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Negotiating Retirement Division 2 THINGS YOU NEED TO KNOW
An important key to success in negotiating the division of retirement in divorce is knowing what the plan administrator will and will not accept. It seems so obvious, but you would be surprised. People miss seemingly obvious details during negotiations. This month, I want to share two tips that will help make you a better negotiator.
non-qualified. If the parties wish to divide the account accrued between two dates, such as the date of marriage and date of divorce, they must:
• Obtain the necessary plan account information from either their own records or those of the plan’s record-keeper
• Calculate the specific dollar amount of the alternate payee’s award, adjusting for earnings if applicable
Tip No. 1: Before you negotiate, know how the 401(k) plan divides community property.
• Submit an order that states the award as a flat dollar amount as calculated by the parties .”
It seems simple enough to award just the community property portion of a 401(k). All you have to do is state, “Wife is awarded 50 percent of the community property portion of the ABC Widget Company 401(k) profit-sharing and investment plan.” Right? Sadly, it’s not so easy. In fact, it’s usually a trap. Consider how most attorneys calculate the community property portion of a 401(k). They take the value of the 401(k) account on the date of divorce and subtract the value of the 401(k) account on the date of marriage. The result is the growth in the plan during the marriage, which is typically treated as the community property portion of the 401(k). We’ll ignore, for the moment, that some of that growth is almost certainly separate property. The unfortunate reality is that most plan administrators will no longer calculate the value of the 401(k) between two dates. Most plan administrators require the QDRO to state ONE dollar amount or percentage as of ONE date .
Key Takeaway: When dividing the community property of a 401(k), don’t assume the plan administrator will calculate the value of the community property. Find out before you negotiate. ERISA requires all 401(k) retirement plans to provide written procedures, which describe, among other things, whether they will calculate the value of a 401(k) between two dates. Get the written procedures before you negotiate.
Tip No. 2: Know the difference between self-only annuity, gross annuity, and net annuity.
Both federal civil service retirement plans (FERS and CSRS) calculate the annuity to the former spouse in one of three ways. Read carefully, because the terms “gross” and “net” do not mean what you think they mean.
A typical FERS COAP form will typically state, “Wife is awarded 50 percent of a self-only/ gross/net annuity (choose one) from husband’s employee annuity.” Here’s what they mean.
• A SELF-ONLY ANNUITY is the entire monthly annuity with no deductions for any reason. If you want either party to pay 100 percent of the surviving spouse annuity, you should select this option.
• A GROSS ANNUITY is the entire monthly annuity minus the cost of the survivor annuity premium. There are no other deductions.
Here are instructions taken directly from the written QDRO procedures of a well-known third-party administrator:
• A NET ANNUITY means the amount of monthly annuity payable after deducting from the “self-only” annuity the following amounts:
“The order must state a SINGLE valuation date to be used for determining the alternate payee’s award. Any order which defines the alternate payee’s award as a portion of the participant’s account balance between two dates will be
• Cost of the survivor annuity premium, if any • Amounts owed by the retiree to the United States, if any
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