Duty to Involve Specialist
Introduction
An attorney has a duty to obtain the services of a competent specialist if the task goes beyond his/her expertise. Unfortunately, many attorneys refer their clients to QDRO mills who draft QDROs using a “one-size-fits-all” approach, often using model orders provided by the plan. The difference between a QDRO or division order from a QDRO mill (or one you draft based on the plan’s model order) vs a QDRO, or division order, drafted by a competent specialist can be astounding. Here are a few examples:
Early Retirement Subsidy Loss
A divorce mill QDRO may provide AP with what is called the early retirement subsidy only if P is actually retired and receiving an early retirement subsidy. However, under In re Marriage at Gilmore (1981) 29 Cal. 3d 418,174 Cal.Rptr. 493,629 P.2d 1, if P is eligible to retire, AP has a right to be placed in the same she/he would be in if P were to actually retire. Result: An award of one-half- interest in P’s accrued benefit will fail to provide AP with the full interest provided under Gilmore.
Survivor Benefit Adequacy
In most defined benefit plans, unless AP receives all of the community interest in pre-retirement survivor benefits AP will receive less than half of the benefit anticipated on the retirement of P, if P dies before AP commences receipt of benefits.
Lifetime Payment for AP
If the QDRO fails to specify that AP can take a benefit for AP’s life, many companies will deny this right to AP. Result: no benefits on P’s post-retirement death and no way to leave benefits to the heirs of AP; if AP dies early, AP’s interest reverts to P.
Non qualified Plans
A typical divorce-mill QDRO will cover only the qualified plan benefits. Where there are highly paid employees there are almost always non qualified plans providing additional benefits. Result: AP will lose benefits from the non qualified plan.
Post-Separation Plans
P starts with ABC in 1970, in 1980, just before marriage separation. the pension plan is terminated because of a merger with XYZ. The QDRO-mill might limit their order to the ABC plan and overlook the fact that XYZ may provide benefits based on community service with ABC. In re Marriage of Lehman 1991 Cal. App. Lexis 449, tells us: “The fact that the enhancement to the retirement program was not offered until after separation is, in our view inconsequential. Rather than focusing on when the enhancement is offered, we perceive the appropriate inquiry to be what does the enhancement represent. Result: significant loss of benefits to AP.”
Health Issues
If either P or AP is in poor health the actuarial impact of this fact should be taken into consideration in the drafting of the QDRO. The QDRO-mill order may not take this into consideration. Result: Without actuarial valuation the order will not be drafted to maximize the benefits payable.
Other Issues
In public plans such a CaIPERS and STRS, other issues can influence the value of the retirement benefits. For example, CalPERS and STRS both offer two schemes for the disposition of AP’s interest — one, where AP is awarded part of P’s service and a separate plan established for AP and two, where AP is awarded a fractional interest in each payment P receives. The method selected may have a great impact on the amount of benefits received by AP. An actuarial valuation is indicated to determine the best disposition method to use. Issues of subsequent spouses and survivor continuance benefits must be addressed.
Summary
The order drafted by the QDRO-mill or copied from the plan’s form QDRO will be faster and cheaper, and will be enforceable. But if you don’t want to participate in the forfeiture of your clients’ benefits, obtain help from someone who understands the proper application of the principles of community property to retirement benefits.