Qualified Retirement Plans – The Basics

Retirement benefits accumulated during marriage are subject to division a divorce case. Here’s what you need to know about defined contribution plans and defined benefit plans.

Defined Contribution Plans in AK

A defined contribution plan provides an individual account for each participant. An employee’s benefits depend on the employee’s contribution to his or her account. This is true unless the plan calls for the employer to make matching contributions.

In simple terms, a defined contribution plan provides an employee with a tax-deferred savings or investment account. The balance in the account may fluctuate depending on the type of investments held in the account. The 401(k) plan is the most common type of defined contribution plan.

Defined Benefit Plans in AK

A defined benefit plan provides an employee with a monthly payment at retirement based on a formula that may incorporate many factors such as years of employment, the employee’s pay, and the age at retirement.

For example, the Alaska Department of Administration’s PERS system uses a formula that first calculates averages the three-highest annual wages the employee earned.

The formula is then: the average “high three” multiplied by .02 (for the first twenty years). That figure is then multiplied by the number of years of employment. After 20 years, the multiplier is increased to .025.

Federal Law and Retirement Plans

Under federal law, a state divorce court can divide retirement benefits in either type of plan by entering a Qualified Domestic Relations Order.

If you or your spouse has accrued benefits in either type of plan, you should talk to your divorce attorney about dividing these benefits.

Working with a Pension Expert

If I am settling or trying a case involving retirement benefits, my “team” includes a pension expert, such as David Watson, to advise me on how to best divide plan benefits. I usually suggest to the other attorney that both sides retain David to write the Qualified Domestic Relations Order.

Dividing benefits in a defined benefit plan can be complicated. It is well worth spending the money to make sure the benefits are divided correctly at the time of divorce. David Watson’s email is david@qdroalaska.com.

Posted in: Divorce