SPECIAL RETIREMENT ISSUES WITH LARGE LOCAL
EMPLOYERS
PHILIP D. PHILLIPS
101 Summit Avenue
Suite 700
Fort Worth, Texas 76102
Tarrant County Family Law Bar Association
May 24, 2011
American Airlines has one defined contribution
plan, commonly called the $uper$aver 401(k) and four
defined benefit plans. Three of the defined benefit
plans are very similar and don’t present much of a
problem, however the Pilot’s Retirement Plan can be a
challenge.
The Pilot’s plan has two components, a Fixed
Fund, referred to as Plan A, which is a defined benefit
plan and a Variable Fund, referred to as Plan B, which
is actually a defined contribution plan. Plan A may be
divided by percentage but Plan B cannot. Plan B
consists of units that have been awarded to the pilot
employee that have a dollar value that changes daily.
A statement is sent to the employee annually, ending
on December 31 of a year and the statement is usually
received the following April. A QDRO prepared on
this plan must state the exact number of units of Plan B
to be awarded to the alternate payee and the division
must be on a December 31 date. In cases where the
divorce is during the calendar year, the employee can
obtain an estimate of the number of units awarded for
the partial year from the pilot’s union but the division
date in the QDRO must still be on a December 31. If
you use the prior December 31, the alternate payee can
get an immediate distribution. If you use the upcoming
December 31, the distribution will be delayed.
Another unusual feature of the Pilot’s Plan is that
the alternate payee has a choice in the Plan A benefit of
receiving a monthly annuity payment or can elect a
lump sum cash out. If the employee has reached early
retirement age, the lump sum distribution can be
immediate. This feature has led to parties reaching an
agreement whereby the alternate payee is awarded all
of the Plan A benefits and the employee is awarded all
of the Plan B benefits. In times where American
Airlines is struggling, the parties find it attractive to
opt for a division that allows the total and immediate
cash out of the Plan A benefits. That way, if American
was to go into bankruptcy and turn the Plan over to the
PBGC, the parties would not face the possibility of a
severe reduction in the value of the Plan A benefit. A
few parties have even gone so far as to divorce so they
could cash out all the benefits, then remarry.
A new quirk concerning the $uper$aver account
has just been exposed. American Airlines has recently
begun to use a third party company to process its
QDROs. The model order provided by the Plan only
shows an option for division where any outstanding
loan value is not included in making the computation
of the award to the alternate payee. In the past, the
Plan has approved QDROs that do include the loan
balance, however, I just received my first rejection for
an order in which I attempted to include the loan
balance. There is no legitimate reason to not approve
an order that includes the loan value, but unless the
third party company reconsiders, you will be forced to
make the calculations yourself, including the loan
Special Retirement Issues With
Large Local Employers
I.
INTRODUCTION
The more employees a large local company has,
the more likely a family law attorney is to deal with the
division of that company’s retirement benefits in a
divorce case. A number of the largest local employers
have unusual terms or provisions in their various
retirement plans that must be considered in drafting the
Decree of Divorce and QDRO.
I am going to look at some of the “quirks” of the
retirement plans for Lockheed Martin, the various
school districts under the Teacher Retirement System
of Texas and TIAA-CREF, American Airlines, Tarrant
County, Bell Helicopter Textron, UPS, General
Motors, Alcon Laboratories, BNSF, EDS and the City
of Fort Worth.
Although the U.S. Government is a large local
employer, both civilian and military personnel, I am
not including a discussion of the Civil Service
Retirement System (CSRS), Federal Employees
Retirement System (FERS) or military retirement since
those plans are unusual enough to warrant a separate
paper.
II. KNOW THE NAME OF THE PLAN
Most large employers have multiple retirement
plans. It is important to know the exact name of the
plan or plans to be divided early in a case so you can
determine any special problems that may be
encountered in the division. For instance, American
Airlines has four separate defined benefit pension
plans, depending upon the job the employee does.
There is a Pilot’s plan, one for members of the
Transportation Workers Union, one for flight
attendants and one for Agents, Management and
Specialists, Support Personnel and Officers. The
Pilot’s plan is the one with the most quirks.
