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Distribution of Pensions Upon Divorce Changing?
by Mary K. PrussIn a divorce, dealing with pensions as part of equitable distribution of marital property has always been troublesome. In Pennsylvania the Divorce Code of 1980 made pensions marital property and thus subject to equitable distribution upon the divorce of spouses. Over the ensuing years the Courts struggled with the appropriate way to distribute pensions between the employee spouse (known as the "Participant" in the Pension Plan) and the non-employee spouse (known as the "Alternate Payee"). In the case of King v. King, (1984) the Superior Court first addressed the issue of how to divide pensions. Pensions may be based on either defined benefits or contributions, or on savings plans such as 401K plans. This article will concentrate on the handling of defined benefit plans (i.e., where a set, monthly payment is paid on retirement). There are two ways that the Court can distribute a defined benefit plan to the non-employee spouse. If there are enough other marital assets, there can be an immediate offset in which the non-employee spouse receives other assets such as a house, car or cash value of an insurance policy, and the employee spouse receives the pension. The other method is the deferred distribution method in which the non-employee spouse receives a portion of the employee spouse's pension when the employee retires. In the second method a Domestic Relations Order is sent to the Pension Plan Administrator for approval. The Plan Administrator then reviews the proposed distribution order to make sure that it complies with the plan rules. If it is approved, it becomes a Qualified Domestic Relations Order (QDRO) and upon signature by the Court and return to the Plan Administrator the non-employee spouse's distribution is secured. That seems simple enough; however, the Courts continued to struggle with whether enhancements to the employee spouse's pension post-separation or post-divorce should be included for the non-employee spouse, whether a "coverture fraction" should be used and what is the benefit determination date? Initially, the coverture fraction was defined as the number of years during which the spouse was employed while married divided by the total length of time during which the employee was employed and accumulating pension benefits. The argument against including post-separation or post-divorce benefits was that after the marriage is over, the fruits of the employee spouse's work should not accrue to the non-employee spouse. The argument for including post separation enhancements was that because the non-employee spouse would have to wait to receive benefits, she should be entitled to receive appreciated benefits afforded to the pension plan while she waited. There was also the possibility that if the non-employee spouse died before the employee spouse retired she would receive nothing. Seven years after the King decision, the Superior Court in Holland v. Holland (1991) determined that when using the deferred distribution method for a defined benefit pension plan, the non-employee spouse who must wait to receive her marital share should be compensated by being permitted to "enjoy increases in value occasioned by the continued employment of the worker." The state Supreme Court reversed this holding in Berrington v. Berrington in 1993 holding "that in a deferred distribution of a defined benefit pension, the spouse not participating may not be awarded any portion of the participant spouse's retirement benefits which are based on post-separation salary increases, incentive awards or years of service. Any retirement benefits awarded to the non-participant's spouse must be based only on the participant spouse's salary at the date of separation." The legislature by amendment to the Divorce Code effectively overruled Berrington by defining the benefit determination date to include "all post-separation enhancements" except for monetary contributions made post-separation by the employee spouse, including the gain or loss on such post-separation contributions. This new amendment was effective on January 29, 2005. The part applicable to defined pension benefits stated that it pertained to "all equitable distribution proceedings, commenced on or after the effective date of this paragraph." An additional amendment passed on June 15, 2005, states that it is applicable to all equitable distribution proceedings pending on or after June 15, 2005. The next issue to be litigated may be "what is the meaning of pending." |
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