Retaining Local Counsel When Dividing Retirement Assets

Types of Plans

There are several different types of plans including, but not limited to:

• a qualified plan under the Employee Retirement and Income Security Act (ERISA), which includes defined benefit plans and defined contribution plans (i.e., a 401(k), money-purchase pension plan, and profit-sharing plans), provides certain tax benefits by meeting detailed requirements under the Internal Revenue Code, and division is implemented by a Qualified Domestic Relations Order (QDRO);
• a non-qualified plan, which does not meet with those previously referenced Internal Revenue Code requirements (generally including certain types of deferred compensation plans, executive bonus plans, group “carve-out” plans and split-dollar life insurance plans), and, thus, often does not require a QDRO to effectuate division but rather a modified form of Order (but nonetheless might (actually incorrectly) be called a QDRO);
• a state retirement plan, which is typically divided through use of a form of Order similar to a QDRO but described by a different name depending on the state and plan at issue; and
• numerous federal government plans including, but not limited to, a military plan, civil service retirement plan, etc., each of which requires a specific type and form of Order to effectuate distribution.

Further, while most states treat both vested (a non-forfeitable right) and non-vested (not yet eligible for a non-forfeitable right) components of a pension as an asset subject to equitable distribution, there are a handful of states that only consider the vested portion of a pension as distributable. To add additional confusion, several states, including, but not limited to, Alaska, Ohio, and Maryland, employ a modified point-based version of what is known as the “coverture fraction” in effectuating the equitable distribution of a military pension.