the participant. Such term also includes any annuity in a form having the effect of an annuity described in the preceding sentence.

(c) Definition of qualified preretirement survivor annuity. For purposes of this section and section 401(a)(11) [26 USCS § 401(a)(11)] --

(1) In general. Except as provided in paragraph (2), the term "qualified preretirement survivor annuity" means a survivor annuity for the life of the surviving spouse of the participant if--

(A) the payments to the surviving spouse under such annuity are not less than the amounts which would be payable as a survivor annuity under the qualified joint and survivor annuity under the plan (or the actuarial equivalent thereof) if--

(i) in the case of a participant who dies after the date on which the participant attained the earliest retirement age, such participant had retired with an immediate qualified joint and survivor annuity on the day before the participant's date of death, or

(ii) in the case of a participant who dies on or before the date on which the participant would have attained the earliest retirement age, such participant had--

(I) separated from service on the date of death,…

(II) survived to the earliest retirement age,

(III) retired with an immediate qualified joint and survivor annuity at the earliest retirement age, and

(IV) died on the day after the day on which such participant would have attained the earliest retirement age,…

Death Prior to Retirement.

If death occurs prior to retirement the survivor annuity is termed "Qualified Preretirement Survivor Annuity (QPSA). [2] Thus, the payment to the Survivor is:

Half of the employee's monthly accrued benefit as of the employee's death.

Death Subsequent to Retirement.

If death occurs subsequent to retirement the survivor annuity is termed "Joint and Survivor Annuity (J&S). Thus, the payment to the Survivor is:

Half of the retiree's actual retirement annuity at the time of death.

Clarification of ERISA's Joint and Survivor Annuity.

This clarification will be helpful to the "Discussion" below.

The Joint and Survivor Annuity is equal to 50% of the employee's or retiree's actual monthly accrued benefit on the date of death.[3]

For example if the employee's monthly accrued benefit on April 1, 2013 was $2,500.00 then the Joint and 50% Survivor Annuity payable on this date is $1,250.00.

Thus, the Joint and 50% Survivor Annuity will in virtually all matters be equal to one-half of the full annuity payable on the date of death. It is the position of the Newsletter that this is the form of survivor annuity that is consistent with Boyett. If this

Federal Retirement Systems.

Civil Service Retirement System: Maximum Survivor Benefit is 55% of the employee's "Base" Annuity.

Federal Employees Retirement System Maximum Survivor Benefit is 50% of the employee's "Base" Annuity.

Military Retirement System.

Maximum Survivor Benefit is 55% of the member's "Base" Annuity.

DISCUSSION

The focus of Boyett was the division of the employee's pension (retirement annuity). [4] As a result of Boyett, negotiations became focused on the calculation of the marital portion of the pension in order to negotiate the size of the benefit assigned to a Former Spouse. Strict adherence to Boyett requires that only the pension acquired up to the Filing Date of an Action for Dissolution is divisible.

Property Settlement Agreements that comply with Boyett are specific in delineating the award to the Former Spouse. The monthly benefit to be paid to a Former Spouse is determined by reference to the employee's benefit up to the Dissolution Date (this is a "lookup" function, not a calculation). Any benefit acquired prior to marriage is not deemed marital. Any benefit accrued beyond this date is not considered marital. Pursuant to Boyett, settlements that are consistent with this decision, provide a finite monthly benefit to the Former Spouse.[5] Be clear, a formula award to an alternate payee is not consistent with Boyett.[6] The reason for this specificity is that all of the relevant factors are known or ascertainable as of the Date the Action Began. Because all of the factors are known as of the Date the Action Began the employee's monthly accrued benefit as of this date is a known (or readily ascertainable) statistic.

Area of Neglect.

