Pensions

While not often discussed in terms of their lump-sum value, pensions are frequently a highly valuable asset, which can have a tremendous impact upon a client’s income at retirement.  Pensions are a promise to pay from the employer to the employee. They are governed by the plan document and do not have to follow QDRO instructions if those instructions violate the plan document. Since there are many types of pensions, there are some key considerations and questions when addressing a pension benefit in a divorce agreement:

  1. The pension portion that is considered a marital asset typically does not include the years accrued before the marriage or after the divorce. This creates some complexity in determining what is an equitable distribution of the payout. Is it a fixed dollar amount, a percentage, or some other calculation that would adjust as one participant continues to work at the company? For example a couple that has been married 20 years may agree that the pension is to be divided  50-50 at the time of retirement. However, if one participant works another 10 years for the company after retirement, Is he or she is giving up 50% of an asset that they was only a marital asset for 20 out of the 30 years of benefit accrual?
  2. What is the present value of this future obligation? If this can be agreed upon, clients can use other assets to offset their share of the pension. In this scenario, a non-participant spouse can get assets today and not have to wait 5, 10, 20+ years to receive his or her share.
  3. If the participant dies before starting the pension benefit, is there any obligation to pay the ex-spouse. If the non-participant spouse dies, is there a beneficiary on his/her portion of the payment?
  4. Can the spouse of the pension participant collect a benefit if the participant has not yet reached retirement age or has voluntarily continued to work beyond that age?
  5. Can the pension be separated into 2 individual accounts with a QDRO? Under this option the non-participant spouse actually gets his/her own account and becomes a participant. This will allow the participant spouse to continue to accrue benefit with additional years of work, and minimizes future confusion and conflict with regards to pension payout amounts.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.Securities offered through Securities America, Inc. Member FINRA/SIPC. Advisory services offered through Provo Wealth Management Group. Securities America is not affiliated with any other named entity.  This site is published for residents of the United States and is for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any security or product that may be referenced herein. Persons mentioned on this website may only offer services and transact business and/or respond to inquiries in states or jurisdictions in which they have been properly registered or are exempt from registration. Not all products and services referenced on this site are available in every state, jurisdiction or from every person listed. Securities American and its representatives do not provide legal advice; therefore it is important to coordinate with your legal advisor regarding your specific situation.

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