What is ERISA?

The Employee Retirement Income Security Act of 1974 is a comprehensive statute which provides federal regulation of all private employer-sponsored benefit plans (known as “ERISA-qualified” plans). It was enacted to provide protection for employees who participate in such plans, set minimum funding standards and set forth fiduciary obligations for plan sponsors, among other requirements. Employers who sponsor and maintain an “ERISA qualified” plan obtain tax deductions and the investment earnings are exempt from immediate taxation.

See 29 USC § 1002.

Does ERISA govern all Employee Benefit Plans?

No. ERISA does not include military, federal, state or local government-sponsored plans. Though some protection may be afforded to spouses of federal employees, pursuant to laws governing federal civil service pensions, New York law contains no inherent spousal protections. The Court of Appeals in Majauskas v. Majauskas, 61 NY2d 481, 474 NYS2d 699, held that retirement benefits payable from a NY State or City plan constitute marital property under the provisions of the Domestic Relations Law. However, in these governmental plans, rights of membership belong only to the Participant. As a consequence, ALL rights to be given to a former spouse must be set forth in the Domestic Relations Order or they may be lost!

What is a Qualified Domestic Relations Order?

Under ERISA a Qualified Domestic Relations Order “QDRO” is a Domestic Relations Order “DRO” that creates or recognizes the existence of an Alternate Payee’s right to, or assigns to an Alternate Payee the right to receive all or a portion of the benefits payable to a Participant under a Plan. The DRO must meet the following additional requirements:

1. it must contain the names and mailing addresses of the Participant and Alternate Payee;

2. it must clearly set forth the amount or percentage of the Participant’s benefits;

3. it must set forth the number of payments or period to which the Order applies;

4. it must refer to each Plan to which the Order applies;

5. it must NOT require a Plan to pay any type or form of benefit, or any option not otherwise provided under the Plan;

6. it must not require the Plan to provide increased benefits determined on the basis of actuarial value.

7. it must NOT require a Plan to pay benefits to an Alternate Payee that are required to be paid to another Alternate Payee under another Order previously determined to be a QDRO.

Orders relating to these non-ERISA Plans are not “Qualified” and are simply called “Domestic Relations Orders” or DROs. They may be subject to state law or agency policy prior to acceptance and approval by the governmental plan.

If there are only seven things to remember, why are QDROs so hard?

• Because every Plan is different and may contain different benefits, survivorship options, terms and procedures for administration and are constantly changing;

• Because an action for divorce has so many issues that the attorney simply has no time to become familiar with the highly technical concepts of ERISA and state retirement laws;

• Because if the QDRO is not done correctly or in a timely fashion, a spouse may be left with a greatly reduced benefit, or no benefits at all, and a Participant may be forced to pay more than his or her equitable share of the pension.

See Avoiding QDRO Malpractice for further details.

Can QDROS be used to get alimony or child support?

Yes. In addition to equitable distribution (i.e. a property settlement to the spouse upon the divorce) a QDRO or DRO can be used to obtain alimony or child support, in addition to attorney’s fees incurred in obtaining alimony or support. Depending on the specific Plan, it may be possible to get the money out of the plan right away and in a lump sum (to pay arrearages).

What is a Defined Benefits “DB” Plan?

A “DB” plan is a plan in which benefits are generally determined using a formula based on years of service and salary (often an average salary). Generally, employees do not have individual accounts in DB plans (with the exception of money purchase plans which are a different type of DB plan and beyond the scope of this FAQ); the benefit is not determined by any return on investments of the plan which are tied to a specific account. The benefit may be reduced for early retirement or offset by Social Security benefits. Payments to an alternate payee are generally made on a monthly basis (though some private plans may permit a lump sum distribution) and may commence at the Participant's earliest retirement date (private plans) or may not commence until the member actually retires and begins to receive a retirement allowance (NYSLRS and other governmental plans).

What is a Defined Contribution Plan “DC” Plan?

Participant and/or employer may both contribute. Amount of contributions may vary. Tax deferred until distribution. May include 457 plans (such as NYS Deferred Contribution), 401(k) plans, 403(b) plans, money purchase plans, employee savings plans. In these plans, the participant has an individual account. A separate account may be created for an alternate payee, or the alternate payee may be permitted to withdraw from the DC plan and rollover into another plan or into an IRA. In these plans, the value as of the date of the commencement of the action is relatively easy to define, however, there are issues regarding whether investment gains and/or losses as of the date of distribution will be apportioned between the parties and tax issues relating to the alternate payee’s distribution. DC plans are particularly effective vehicles for obtaining arrearages owed on alimony and support.

What is the “Shared Interest Approach” to dividing an ERISA plan?

The “Shared Interest Approach” provides that

• payments to the Alternate Payee cannot begin until the Participant chooses to retire and begins to receive a retirement allowance;

• payments to the Alternate Payee must end upon the Participant’s death unless the Alternate Payee was designated in the QDRO as the surviving spouse of the Participant for the purpose of electing a Qualified Joint and Survivor Annuity and such election was elected by the Participant at the time of the Participant’s retirement.

As you can see, under the “Shared Interest” approach, control over the timing of the retirement distribution and its duration is exclusively within the hands of the Participant.  Although New York's governmental plans do not use the term “shared interest,” it is important to remember that for these plans, a shared interest type of distribution is the only permissible one: an alternate payee cannot receive a share of the benefit until the Participant actually retires and can only obtain the benefit of a pre-retirement death benefit, or post-retirement survivorship option if one has been elected.

What is the “Separate Interest Approach” to dividing an ERISA plan?

Under this approach, a “separate interest” is carved out for the Alternate Payee and adjusted to her actuarial life expectancy. In addition, the Alternate Payee controls the timing and manner of his or her receipt of the benefit payments. The Alternate Payee can commence receiving benefits at the Participant’s earliest retirement date, rather than wait for the Participant to begin to receive a retirement allowance. (Note that this approach is not permitted in NY state and city plans).

Note that “shared interest” and “separate interest” approaches are not necessary and have no relevance when dividing a DC plan, which contains a fixed present sum of money.  These plans may contain other drafting issues relating to the valuation of the assets, investment gains and losses, right of an Alternate Payee to direct the investment of the funds and/or withdraw the funds, and tax issues upon distribution, among others.

What is the “accrued benefit” and why is pension valuation so tricky?

The “accrued benefit” is extent of the Participant’s plan benefits calculated as of a certain date. The  “accrued benefit” may be calculated as of the date of the commencement of the action for divorce (or some other date agreed upon by the parties), but the value of those benefits accrued during the marriage will change as the Participant continues to accrue salary and service. It is important when obtaining a “present value” calculation of the pension as of the date of the divorce action, to determine whether you are looking at a snapshot of the pension’s value at that precise moment or whether there has been a calculation of the pension’s projected value at retirement. Otherwise, you may be agreeing to an offset that is greatly lower than the plan’s actual value upon retirement.


© 2007, Carolyn A. D'Agostino, Esq., all rights reserved.  Please do not reproduce, in whole or in part, without the permission of the author.  The information contained herein should not be construed as legal advice, nor should any attorney/client relationship be implied from the receipt of the above information.