Unfortunately, this focus on the "pension benefit" or "retirement annuity" has often resulted in less attention being paid to a second, separate and distinct element of the division of the marital pension, i.e., the "survivor annuity" benefit awarded to the Former Spouse. This oversight may in part be attributed to the fact that the terms "Death" and "Survivor" are not found in Boyett. [7] As a result it is likely that some attorneys representing an employee spouse when negotiating the pension award to a Former Spouse have not considered the concomitant limitation on awards to a Former Spouse of "Survivor Annuity" and or "Death Benefits". It is the position of this Newsletter that a well-crafted Property Settlement Agreement will consider both forms of survivor annuity.

  • Qualified Preretirement Survivor Annuity
  • Joint and Survivor Annuity

The Richardson Decision. [8]

Following Boyett the Richardson court provided:

…the survivor benefit should not exceed the Former Wife's pension benefit as calculated pursuant to Boyett..

Unsettled Issue.

Troyan believes that the above language requires clarification. The author argues that there are at least two possible interpretations of the above Boyett language.

Identity Position

  • The size of the employee's retirement annuity and survivor annuity are identical.

Separate Calculations for Distinctly Different Benefits

  • Because these are separate and distinct pension benefits they should be quantified pursuant to the terms of the plan being divided.[9]

Illustration of the Concomitant Limitation on the Size of the Survivor Annuity Award to a Former Spouse.

The Marital Settlement Agreement regarding Joe's Federal Postal Benefits provided:

Jane is the survivor beneficiary of her interest in Joe's Pension Benefit.

A Court Order Acceptable for Processing containing the above provision is filed and accepted by Office of Personnel Management (O.P.M).

Financial Outcome: Impact of Disregarding Richardson. [10]

Clearly, the above insertion into the Marital Settlement Agreement is indicative of the fact that this attorney was not familiar with either Richardson or the applicable section from the Code of Federal Regulations (C.F.R).:

5 C.F.R. 838.921 Determining the amount of a former spouse survivor annuity.

(a) A court order that contains no provision stating the amount of the former spouse survivor annuity provides the maximum former spouse survivor annuity permitted…

Basis for the Outcomes Illustrated Below.

See Appendix "A" for an Illustration of the Identity Position

See Appendix "B" for an Illustration of the Separate & Distinct Position

The Employee Remarries.

At the time this matter settled, Joe was accepting of the "Boyett" award to his Former Spouse, based on his attorney's representations. Two years after the divorce, Joe remarries [Mary]. Three years later (3/1/2018 Joe Dies). Mary contacts the Office of Personnel Management (OPM) to begin her survivor annuity benefit payments (balance of the survivor annuity as explained to Joe by his family attorney). Mary is advised by O.P.M.

Based on 5 C.F.R. 838.921, the Office of Personnel Management's interpretation of the language of the Marital Settlement Agreement is that the full monthly survivor benefit was awarded to Jane: $1,136.50

No Surviving Spouse Annuity is payable to Mary!

Shortly thereafter Mary contacted a Pension Valuator to compute the present cash value of her lost survivor annuity benefit. She is advise that her financial loss is: $166,771.40. Shortly thereafter Mary instituted a malpractice suit against Joe's family attorney.

Suggested Solution.

What follows is directed to attorneys representing employee spouses. Clearly, this view would not find acceptance with attorneys representing Former Spouses. The position of this Newsletter is that the intent of the Boyett court was to divide benefits accumulated as of the Filing of the Action for Dissolution. Although not specified in Boyett it appears consistent with the court's reasoning that it did not intend to Double the Size of the survivor annuity benefit awarded to a divorcing spouse.

Explanation of "Double the Size" of the Survivor Annuity Benefit.

Assume the "Annuity" Award to the Former Spouse

as of a date certain is: $1,000.00

The Equivalent "Survivor" Annuity

on that date is: $500.00

To give to a Former Spouse a Survivor Annuity Benefit that is equal to her or his "Annuity" award is a Doubling of the Size of the Survivor Award. Again, it is the author's position that Boyett did not intend to so enrich the award to the Former Spouse.

Summary.

