A defined benefit plan is an employer-sponsored retirement plan where employee benefits are determined pursuant to a formula which may involve factors such as salary history, duration of employment, or other criteria. Pensions are examples of defined benefit plans.
In the context of a divorce, the Court may award the non-participant spouse up to 50% of the “marital share” of the participant’s defined benefit plan by QDRO. The awarded portion of the marital share may take the form of a specified percentage of the account balance, or a fraction/percentage of the marital share defined as of a certain date. In addition, the non-participant spouse may be entitled to a portion of other economic improvements on the participant’s benefit, depending upon the features of the particular plan and what is ordered by the Court or agreed upon by the parties.
In the course of negotiating a settlement or preparing for trial, one issue to be considered is whether the non-participant spouse will take his or her share of the participant’s defined benefit plan as a shared interest or as a separate interest. Each of these options has benefits and disadvantages and must be considered carefully in the context of the particular defined benefit plan.
If a shared interest is selected, the payments to be received by the non-participant spouse will begin at the same time the participant begins receiving his or her benefit, and will be made to the non-participant spouse in the form elected by the participant. The payments to the non-participant spouse will also cease upon the death of the participant unless survivorship benefits are negotiated, because the duration of the benefit is keyed to the participant’s lifetime. This method for dividing a defined benefit plan is sometimes referred to as an “if, as, and when received” approach.
If a separate interest is selected, the payments to be received by the non-participant spouse may begin, within the parameters of the particular plan, when the non-participant spouse chooses, and will be made to the non-participant spouse in the form he or she elects (again, within the parameters of the particular plan). The payments to the non-participant spouse will not cease upon the death of the participant because the duration of the benefit is keyed on the non-participant spouse’s lifetime. Unfortunately, if the participant is already in pay status, this method for dividing the participant’s interest in the defined benefit plan is usually not available.