16.09 Retirement Age

Under REA, ERISA plans allow the alternate payee to commence benefits as early as the participant's earliest retirement age even if the participant is not actually receiving pension benefits yet and has not retired This guarantees that the alternate payee's benefit under a QDRO will have the same value as an immediate offset, at least under certain conditions. See *19.04 for further discussion of this issue. Essentially, the QDRO "purchases" an annuity for the alternate payee. The purchase price is the cash payment under the immediate offset approach that he or she is foregoing, in return for getting the QDRO award. However, non-ERISA plans are not governed by REA. Thus, the alternate payee must wait until the participant commences benefits in order to receive his or her benefits. If the participant delays retirement, his or her own retirement benefit will increase, due to increasing service and salary, but the alternate payee's present value will be decreased, due to delay in payment. Thus, the DRO and the immediate offset approach will not be equivalent. The value of the "purchased" annuity will be less than the "purchase price," or the cash payment under the immediate offset approach. The alternate payee loses value every year the participant delays retirement. In California, this issue has been settled by that state's Supreme Court in the case of Cornejo v. Cornejo.8 In that case, the participant was a public school teacher in a non-ERISA plan. Thus, the alternate payee could not commence benefits until the participant retired. The Supreme Court of California found that if the participant delays retirement, the alternate payee must receive an immediate cash payment equal to the present value of his or her award as of the participant's normal retirement age. Many states do not have case law covering this situation. This issue may be addressed in the QDRO or QDRO-type order, and will be discussed in detail in Chapter 17 on the CSRS system. However, unless this issue is addressed, the best strategy for the nonemployee spouse is to obtain an immediate offset. The caveat is that the COLA may not be included in an immediate offset, depending on the case law of the particular state. Thus, if the case law of the state includes a COLA in an immediate offset, or if the plan has no COLA (e.g.. various state, municipal, and public school teachers' plans have no COLA), the best strategy for the nonemployee spouse in a non-ERISA plan is to choose immediate offset.

⁶ E.g.. New Jersey, Hayden v. Hayden, 284 N.J. Super. 418, 665 A.2d 772 (1995).

⁷ E.g.. Pennsylvania, Zollars v. Zollars, 397 Pa. Super. 204, 579 A.2d 1328, (1990). 16-12

⁸ 916 P.2d 476,53 Cat. Rptr. 2d 81 (1996).

Reprinted with permission. 2007, Aspen Publishers, Inc., from Valuing Specific Assets in Divorce, edited by Robert D. Feder.

Click here for the next chapter