III. SPECIFIC EMPLOYERS
A. Alcon Laboratories
Alcon has a number of defined contribution plans
so it is very important to name the correct plan. The
Alcon 401(k) Plan and Alcon Retirement Plan is a bit
unusual in that although they are separate plans, they
can be divided in one QDRO. As with many plans,
Alcon won’t accept a QDRO that attempts to make a
division between two dates, such as awarded the
alternate payee 50% of the account accumulated from
the date of marriage to date of divorce. In such cases,
it will be necessary for you to obtain statements for the
two dates and make the calculation yourself, awarded a
specific dollar amount.
B.
American Airlines
1
balance, and award the alternate payee a specific dollar
amount.
American Airlines also has a stock option plan but
that is non-qualified and AA will not accept a QDRO
or other division order for that plan. As a practical
matter, it is unlikely that AA stock will reach a price
that makes those options redeemable.
Retirement System. Its name is the Burlington
Northern Santa Fe Retirement Plan and is a traditional
pension. Salaried employees may also participate in a
defined contribution plan, the name of which is the
Burlington Northern Santa Fe Investment and
Retirement Plan. Since both the defined contribution
plan and the defined benefit plan contain the word
“Retirement”, confusion can result and you may divide
only one of the plans, rather than both.
C. Bell Helicopter Textron
Bell has two defined benefit plans, one for hourly
employees and one for salaried. Be aware that if the
employee has been both hourly and salaried, both plans
will have to be divided using separate QDROs. The
plan for salaried employees is relatively new and is
named the Textron Retirement Program. It is a
complicated, two component plan with a cash balance
part named the Retirement Account Plan and a
traditional pension part named the Bell Helicopter
Textron Master Retirement Plan – Salaried Plan Part.
The traditional plan provides what they term a “Floor
Benefit” and there is an offset caused by the value of
the newer cash balance Retirement Account Plan. A
quirk of both of the defined benefit plans is that in the
event the employee is terminated prior to the division
date, you must make the division as of the termination
date rather than date of divorce. This requirement is
nonsense, but if you want approval, you must comply.
If you are dividing the retirement of a salaried
employee and the division date is prior to 1/1/07, you
must use the old model and old name without the cash
balance Retirement Account Plan. For divisions after
that date, use the new model and name.
E. EDS
EDS has a defined benefit plan named the EDS
Retirement Plan. For employees that terminated or
retired prior to 1/1/98, the Plan has a traditional
accrued benefit. For employees active after that date,
the Plan has a Personal Pension Account (PPA), which
is basically a cash balance plan, with an account in the
name of the employee with a specific amount of
money in it. The quirk is that even though there is
money in an account and lump sum awards may be
made, the alternate payee may not take a distribution
until the participant reaches early retirement age.
EDS also has a defined contribution 401(k) which
is a typical 401(k) plan.
F. Fidelity Investments
In addition to being a large Tarrant County employer,
Fidelity is the third party administrator for hundreds of
large employer plans. Please see the Fidelity-related
comments under General Motors below, especially
Fidelity’s online preparation service.
For plans
administered by Hewitt & Assoc. and Ceridian, those
companies also have an online service that is useful,
but more limited
D. BNSF
It can be confusing to make certain you know of
and are dividing all of the retirement plans for an
employee of BNSF. As with many employers, there is
a different between hourly employees and salaried. All
employees will participate in the federal Railroad
Retirement System, which is in lieu of, and similar to
Social Security. Due to that fact, one can’t divide
Railroad Retirement Tier I benefits. All non-Tier I
benefits may be divided. Additionally, there is a
separate, statutory Divorced Spouse Annuity that is
provided by law, not by QDRO, in certain
circumstances. Don’t get caught agreeing to give your
client the statutory Divorced Spouse Annuity, which
the client has by law, rather than doing a proper
division of the non-Tier I benefits.
For hourly employees, there may be a defined
contribution plan, the Burlington Northern Santa Fe
Company Non-Salaried Employees 401(k) Retirement
Plan, but no defined benefit plan other than the federal
Railroad Retirement. Participation in the 401(k) is not
mandatory.
