Pension, Divorce and the Defined Benefit Plan

Key Points

Defined benefit retirement plans are distributed on a monthly basis to the alternate payee upon the participant’s retirement.
As opposed to the defined contribution plan there is no lump sum payment that the alternate payee can receive.
When you negotiate your divorce settlement and you are splitting a defined benefit make sure everything is done properly to ensure the non-participant receives lifetime benefits.

This is a plan set up by a company, union, or individual that provides a participant with a monthly income for life upon retirement:

Examples: IBM Retirement Plan, AT&T Pension Plan, Bricklayers Pension Fund-Local 21.

When a QDRO is drafted for this type of plan, benefits may commence to the Alternate Payee when the Participant reaches his/her earliest retirement age or when he/she actually retires or at any time in between. The benefit is distributed in monthly payments for either the lifetime of the Participant or the Alternate Payee.

Some Key Facts to Remember:

The Alternate Payee typically cannot be awarded a lump sum dollar amount. Any benefit to be awarded to an Alternate Payee must be stated in terms of a monthly amount.

If it is the intent of the parties that the Alternate Payee receive benefits for her lifetime, it is not always necessary for the Participant to elect a "Joint & Survivor" annuity. Some plans will convert the Alternate Payee's share of the Participant's benefit into a benefit based on her lifetime.

Information Provided by: Pension Appraisers, Inc.

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A VALUABLE ASSET – Pensions and retirement plans often have significant value. The value of a typical pension benefit payable in the future can be deceiving. For example, a $2,000 monthly benefit payable for life beginning at age 65 can have a value of $100,000 to $200,000 for a person in his or her fifties today. Calculating the value of a pension demands an appraisal to compute its present value, which is the value of money over time.

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