Two Recent Pennsylvania Superior Court Cases on Pensions in Divorce
By: Marvin Snyder
There are two new opinions of the Superior Court on pensions in equitable distribution in marital dissolution: GRAHAM and CORNBLETH. These current rulings provide important guidance in areas that may have been considered as closed issues.
The Social Security Issue: Generally speaking, Social Security benefits are excluded from consideration as marital property in divorce. When there are no Social Security benefits at all because the employment is not covered by Social Security, such as the federal Civil Service Retirement System, occasionally a divorce lawyer will suggest that federal pensions may be greater than pensions offered by corporate employers because federal employees do not get Social Security pensions, and this was recognized when Congress established the retirement system.
If this argument is accepted, then the present value of a federal pension in divorce should be reduced by calculation of a theoretical Social Security pension. The Superior Court has now so ruled in Cornbleth v. Cornbleth. The opinion says that the present value of a government pension should be reduced by the present value of the theoretical Social Security pension. This special treatment does not apply to all federal employees. There are now two separate federal retirement programs. The Civil Service Retirement System (CSRS) is the older system that excludes Social Security. The Federal Employees Retirement System (FERS) is newer, and members are covered by Social Security. The older program, CSRS, offers larger pensions by a defined benefit pension formula.
So, in determining the value of a pension in divorce of a federal employee, including postal workers, it must be ascertained in which system he is covered, and if it is CSRS, then an adjustment is necessary for imputed Social Security in accordance with Cornbleth.
The QDRO Issue: There has been a question of how to use a Qualified Domestic Relations Order (QDRO) when the retirement plan in question is not a qualified plan covered by the Employee Retirement Income Security Act (ERISA). This usually occurs when the employer is a regional, local or state governmental organization. For example, New Jersey has accepted attachments on pensions of its own state employees in divorce property settlements, but the Commonwealth of Pennsylvania has not. However, the City of Philadelphia does accept court orders on the pensions of its civilian workers, and uniformed employees (police and fire). But, a regional quasi-governmental entity, "SEPTA" (Southeastern Pennsylvania Transit Authority) does not accept pension attachments.
In Pennsylvania, School teachers' pensions in divorce could not be reached by QDRO'S because of the refusal of the Public School Employes Retirement System to accept property settlement orders on pensions in divorce actions. This QDRO maze may now be negotiated by the opinion of the Superior Court in Graham v. Graham. This ruling permits domestic relations court to attach the pension of a school teacher. In reasoning by extension, perhaps it may now be expected that the various non-qualified retirement systems of the local, regional and state-level non-ERISA plans may now be subject to QDRO's to obtain pension benefits in settlements of divorce cases. Technically, in these cases, it would not be a "QDRO", but rather a "DRO" because the letter "Q" for "Qualified" does not apply to a non-ERISA plan.