The Ten Most Common Retirement Asset Problems

This month we are going to discuss the ten most common ways attorneys get themselves into trouble when dealing with retirement assets. This list is not all-inclusive but targets what we see as the most common things that attorneys either do or fail to do when dealing with pension or defined contribution plans in divorce cases.

10. Failure to get all the pension information at the commencement of the case from your client. If your intake process is thorough, once you have a client, all the information known to them about all marital retirement assets, should be included in the questions on your case intake forms. This tells you with what you are dealing and gives some idea of how much discovery will be involved. You want to know the value of the retirement assets as quickly as possible because they will play a major part in your crafting of the settlement agreement and tell you whether a QDRO will be necessary.

9. Relying on the opposing counsel or his/her client to obtain the retirement information. At the beginning of the process release forms should be prepared for your opposing counsel’s client for all the known retirement asset plan providers for signature. If he or she fails to comply, then you will have to go through the discovery process. Do not rely on information provided by your opposing counsel’s client. It might be incorrect or not include all the accounts he or she might have. An example of that would be pension information limited to the accrued benefit with no information on supplemented early retirement assets or failure to include data on 401 (k) plans that he or she might have in addition to the pension (see sample release form at the end of this newsletter).

8. Using a model order provided by a pension plan to draft a QDRO without understanding of how the plan works or the enhanced benefits available to a long tenured employee. This is a real risky area for family law attorneys. It is easier to get an order approved if you use the pension plan’s model but rarely does the plan provide one which includes all the options available to the alternate payee. You can use the model as the basis of your draft but you will have to make the necessary changes to assure that survivorship, supplemented, early retirement benefits and post-retirement passive increases (COLA, etc.) are addressed, if they are provided by the pension plan. Rely on an expert to be sure you have covered everything unless you are very familiar with the plan.

7. Failure to be specific in the property settlement agreement. Lack of specificity in the property settlement document is the basis for most QDRO problems. Problems created by lack of specificity can rarely be corrected. Terms like “50% of the pension on the appraisal date” do not begin to identify the asset you are distributing. Failure to address survivorship or supplementary benefits in the settlement document precludes their inclusion in the QDRO.

6. Not talking, or developing a relationship, with a plan representative who can explain the ins and outs of the plan. It is critical to be able to ask questions of someone at the plan if you want to be sure you are addressing all the contingencies (pre and post-retirement survivorship, post-retirement passive increases, supplemented benefits, etc). Your release form or discovery motion should provide you with this option.

5. Not talking, or developing a relationship with a pension expert, for the very same reasons as cited in the previous paragraph. The difference is they will be able to help you craft your strategy for the most favorable outcome for your client. This is how you can be sure that you are proceeding on the right course.

4. Failing to make the client aware that this is a negotiation process and not everything will be obtained that is to their benefit. Even when you know the best possible outcome for them when dealing with the retirement assets – don’t over-promise. Keep them aware that you are trying to get everything you can for them but, so is your opposing counsel for his or her client. Know beforehand what is negotiable and what is not. Discuss with your client the trade-offs. The more your client is in the loop the more satisfied with your services he or she will be.

3. Not seeing the real value of a defined contribution plan in the settlement process and using it as a tool. A 401(k) plan, and most other kinds of retirement savings accounts, can be a source of immediate funds to resolve marital debt problems and can provide immediate funds to a spouse with limited means. The only way you can access these funds is with a QDRO. If you use it to pay marital debt be sure to take the tax consequences to the non-participant spouse into consideration as he or she is the only one who can receive the funds.

2. Not filing the QDRO concurrent with the final decree. Failure to do this is fraught with danger to the attorney. No matter how well you did in negotiations, the QDRO is worthless if the participant were to die prior to its filing. The longer you wait the greater the chance this could occur. A plan will not honor a QDRO on a dead participant unless one had already been filed prior to his or her death. It does not have to be approved. You can bring it into compliance with the plan’s provisions if it is rejected, even if the participant were to die while the process is on-going.

1. Entering into negotiations without first drafting a settlement agreement that is most beneficial to your client. The only way you can be sure you are really representing the best interests of your client is to write the settlement agreement first. If your opposing counsel does not do the same thing then negotiations will be based on your language. If you are dealing with a pension and are not absolutely certain about actuarial assumptions and how they apply to defined benefit pensions, have a pension consultant draft that part of your settlement and explain to you why each provision in their language is important to your client. The more knowledge you bring to the settlement table the better the outcome. Remember if it is not in the settlement agreement, it can’t be in the final decree or the QDRO.

As I said in the beginning these are just a few of the more common problems we have seen, and suggestions we have found helpful, over the years. There are many more but if you take heed of the foregoing you will certainly have fewer problems when dealing with retirement assets.

Below you will find the sample release form:

RETIREMENT ASSET RELEASE FORM

I, ________________________________________, do hereby instruct a representative of
(Plan Participant - printed)

____________________________________________________________________________
(Name – address – phone # of benefits provider)
_____________________________________________________________________________

to cooperate fully with ___________________________________________________________
(Name of attorney - address - phone #)

_________________________________________________ or his/her designee and answer any and all questions relating to my pension plan or any other retirement or deferred income plans in which I participate. I also request that you furnish this individual a current plan booklet and a current accrued benefits statement, and a statement as

of _________________________________________,
(Marital Property Cut-off Date)

of all of my accrued retirement benefits including any defined contribution, defined benefit or deferred compensation plans in which I am a participant. The defined benefit plan statements should detail the accrued vested benefit payable to me on my normal retirement date along with a statement of projected pension benefits, including supplemental benefits, if any, payable to me on the earliest date that I may receive them on an actuarially unreduced basis (based on my current income) assuming continued employment to that date. If my benefit is contingent upon my classification or job level or contribution level please so state and advise what that may be. Also, please provide a statement showing my service computation date (first day of employment), dates of all breaks in service (if any), my current salary and my annual salary for the past five years, the legal names of the plans in which I participate and their addresses and the name, address and telephone number of the person to be contacted if additional information is needed. I authorize that person to answer all questions incident to this request. The defined contribution plan statements should show my current plan balances as well as my account balances on

____________________________ and on ____________________________.
(Marital Property Cut-off Date)                               (Date of Marriage)

_________________________________________ ______________________________
Signature of Plan Participant                                        Today’s Date

_____________________________________ __________________________
Date of Birth                                                                  Social Security #

______________________________                  ___________________________
Witness # 1 - Signature                                         Witness # 2 - Signature

______________________________                   ___________________________
Witness # 1 - printed                                             Witness # 2 – printed

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