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Almost all ERISA-Qualified Defined Benefit Plans (commonly known as “pensions”) are required to offer annuities (a stream of monthly payments). Where there is no divorce, the annuity must be paid as a Qualified Joint and Survivor Annuity unless the Participant’s spouse consents in writing at the time of retirement to a different form of payment. Moreover, any plan that offers an annuity option must also provide a Qualified Pre-retirement Survivor Annuity that will pay the surviving spouse of a Participant an annuity for the spouse’s life if the Participant dies before actually retiring.
If a Participant and his spouse divorce, then the Participant’s (former) spouse may be designated as an Alternate Payee in a Qualified Domestic Relations Order (QDRO). This will enable the divorced spouse to be treated as the Participant’s “surviving spouse.” If such a QDRO is entered, the divorced spouse may insist that the Participant choose a Qualified Joint and Survivor Annuity with the divorced spouse and also insist that the divorced spouse be designated as the surviving spouse and beneficiary of a Qualified Pre-retirement Survivor Annuity.

By definition, joint and survivor payments potentially will continue longer than a payment continuing only for the life of the Participant. As a result, the monthly payments under a Qualified Joint and Survivor Annuity will always be less than the payments under a Single Life Annuity. The longer the projected duration, the lower the monthly payment level.

Because a Single Life Annuity by definition may have a shorter duration than Qualified Joint and Survivor Annuity, it will have a higher monthly payment for the same accrued benefit. The payment level for a joint annuity will depend on the ages of the two persons whose lives are being used to measure its duration.

Generally, where a Participant’s annuity is not yet in pay status, there are four ways in which that annuity may be divided between him and an Alternate Payee who is his spouse or former spouse.

A. Shared Single Life Annuity on Life of Participant: Payments will begin when the Participant chooses to retire and will end on the Participant’s death. A divorce court can divide this payment stream for the life of the Participant between the Participant and the divorced spouse.

B. Shared Qualified Joint and Survivor Annuity on the Lives of the Participant and Alternate Payee (the divorced spouse): Payments will begin when the Participant chooses to retire and will continue until the death of the last to die of the Participant and the Alternate Payee (divorced spouse). Within this option, it may be possible to choose either: a 100% joint and survivor option, where after the first death, the full monthly benefit is paid to the survivor for the life of the survivor (until the first death, the monthly benefit is split between the Participant and the divorced spouse); or a 50% joint and survivor option, where after the first death, half of the full monthly benefit is paid to the survivor for the life of the survivor (until the first death, the monthly benefit is split between the Participant and the divorced spouse). C. Shared Qualified Joint and Survivor Annuity on the Lives of Participant and the Participant’s New Spouse: If the Participant has remarried, the Participant may choose or be forced to choose (if his current spouse will not sign a waiver) a Qualified Joint and Survivor Annuity with the Participant’s new spouse. Payments under such an annuity may still be divided between the Participant and the divorced spouse, and such payments would continue until either the death the death of the last to die of the Participant or the Participant’s new spouse. D. Separate Interest Approach: Single Life Annuity on Life of Alternate Payee: This is the choice most divorced spouses prefer. It gives the Alternate Payee complete control over the timing of the commencement of the annuity payments, and the payments will not terminate until the divorced spouse’s death. The Second Department in McVeigh held that a 50% Shared Qualified Joint and Survivor Annuity on the Lives of the Participant and Alternate Payee (the divorced spouse) was to be chosen, unless the Participant (here the husband) elected to insure his wife’s continuing benefit in the event the husband predeceased the wife. The appellate court was careful to point out that any Qualified Domestic Relations Order must specify that the wife is to receive no more than her 50% share of the marital portion of the husband’s pension. That marital portion is the wife’s awarded equitable share (here 50%) of a fraction of the pension benefit determined by dividing the total months prior to the commencement of the divorce action that the participant was in the pension plan and the parties were married by the total number of months the participant is in the plan prior to retirement. This formula was adopted by the Court of Appeals in Majauskas v. Majauskas, 61 N.Y.2d 481, 474 N.Y.S.2d 699 (1984). The 50% Joint and Survivor Option does, as the Second Department noted in McVeigh (and as the Third Department noted in Erickson v. Erickson, 281 A.D.2d 862, 723 N.Y.S.2d 521 [2001]), come closer to continue the spouse’s benefit in the event the participant predeceases the spouse. However, why should the Participant, alone, bear the cost of insuring out of this option. As each spouse will benefit by the increased monthly payment incident to electing the Single Life Annuity, why should not the spouse bear the Majauskas share of the cost of a life insurance policy to provide the equivalent of continuing payments to the spouse if the spouse survives the participant. Doing so gives both parties the incentive to choose the option that is right for them.

Absent other agreement between the parties, a divorce court must require a pension plan participant to elect the 50% joint and survivor option (if) offered by the participant’s pension fund. Alternatively, the participant may provide life insurance for the benefit of the spouse sufficient to pay the spouse’s share of the participant’s pension in the event the participant pre-deceases the spouse. So held the Appellate Division, Second Department, in its October 24, 2012 decision in McVeigh v. Curry. In doing so, the Second Department modified the decision of Rockland County Supreme Court Justice Linda S. Jamieson to require the participant’s election of the 100% joint and survivor option (or provide suitable life insurance).

