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COLLECTIVELY BARGAINED – UNION PLANS – SURVIVOR BENEFITS

Union Plans appear to be setting a new trend in the treatment of Survivor Annuity Benefits payable to a former spouse. This trend is a result of Union Plans permitting a retiree who divorces subsequent to retirement to then change his or her retirement election (a post retirement modification). When the parties were married at the time of retirement, the retirement option elected is mandatory: Joint and 50% Survivor Annuity (absent a written waiver, signed by the spouse). After the parties divorce, many Union retirees became unhappy with their former spouses remaining as the survivor annuity beneficiary. Unions are increasingly responsive to this retiree discontent.

Although the focus of this Practice Aid is Union Plans, it is to be noted that a small but growing number of ERISA plans are also permitting a post-retirement change of retirement option when divorce occurs subsequent to retirement.

The Trap:
Assume Herman and Martha Cronthal divorce on September 14, 2010. At the time of divorce Herman was retired and collecting his monthly pension from a Union Plan. The attorney representing the alternate payee Martha Cronthal was provided with a copy of the retirement election form completed by Herman. This form clearly provided that at retirement Herman elected a Joint & Survivor Annuity for the benefit of his then spouse. The parties Property Settlement Agreement called for Martha to receive half of all pension payments. Since Herman retired with a Joint and Survivor Annuity and Martha’s attorney “understood” that this election was “irrevocable” he did not insert into the Property Settlement Agreement any language relevant to Martha’s survivor interest.

On October 14, 2010 the Plan’s Administrator received a Domestic Relations Order assigning to Herman’s former spouse, 50% of the Herman’s monthly pension. There was no mention of a survivor benefit award to Martha since Martha’s attorney “knew” that this election was “irrevocable”. The submitted Order was Qualified by the Plan Administrator in November and Martha began receiving her monthly share of Herman’s pension starting December 1, 2010.

On February 18, 2011 the Union Plan’s Administrator received a request from Herman Cronthal to modify his initial election of a Joint and Survivor Annuity with his former spouse. Accompanying Herman’s request for a “Retirement Election Change” was a copy of the parties Final Judgment of Dissolution of Marriage and the Qualified Domestic Relations Order. The Plan Administrator found no reference in either instrument to a Survivor Annuity Award to Martha, the former spouse of Herman. Relying upon these two documents, the Plan Administrator, effective March 1, 2011 changed Herman’s retirement election to a Single Life Annuity. A Single Life Annuity is an annuity payable over the lifetime of the retiree. Upon the retiree’s death all payments cease. Herman died on October 4, 2011. With Herman’s death all payments to Martha ceased.

Shortly after Herman’s death Martha instituted a malpractice suit against her attorney Listajo Pacaro. It is Martha’s contention that she relied to her economic detriment upon her attorney’s representation that the survivor annuity election of the Husband, made at his retirement was “irrevocable”. This attorney representation was not in fact true. Martha then had Roger K. Hackenshmidt prepare an evaluation indicating the present cash value of Martha’s economic loss resulting from her attorney’s failure to insert a survivor award to Martha into the Property Settlement Agreement. His conclusion of Martha’s loss:

$356,790.14

A Summary of the Hackenshmidt Report.

Herman’s Monthly Retirement Benefit: $3,750.00
Martha’s Share of the Monthly Benefit: $1,875.00

Martha’s Life Expectancy on Herman’s date of death: 25.19 years
Interest Rate Used: 4%

Present Cash Value of Martha’s lost Survivor Benefit: $356,790.14

Reminder:
When representing the former spouse, be sure to insert into your survivor benefit provision language akin to the following:

The retirement option elected at retirement shall remain permanently in effect, with the alternate payee indicated above as the irrevocable beneficiary.

Commentary:
There are many Retirement Systems that have special rules regarding Survivor Annuities as they affect divorced spouses. Ignorance of such rules or failure to comply with such rules, can result in loss of Survivor Benefits by a Former Spouse. This is especially applicable to two Retirement Systems. Special vigilance and knowledge is required for drafting against:

  • Federal Retirement Systems
  • Military Retirement Systems

Notice:
As indicated above this availability of post-divorce retirement option election modification extends to some ERISA plans. Among the larger employers who permit post-divorce retirement election modification is General Motors. It is strongly suggested that attorneys representing alternate payees ascertain prior to negotiation and drafting the views of the employer regarding post-divorce retirement election modifications.

Troyan, Inc., conducts seminars for family bar associations and groups of family practitioners (at least 20 attendees). The content of each seminar is structured to your stated preferences. The duration of seminars varies from two hours to a full day depending on your topic preferences.