For salaried employees, there will be another
defined benefit plan, in addition to the federal Railroad
G. City of Fort Worth
Rather than participating in the state-wide Texas
Municipal Retirement System, employees for the City
of Fort Worth participate in the Employees’
Retirement Fund of the City of Fort Worth. This is a
statutory plan, which means there are few options in
making a division or drafting a Decree and QDRO. As
with almost all statutory plans, the alternate payee
cannot begin to collect benefits until the participant
has actually retired. Further, the participant makes all
election decisions and the alternate payee is stuck with
those choices. The QDRO can’t direct or order the
participant to make a certain election or name a certain
beneficiary, so any surviving spouse benefits are only
those provided statutorily by the Plan.
This Plan does have a DROP provision and if so
elected by the participant, monthly DROP payments
will be placed in an account for the participant until
actual retirement. Once the participant has retired, the
alternate payee will be able to access this lump sum
account and take a distribution under the same terms
as elected by the participant. Be cautious of cases in
2
which the divorce occurs prior to a DROP election. If
you neglect to include DROP division language (since
there is no DROP account at the time of divorce),
when the participant subsequently elects to participate
in DROP, the former spouse will not share in those
DROP payments.
They must be specifically
mentioned in the QDRO.
A final quirk to GM plans is in removing a
former spouse as a beneficiary of a Plan in the event of
the death of the participant. Most plans simply allow
the parties to sign forms to remove a former spouse
and appoint a new beneficiary. GM requires a QDRO
to do that, even if 100% of the benefit is awarded to
the participant. The good news is that a model for that
is provided online by Fidelity and it can be prepared
online. Although rarely used, Fidelity also provides
model order for child support and alimony for GM
plans.
H. General Motors
GM has two defined benefit plans, one for hourly
employees and one for salaried. The plans are quite
similar. For a number of years, GM has offered
employees an early retirement subsidy to entice early
retirement. This subsidy is usually paid in a lump sum
upon early retirement. If you represent the alternate
payee, make certain that these benefits are specifically
mentioned in the Decree and QDRO.
A quirk in GM orders, both the defined benefit
and defined contribution plans, is that they are
administered by Fidelity. Fidelity has very rigid
requirement and can very challenging to deal with.
One can sign up with Fidelity, at no cost, for access to
its online services. Anytime you see a plan statement
from Fidelity or any evidence that Fidelity is involved,
check the online site to see if Fidelity is actually the
plan administrator or simply the record keeper. For
plans in which Fidelity is the Administrator, QDRO
Procedures and model orders are available online and
under normal circumstances, the QDRO should be
prepared using the online service.
Although use of Fidelity’s online preparation
service results in an order that does not follow the
normal format of our Texas orders, you should still use
it. Online preparation will result in much quicker
review and approval of the QDRO. More important,
online preparation can greatly reduce the fee charged
by Fidelity in processing the QDRO. For most defined
contribution plans, Fidelity charges the parties $300 to
process a QDRO. If you decide to use your own form
rather than the online service or, if you simply retype
the order to look like a normal Texas order, the fee
increases to $1,200. Occasionally, a Judge will refuse
to sign the unusual Fidelity order, but once you explain
why it’s being used, I haven’t had a problem in getting
a signature.
In cases in which there was credited service in the
Plan prior to marriage, be cautious in using the Fidelity
marital property fraction formula. Many times the
formula generated uses the Cearley-Taggart formula,
which makes the division as of the date of retirement,
rather than the Berry formula, which makes the
division as of date of divorce. In those instances, you
have little choice but to retype the order so that you
can reword the formula. However, the Fidelity
processing fee usually only applies to defined
contribution plans, not defined benefit plans.
I.
Lockheed Martin
Lockheed Martin has a number of defined benefit
and defined contribution plans, primarily separated as
those for hourly employees and those for salaried
employees. The defined benefit plans are traditional
pension plans and fairly straight-forward. The only
real quirk with the defined contribution (savings) plans
is that the plan doesn’t allow a division between two
dates, such as 50% of the account accumulated from
the date of marriage to the date of divorce. In the
event the participant has contributions to the account
prior to marriage, the parties will have to obtain
account statements as of the date of marriage and date
of divorce and do the calculation, awarded the
alternate payee a specific dollar amount.
J.
Tarrant County
Most employees participate in the Texas County
and District Retirement System (TCDRS). As with
most state retirement plans, the employee makes
contributions to the System as a percentage of his or
her income.