 

By way of background, almost all ERISA-Qualified Defined Benefit Plans (commonly known as “pensions”) are required to offer annuities (a stream of monthly payments). Where there is no divorce, the annuity must be paid as a Qualified Joint and Survivor Annuity unless the Participant’s spouse consents in writing at the time of retirement to a different form of payment. Moreover, any plan that offers an annuity option must also provide a Qualified Pre-retirement Survivor Annuity that will pay the surviving spouse of a Participant an annuity for the spouse’s life if the Participant dies before actually retiring.

 

Where there is a divorce, the Participant’s (former) spouse may be designated as an Alternate Payee in a Qualified Domestic Relations Order (QDRO). This will enable the divorced spouse to be treated as the Participant’s “surviving spouse.” If such a QDRO is entered, the divorced spouse may insist that the Participant choose a Qualified Joint and Survivor Annuity with the divorced spouse and also insist that the divorced spouse be designated as the surviving spouse and beneficiary of a Qualified Pre-retirement Survivor Annuity.

 

By definition, as joint and survivor payments will continue potentially longer than payments continuing only for the life of the Participant. As a result, the monthly payments under a Qualified Joint and Survivor Annuity will always be less than the payments under a Single Life Annuity. The longer the projected duration, the lower the monthly payment level.

 

Because a Single Life Annuity by definition may have a shorter duration than Qualified Joint and Survivor Annuity, it will have a higher monthly payment for the same accrued benefit. The payment level for a joint annuity will depend on the ages of the two persons whose lives are being used to measure its duration.

Generally, where a Participant’s annuity is not yet in pay status, there are four ways in which that annuity may be divided between him and an Alternate Payee who is his spouse or former spouse.

 

A. Shared Single Life Annuity on Life of Participant: Payments will begin when the Participant chooses to retire and will end on the Participant’s death. A divorce court can divide this payment stream for the life of the Participant between the Participant and the divorced spouse.

 

B. Shared Qualified Joint and Survivor Annuity on the Lives of the Participant and Alternate Payee (the divorced spouse): Payments will begin when the Participant chooses to retire and will continue until the death of the last to die of the Participant and the Alternate Payee (divorced spouse). Within this option, it may be possible to choose either:

 

i. a 100% joint and survivor option, where after the first death, the full monthly benefit is paid to the survivor for the life of the survivor (until the first death, the monthly benefit is split between the Participant and the divorced spouse); or

 

ii. a 50% joint and survivor option, where after the first death, half of the full monthly benefit is paid to the survivor for the life of the survivor (until the first death, the monthly benefit is split between the Participant and the divorced spouse).

 

C. Shared Qualified Joint and Survivor Annuity on the Lives of Participant and the Participant’s New Spouse: If the Participant has remarried, the Participant may choose or be forced to choose (if his current spouse will not sign a waiver) a Qualified Joint and Survivor Annuity with the Participant’s new spouse. Payments under such an annuity may still be divided between the Participant and the divorced spouse, and such payments would continue until either the death the death of the last to die of the Participant or the Participant’s new spouse.

 

D. Single Life Annuity on Life of Alternate Payee: This is the choice most divorced spouses prefer. It gives the Alternate Payee complete control over the timing of the commencement of the annuity payments, and the payments will not terminate until the divorced spouse’s death.

 

The Second Department in McVeigh held that a 50% Shared Qualified Joint and Survivor Annuity on the Lives of the Participant and Alternate Payee (the divorced spouse) was to be chosen, unless the Participant (here the husband) elected to insure his wife’s continuing benefit in the event the husband predeceased the wife.

 

The appellate court was careful to point out that any Qualified Domestic Relations Order must specify that the wife is to receive no more than her 50% share of the marital portion of the husband’s pension. That marital portion is the wife’s awarded equitable share (here 50%) of a fraction of the pension benefit determined by dividing the total months prior to the commencement of the divorce action that the participant was in the pension plan and the parties were married by the total number of months the participant is in the plan prior to retirement. This formula was adopted by the Court of Appeals in Majauskas v. Majauskas, 61 N.Y.2d 481, 474 N.Y.S.2d 699 (1984).

 

The 50% Joint and Survivor Option does, as the Second Department noted in McVeigh (and as the Third Department noted in Erickson v. Erickson, 281 A.D.2d 862, 723 N.Y.S.2d 521 [2001]), come closer to continue the spouse’s benefit in the event the participant predeceases the spouse.

 

However, why should the Participant, alone, bear the cost of insuring out of this option. As each spouse will benefit by the increased monthly payment incident to electing the Single Life Annuity, why should not the spouse bear the Majauskas share of the cost of a life insurance policy to provide the equivalent of continuing payments to the spouse if the spouse survives the participant. Doing so gives both parties the incentive to choose the option that is right for them.