This treatment of a Domestic Relations Order is likely regardless of the type of Plan containing the above discussed flawed drafting, e.g. ERISA, Military, Federal. In this illustration the magnitude of the increase of the Former Spouse's Survivor Annuity Benefit is 40.89%. Depending on the statistics of your matter the magnitude of increase can be more or less. To bar unanticipated increases in the size of pre and post-retirement survivor annuities to a Former Spouse it is suggested that Richardson be followed by the attorney representing the employee spouse. Understandably, attorneys representing former spouses will adopt a contra position.

Caution!

Attorneys and parties to a divorce action will note that the preparation of a Domestic Relations Order is a legal function. To delegate this function to a non-lawyer is likely to jeopardize an attorney's malpractice coverage and can be to the detriment of the parties to the divorce action. Prior to retaining a non-lawyer to advise or to prepare a Domestic Relations Order, it is suggested that attorneys confirm with their malpractice carrier that such retention does not void their malpractice protection. Parties to the divorce action will confirm that the "advisor" has proper legal credentials.

Consider this: The unauthorized practice of law, e.g. preparation of a Court Order by a non-lawyer constitutes a 3rd class felony in Florida.

Appendix A

Joe Smith, Federal Employee

Jane Smith, Former Spouse

Mary Smith, Spouse at Joe's Death

Regarding Joe Smith

Date of Birth: 3/1/1964

Date of Marriage: 3/1/1990

Date of Hire: 3/1/1991

End of Marriage Date: 3/1/2013

Final Average Pay: $80,000.00

All Service is Marital

Monthly Benefit: $1,613.33

(1.1% * 22 years * $80,000.00) ÷ 12

The "*" means "multiplied by

Monthly Award to Jane Smith: $806.67

($1,613.33 ÷ 50% = $806.67)

Resulting Survivor Benefit to Jane

Identity Survivor Benefit 3/1/2013 $806.67

Separate and Distinct 3/1/2013 $403.33

(Based on a Joint and 50% Survivor Annuity)

Marriage to Mary 3/1/2014

Joe Dies 3/1/2018

Actual Monthly Benefit @ Death: $2,272.99

Actual Survivor Benefit @ Death: $1,136.50

Identity Survivor Benefit 3/1/2018 $1,136.50

Separate and Distinct 3/1/2018 $403.33

Percent of Increase in Death Benefit

Attributable to Identity format 41.89%



[1] ERISA. This is the Employee Retirement Income Security Act. Its intent is to protect, participant's, retiree's and beneficiaries of Corporate Pension Plans.

[2] Alert: For FERS (new plan federal employee) the preretirement survivor benefit includes more than a survivor annuity.

[3] This is the mandated amount, as an option a Plan may offer a Joint and 100% Survivor Annuity.

[4] See Boyett v. Boyett, 703 So. 2d 451; 1997

[5] It is possible to express a finite benefit as a fraction. For example assuming the total marital monthly accrued benefit as of the Date of Filing is $1,000.00, and the Former Spouse is awarded a fixed monthly benefit of $250.00 it could be said that as of the Date of Filing the award to the Former Spouse was 25% of the marital benefit. The author suggests avoidance of this use of a fraction as the finite nature of the award may be lost in the crafting of the Domestic Relations Order. The unintended outcome is an award to the Former Spouse of 25% of the employee's full benefit at retirement.

[6] A "formula" implies the concept found in the following jurisdictions: In re Brown, 544 P.2d 561. Majauskas v. Majauskas, 463 N.E.2d 15. Marx v. Marx, 627 A.2d 691.

[7] Neither are these two terms found in the cases favorably cited by Boyett:

Howerton v. Howerton, 491 So. 2d 614, 1986

Bain v. Bain, 553 So. 2d 1389, 1990

[8] See Richardson v. Richardson, Ct. of App. 2nd Dist., 2005 Fla. App. LEXIS 4484; 30 Fla. L. Weekly D 880, April 1, 2005

[9] This information is found in the Plan Document and the Plan's Summary Plan Description (SPD).

[10] See Appendix A for statistical data supporting this discussion.