Spring Follies or Common Misconceptions in Pensions
By: Marvin Snyder
This may be a good time of year to discuss the standard misunderstandings that perennially arise when pensions are an issue in divorce cases. There are three general areas which generate one or more routine errors as listed below.
CONTRIBUTIONS - the total of the contributions made to fund a pension benefit or to go into an employee account is not the value of the benefit or the account. Not all plans even have employee contributions. Most corporate defined benefit pension plans are funded solely by employer contributions and these monies are not allocated to individual participants. Don't ask the employer to furnish the amount that has been contributed for an employee, no matter what kind of plan it is.
BENEFITS - the pension in a defined benefit pension plan is not dependent on contributions. It is determined by plan formula. During the employee's working career the pension benefit in a defined benefit pension plan is accruing ratably each year. It may be measured and determined at any time point - past, present, or estimated future. The benefit in an individual account defined contribution plan is the person's account balance at any time, consisting of employer and employee contributions, investment gains and possibly forfeitures from the departure of nonvested participants.
QDRO'S - a qualified domestic relations order, or its equivalent, must be tailored to the kind of plan involved. A common error is to attempt to award to the non-employee spouse a lump sum amount from a defined benefit pension plan. Another problem occurs from failure to distinguish between a plan covered by ERISA (Employee Retirement Income Security Act) and one not so covered, such as a governmental plan, or a school teachers retirement system, or a nonqualified "top hat" plan for executives.
SOLUTION - avoid these common errors by using a professional firm, such as Pension Analysis Consultants, Inc., to do valuations and to prepare draft orders for counsel. The standard fee for the preparation of a draft order is $400. The standard fees to compute the present value of a pension generally range from $125 to $300. Service is prompt and efficient. Call for details: 1-800-288-3675.