Unlike the Teacher Retirement System, lump sum
dollar awards can be used in the division. However,
the parties should understand that no distribution will
occur until the employee takes a distribution upon
retirement or termination. Further, the Decree and/or
QDRO cannot direct the employee as to which election
of benefit form to take. The employee may elect a
refund of his or her contributions (rarely done) or elect
a monthly annuity payment. Whatever the employee
elects, the alternate payee is stuck with.
In drafting the Decree, the attorney should state
whether the division is being made based upon
credited service time or accumulated contributions.
The QDRO will then be drafted following the terms of
the Decree. In some cases, the awarded amount can
vary greatly depending upon which division method is
used.
K. Teacher Retirement System
The vast majority of public school system
employees participant the Teacher Retirement System
of Texas (TRS). A few employees opt for the Texas
Optional Retirement Plan. TRS is a hybrid defined
3
benefit plan in that members are required to contribute
a percentage of their pay into the system. Upon
retirement, the member can elect a refund of his or her
contribution, however, the usual election is for a
monthly annuity payment (or a combination of lumpsum payments and monthly annuity).
The first quirk of TRS is its valuation. Annual
statements are sent to members showing the amount
the member has contributed to the System. The
unwary accept that as the value of the member’s
benefit. However, if the Member does what most do,
elect monthly annuity payments, the amount of the
member’s contributions have little relationship to the
plan’s present value.
Since statements are sent out stating the amount
the Member has contributed to the System, many
believe that a specific lump sum amount can be
awarded and will be immediately distributed. That is
not accurate. The division of TRS benefits should be
made as a percentage. TRS will not accept an order
that attempts to make a lump sum division.
As with most State retirement plans, the alternate
payee can only begin to receive benefits once the
employee begins to receive benefits. Further, the
employee elects the form of the benefit and the
alternate payee is also bound by that choice.
The UPS/IBT Full-Time Employees Pension Plan
has participants that may also have benefits in the
Teamsters pension, the Central States, Southeast and
Southwest Areas Pension Fund. For participants in the
UPS/IBT plan prior to 1/1/2008, they also have a
benefit in what is termed the “Old Plan” with Central
States. There is an offset that occurs between the two
plan benefits, but the important thing for the alternate
payee’s attorney is to realize that there may be benefits
in two separate plans which will require two separate
property divisions and QDROs.
IV. CONCLUSION
The most common complaint I hear in regards to
the division of retirement plans is the length of time it
takes to actually conclude the transfer. It is important
for the parties to know in advance that division of a
retirement plan is seldom quick and many times
difficult. Even when the QDRO is drafted promptly,
entered by agreement and timely delivered to the Plan,
most plans will take a minimum of 60 – 90 days to
process the order. Once the QDRO is approved by the
Plan, additional paper work is normally required to
complete the transfer or distribution, which takes
additional time. Many parties have financial issues and
may need access to the funds as soon as possible.
Make certain your client knows that the process is not
fast and it is not that unusual for an initial QDRO to be
rejected for a variety of reasons, which causes even
more delay. Further, make certain the plan you are
dividing allows immediate lump sum distribution after
the divorce if you know a party is in need of immediate
cash.
L. TIAA-CREF
TIAA-CREF is primarily for employees of
private educational institutions. The quirk with this
plan is not so much in the division as in drafting the
QDRO, but care should be taken in drafting the
division language in the Decree if the intent is to
award a specific dollar amount. There are TIAA
Account numbers and CREF Contract numbers that
usually coincide, such as TIAA RA #B713224-8 and
CREF RA #V713224-3. Note that all but the first and
last letter and number match. When a specific dollar
amount is awarded, unless the Decree states
differently, the QDRO will probably be drafted to
make the award pro rata from each account or contract.
If the intent is to not divide pro rata, the Decree should
state the dollar amount that will come from each
specifically named account or contract.
In drafting the QDRO, all accounts and contracts
must be specifically identified by number. It is
important to have a recent statement from the Plan that
identifies all accounts and contracts so that none are
omitted. On occasion, TIAA-CREF also requires the
educational institution to separately approve the
QDRO, which can significantly slow the approval
process.
M. UPS
UPS has a number of defined benefit and defined
contribution plans.
Most are straight-forward,
however, one defined benefit plan has a quirk.
4
5