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Pension Evaluation
Basic Pension Principles
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Divorce & Retirement FAQs
Equitable Distribution
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State Listing of Statuses Disallowing Personal Identities In QDROs
State Analysis of IRA Exemptions
Collection Laws and Exemptions by State
Tax Treatment in Pension Evaluation
Distribution from Qualified Plans
Webutation
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Target Plan: A defined contribution plan with individual accounts that is also known as a target benefit plan or an assumed benefit plan. The plan contains a benefit formula that sets forth the theoretical retirement pension. The employer makes actuarially determined contributions to fund the targeted pension. The employee will not receive that pension, however. The employee receives the balance in his or her account. The individual account consists of employer contributions and investment gains and sometimes employee contributions. A target plan is subject to valuation for equitable distribution and to a QDRO. If a QDRO is served on the plan, it should award a percentage of the account rather than a lump-sum amount or a monthly pension.

Taxation: Pension payouts are taxed first to the recipient as personal ordinary income in the year in which received. If paid as an annuity, the total amount received each year is subject to personal ordinary income tax. If paid in a lump sum, the pension may be eligible to be rolled over into an IRA to defer taxes. Annuity payments are not permitted to be rolled over. If there have been employee contributions, the taxable portion of the received benefits is adjusted. Payments to a former spouse (alternate payee) pursuant to a QDRO are taxable to the recipient, not to the participant. If a lump sum is paid by the QDRO, it is not subject to the premature distribution 10 percent excise tax penalty, regardless of the age of the alternate payee. This is true whether or not the lump sum is rolled over into an IRA.

TIAA-CREF: The Teachers Insurance Annuity Association and College Retirement Equities Fund is a special kind of insurance company for the use of Section 501(3)(c) institutions such as universities, colleges, teaching hospitals, and museums. It receives contributions, holds and invests the monies, and then makes annuity payments to retired employees. TIAA-CREF is a voluntary program on two levels: The employer has the option of participating, and each eligible employee of a participating employer has the option of joining. TIAA-CREF itself is not a pension plan; it is a funding vehicle. It will accept the equivalent of a QDRO upon proper processing and set up a separate account for the divorced spouse. The TIAA portion of a participant's account is invested in fixed-income investments, whereas the CREF portion is in equity securities like a mutual fund. Each participant has the choice of allocating his or her account among TIAA and CREF in varying percentages. TIAA-CREF accounts are subject to valuation as well as to deferred distribution.

Time Rule: Used to determine what portion of a pension value is marital property subject to equitable distribution by use of a fraction (usually in a defined benefit pension plan). The numerator of the fraction is the period of time from the later of (a) date of marriage or (b) date of plan entry to the cutoff date in the applicable jurisdiction. The cutoff date may be the date of marital separation, the date of filing of the divorce complaint, the date of hearing or trial, or the date of the divorce decree. The denominator is the period of time from the date of plan entry to the cutoff date in the applicable jurisdiction. The ending point of the denominator should agree with the date as of which the benefit is being measured.

Top-Heavy Plan: An ERISA plan in which either the benefits or contributions are weighted more for higher-paid employees than for lower-paid employees, within permissible limits. When a plan is considered top-heavy, it is required to have faster vesting than a plan that is not top-heavy. The status of being top-heavy may vary from year to year. In general, a plan is top-heavy if more than 60 percent of the benefits or contributions are attributable to key employees. In a top-heavy plan, there are minimum requirements for benefits and/or contributions for the non-key employees.

Total Offset: There are two entirely different meanings to this phrase: (1) The use of the present value of the pension as an immediate offset compared to other marital property in equitable distribution may be considered to be a total offset of the pension, and (2) the computation of the present value of a pension discounts future amounts to the present by taking interest and mortality into account. If it is supposed that the future rate of inflation is exactly equal to the interest rate, then it could be argued that they offset each other in a total offset. This concept is rarely used in valuation of pensions in divorce.

Tracing: A method of attempting to identify marital property in the assets of a pension plan, usually a defined contribution plan. Every contribution made by the employer and by the employee is accounted for, with the separate investment results attributed to each activity. This is a very difficult and time consuming process that is rarely used.

Union Member: A union member is a person who belongs to a union in connection with his employment with an employer who has a collective bargaining agreement with the union. The person would be covered by a multiemployer pension plan. If the person is an officer or office staff employee of the union and the union has its own pension plan, the person would be a participant in two plans: the multiemployer plan and the union's own plan. If the person is a high-level union official he or she may also be an officer or employee of the national union and a participant in the union's national pension plan and, therefore, a simultaneous participant in three pension plans.

Unit Benefit Plan: A defined benefit pension plan in which the benefit formula is based on a small unit multiplied by the number of years of credited service. The unit may be a dollar amount or a percentage of pay. An example would be $25 of monthly pension per year of service, so that with 30 years the pension is $750 a month. Or, the formula could be one percent of pay per year of service (pay having its own definition, varying by plan), so that with 30 years of service and average monthly pay of $2,000 the pension is $600 a month.

Updating Valuation: If the present value of an individual's pension in a defined benefit pension plan was computed more than one year before the case is due to be heard or settled, the present value must be updated. It is not correct to merely add interest to the prior value, because the old value was computed using the interest rates of a year ago. Because interest rates generally change over time, the value would have to be recomputed as of the prior date using current interest rates before it can serve as a basis for updating. Furthermore, the old value was computed using a mortality discount, and the person is still alive; so the mortality component would have to be added back. The preferred method for updating is to do a new, current valuation based on current age and current interest rates.

Valuation Date: To determine the present value of a defined benefit pension plan for immediate offset for equitable distribution, it is necessary to have a specific valuation date. The "present" in present value refers to the valuation date. On a given valuation date, the person's age, length of service, and eligibility for benefits will be determined. The valuation date also will determine what assumptions the actuary makes as to mortality tables and interest rates. Some jurisdictions require that the valuation date be as close as possible to the date the divorce is settled, the date of distribution. In this context, distribution does not mean that the pension plan makes a payment, but rather that the marital property is distributed.

Vesting and Vesting Schedules: Vesting bestows on an employee a nonforfeitable right to a pension. All ERISA plans must contain an approved vesting schedule by which a plan participant attains the rights to a pension. There are standard schedules from which a plan may choose and one required schedule if the plan is top-heavy. Union plans, known as multiemployer plans, have a different set of rules. A plan may have a vesting schedule that is more generous, but not one that is more strict. Some non-ERISA plans have no vesting as such, in that an employee must qualify for retirement to receive a benefit; termination of service at a time the employee is not eligible for a pension results in loss of all benefits. The Armed Forces Retirement System, for example, has no vesting prior to retirement eligibility.

Veteran's Pension: Retired military personnel receive a pension if they are eligible. This is called a military or armed forces pension or a veteran's pension. If it is a regular pension for service, then it is treated routinely in a divorce case. The pension has a present value, and it may be the subject of a court order equivalent in effect to a QDRO. A medical or disability pension is different. In most jurisdictions, a disability pension will not be included as marital property. The exact description and details of any such pension should be obtained.

Year of Service: The concept of year of service, introduced by ERISA, is important in the determination of a participant's accrued benefit account balance at any time. A plan may define a year to be a consecutive period of 12 months in which the participant has attained at least 1,000 hours of service, or it may define a year as the period between the first day and the last day of the particular plan year. When the measure of a year is the completion of 1,000 hours of service, the employee will receive credit for a year of vesting and benefit accrual about halfway through a particular year. Attention should be paid to the timing if a person otherwise appears to be about six months short of attaining eligibility, vesting, or benefit accrual.

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