Qualified Defined Benefit Plans for Attorneys & Mediators
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Qualified Defined Benefit Plans in Divorce

This guide covers the division of Defined Benefit Plans sponsored by private-sector employers and unions. These plans are governed by ERISA and divided via a Qualified Domestic Relations Order (QDRO).

Note:
This does not apply to railroad, military, federal state, or local government, or church plans, all of which are exempt from QDRO rules.

Types of Private-Sector Plans

  1. Traditional Pension Plans

  • Structure: Payments are made monthly for the life of the participant.
  • Calculation: Based on a formula involving years of service and final average salary.

  1. Cash Balance Plans

  • Structure: These look like 401(k)s but are actually pensions. They grow via “interest credits” rather than market fluctuations.
  • Distribution: Can often be taken as a single lump sum or converted into a lifetime annuity at retirement age.

Qualified Defined Benefit Plans

The “Separate Interest” Method

This is the most common and preferred way to divide a pension before the participant retires.

    • Total Control: The Former Spouse (Alternate Payee) decides when their own payments start (usually as early as age 55), even if the participant is still working.

    • Life Independence: The benefit is actuarially adjusted to the Former Spouse’s life expectancy. If the participant dies, the Former Spouse’s payments continue.

    • No Survivor Benefits Needed: Because the benefit is “carved out” into a separate interest, the Former Spouse is protected regardless of the participant’s status.

[WARNING] Avoid Assigning a Monthly Dollar Amount: When using the Separate Interest method, never assign a flat dollar amount. The benefit must be expressed as a percentage so the plan can adjust it for the Former Spouse’s life expectancy.

Traditional Pension Features to Include

To ensure a fair division, your agreement should explicitly mention these three technical features:

    • COLAs (Cost-of-Living Adjustments): These protect the benefit against inflation. In Connecticut, courts generally assume COLAs are included unless specifically excluded.

    • Early Retirement Subsidies: If a plan allows a participant to retire early without a reduction, the Former Spouse should be assigned a share of that subsidy. Without this language, the Former Spouse’s check could be reduced even though no reduction applies to the participant.

    • Pop-up Option: Some rare pension plans (like the New England Teamsters) allow a participant to “cancel” a survivor benefit after divorce, which “pops up” the monthly payment to a higher amount. This option is not applicable if you are using the separate interest approach.

Sample Wording for Your Agreement

This wording is a common approach to dividing a pension in pay status, but it is not the only one.
It is your responsibility to make sure that the terms you eventually use in the separation agreement fit the circumstances and are appropriate for your client.

Option A: If Benefits Have NOT Started (Pre-Retirement)

“Party A (Former Spouse) is assigned, via QDRO, 50% of the marital portion of Party B’s (Participant) pension earned through the date of divorce. The ‘marital portion’ is the months of service credited during marriage divided by total service credited through the date of divorce. The Former Spouse shall be entitled to a proportionate share of COLAs and early retirement subsidies.”

Option B: If the Pension is Already Being Paid (In Pay Status)

“Party B is currently receiving pension payments. Party A is assigned, via QDRO, 50% of the marital portion (service during marriage ÷ service at retirement). The benefit includes a proportionate share of COLAs. Until the Plan is withholding Party A’s benefits from Party B’s monthly payment, Party B shall pay Party A their share directly, net of taxes, within one week of receipt.”

Important: Choosing a Survivor Option (Pay Status Only)

If the pension has already started, you must choose one of the following:

    • Retain Survivor Benefits*: The Former Spouse shall retain the survivor option elected at retirement.
  • Terminate Survivor Benefits (The “Pop-Up”)**: Provided the pension has a pop-up option, survivor benefits elected for the Former Spouse at retirement shall terminate. Former Spouse understands this means that although the monthly benefit will increase, Former Spouse will no longer be entitled to payments after the Plan Participant’s death.

* Most pensions will not allow any change to the form of benefit or the beneficiary once payments have commenced.

**The pop-up is an unusual provision. You should confirm the option is available before putting it in the agreement.