Dividing pension property after Boyett.

• Author: Reiss, Jerry
• Position: Part 2 - Florida

Part I [February] examined the court's use of a non-standard definition of benefit earnings in Boyett and why that creates a greater need for a valuation of benefits than existed before the ruling. It also demonstrated why a coverture (or service) fraction may no longer be used to determine marital and nonmarital interests even if it is applied on the cutoff date. Part II looks at many little-known consequences and contradictions of the ruling. It also shows how other states dealt with the same issues raised by the court and came to an opposite conclusion.

Retirement Benefits

The employer creates inducement to retire with retirement benefits. As stated in part I, when the employee reaches retirement age, he or she is working for a reduced rate of pay: The difference between what is received as W-2 pay and what could have been received as retired pay. The employer-created inducement to retire can be offset by an employer who wishes to keep key employees by simply providing them regular bonuses or a promotion. Otherwise, the inducement will cause most to retire and will allow the employer to replace them with younger, more energetic employees who will work for less pay. When the spouse does not receive his or her share interest of the retirement pay from the employee when that person defers retirement, the forfeited retirement plan interest that results by not retiring is then used to subsidize the employee's future wages. It also helps the employer maintain the employee at the reduced effective rate of pay.

The spouse's argument to payment is even enhanced when the employee is eligible for normal retirement benefits and can continue to accrue additional service-related benefits as well as salary accrual increases.(1) When these conditions exist, as is typical with government plans, the relationship future increases have to the already earned benefit is identical to the issue next raised with the early retirement subsidized benefit. When the benefit is mature (meaning that it may be received immediately by retiring), and the employee continues to accrue more monthly benefits, the extra monthly benefits are designed to see that the normal retirement benefit maintains its value. The employee could then receive a benefit today or seek a higher monthly benefit payable at a later date, but having the same value as the benefit that could be received now. When the court fails to provide Koelsch(2) relief, the court provides the employee with discretionary control that can be used to defeat its percentage award to the other spouse.

In order to demonstrate this proposition, suppose that a male employee could receive a benefit of $2,000 per month if he separates from service immediately on his 60th birthday. Accept the premise that the benefit has a present value on the cutoff date in the amount of $254,207. The husband continues to work five more years, and with extra service accruals and salary increases, the benefit that is payable on his 65th birthday is $3,100 per month. Based upon the same assumptions used to determine the $254,207 amount, the present value of the higher benefit is $257,641, an improved value of about one percent. Yet the frozen value of the $2,000 benefit under Boyett shrinks to $164,004 if the husband retires at age 65. Accordingly, by waiting five years, the employee changed a 50 percent awarded interest of the marital property to a 32 percent share. Likewise, if the employee continues to work to age 70, and retires with a $4,000 per month benefit, the 50 percent awarded interest shrinks further to 21 percent.

Early Retirement Subsidies

Early retirement subsidies were defined in part I as benefits payable at an earlier than normal retirement date, and had a greater present value than the benefit at normal retirement. One of the problems that some courts have in identifying early retirement subsidy benefits as marital property is the failure to distinguish the early retirement subsidized benefit from other early retirement incentive benefits.

An early retirement incentive is any benefit that creates an incentive for the employee to retire. Some incentives are earned while others are not. The early retirement subsidy is earned when certain age and service requirements have been met. Once earned, it cannot be eliminated by plan amendment. 26 U.S.C. [sections] 411(d)(6)(B)(i). The earned incentives can be divided as marital property even though their receipt requires the participant to retire. Other incentive benefits...