PERSI Divorce :. Public Employee Retirement System of Idaho

Members

Account Information Base Plan Choice 401(k) Plan Forms Publications Newsletters What To Do If

Retirees

Account Information Choice 401(k) Plan Forms Newsletters

Employers

Employer Portal Transmittals Forms Choice 401(k) Plan Newsletters

Brochures PERSI Brochures Choice 401(k) Plan

Online Services myPERSI Choice 401(k) Plan Employer Portal PETRA Insurance Vendors Unclaimed Funds Workshop Registration

Investments

Choice Plan Base Plan Reports

Education

Workshops Register Online

Download Adobe Acrobat Reader

DIVORCE AND HOW IT MIGHT AFFECT YOUR PERSI ACCOUNT AND BENEFITS

The Information below is based on 2005 law. If there are any discrepancies between this information and the law, the provisions of the law will prevail.

If a PERSI member has been married at any time while actively participating in PERSI and is considering a divorce, the spouse may be legally entitled to a portion of the member's PERSI accounts and/or benefits. PERSI is providing the following general information to help members, their spouses, and attorneys regarding the division of PERSI accounts and/or benefits upon divorce. This should not be considered legal advice. PERSI encourages members to consult an attorney experienced in divorce matters for more information.

PERSI Benefits May Be Community Property

Idaho is a community property state, which means property acquired during a marriage belongs to the "community" of the marriage rather than to one individual as separate property. Under Idaho community property law, PERSI benefits accumulated by a member during marriage are assets of the marriage community. In many cases, the retirement benefits are the most valuable asset of the marriage.

Some or all of a member's PERSI accounts and/or benefits may be a community property asset. If the member was married the entire time he or she was a member, all accounts and/or benefits are normally community property. If the member was married only part of the time, generally the account contributions and interest and/or benefits accumulated during that period only are a community property asset. The accounts and/or benefits accumulated during a period when a member was not married are the member's separate property.

Base Plan vs. Choice 401(k) Plan

Most PERSI members have two separate plans — the traditional defined benefit plan known as the Base Plan and the supplemental defined contribution plan known as the Choice Plan. It is important to understand these are separate and distinct plans requiring separate orders to divide benefits upon divorce. The requirements for dividing a Base Plan account are different from the requirements for dividing a Choice Plan account. The following information focuses primarily on the requirements for dividing a Base Plan account because they are somewhat unique. Requirements for dividing a Choice Plan account are summarized near the end of this page.

Dividing the Base Plan Account and Benefit

Differences Between "Account" and "Benefits"

A PERSI account consists of contributions made by the member plus interest credited by PERSI. Employer contributions are not credited to member accounts; they are placed in an employer pool. The member has no individual interest in the employer pool. Employer contributions are not subject to division upon divorce.

Once members are vested, they have a right to a retirement benefit. Vesting requirements for general PERSI and Firefighters' Retirement Fund (FRF) members is generally 60 months, but can be up to 25 years for some Police Retirement Fund (PRF) members. Until the member is vested, the only community property asset is the account contributions and interest. After the member is vested, the retirement benefit is a property interest subject to division upon divorce. These funds are not subject to execution, levy, or garnishment except for certain statutory exceptions such as federal tax liens and delinquent child support (§59-1317, Idaho Code).

Retirement Allowance Does Not Depend on Account Accumulations

The monthly retirement allowance does not depend on the member's account accumulations. Formulas are established by statute and differ for the various funds (PERSI, FRF, PRF). These formulas are usually based on the member's credited service, highest average salary over a particular period, and a multiplying factor, less any applicable early retirement penalties. Account accumulations are only relevant to Base Plan account withdrawals upon separation or death.

Obtaining Account and Benefit Information

PERSI may provide account information to a current spouse at any time for any reason (§59-1316 (4), Idaho Code). Limited account information may be released to a former spouse when a court has ordered a division of benefits.

Upon request, PERSI will prepare a worksheet on the member's account and benefit entitlement accrued during the marriage. The worksheet typically shows:

If the member is vested
Account accumulations attributable to the marriage
Amount of credited service attributable to the marriage
Retirement benefit formula
Estimated monthly retirement benefit attributable to the period of the marriage

The finalized worksheet along with other requested or explanatory information is sent to all persons listed on the written release (spouse, attorneys, court, etc.).

Ex-Spouse is not a "Surviving Spouse"

An ex-spouse cannot be a "surviving spouse" under PERSI statutes. PERSI uses the probate code definition, which provides that a person who is divorced is not a surviving spouse. Therefore, for the purposes of a death benefit, an ex-spouse will not receive a death benefit payment from PERSI unless he or she is the member's named beneficiary. It is important to review your beneficiary choice upon divorce to ensure it accurately reflects your wishes.

Receipt of Divorce Decree Triggers Special Handling

When PERSI is notified of an impending divorce action, the member's account is "flagged" to indicate a divorce may be in progress. Any benefits requested prior to receipt of a divorce decree, judgment, or order may be deferred until the matter is settled.

Method of Dividing PERSI Benefits Effective July 1, 1998

In the past, the process of dividing PERSI benefits upon divorce was complicated and difficult for all parties because the law did not allow for payment of any benefits until the member retired, separated from employment, or died. This meant the ex-spouse could not receive anything until one of these events occurred, which often took many years.

Beginning in 1985, PERSI was required by law to forward payments to the courts for distribution to the member and ex-spouse. Over the years this proved to be an increasingly troublesome process for a number of reasons.

Rollovers: When a divided benefit payment was sent to the court for distribution, an otherwise eligible rollover could not be directly rolled-over to another eligible retirement plan to avoid the federally required 20 percent tax withholding.

Child Support: Satisfying income withholding orders related to child support was complicated because the shares of the divided benefits were not known until the court made the payments.

Other problems included delays in payments because of court involvement, the inability to find current addresses for ex-spouses, and tax complications related to reporting income to the Internal Revenue Service.

Responding to these concerns, PERSI proposed legislation to reform the division of benefits upon divorce. With input from the family law bar, the judiciary, and court clerks, legislation was developed for the immediate division of benefits and elimination of continued court involvement. The legislation passed and went into effect on July 1, 1998.

Approved Domestic Retirement Orders (ADROs)

Under the new process, the division of PERSI benefits is made with an Approved Domestic Retirement Order (ADRO). An ADRO is a Domestic Retirement Order (DRO) that has been submitted to PERSI and complies with legal requirements. The DRO is a judgment, decree, or order dividing PERSI benefits issued by a court on or after July 1, 1998. After a DRO is approved by PERSI, it becomes an ADRO and PERSI divides the member's account or benefit payments. No further court involvement is necessary. If a submitted DRO is not approved, the parties are notified so they can amend the DRO to comply with statutory requirements.

Segregated Accounts vs. Divided Benefit Payments

An ADRO divides the benefit at the time of the divorce rather than waiting for some other distributable event to occur. For non-retired members, dividing the member's account and creating a separate account for the ex-spouse does this. The ex-spouse may then choose to do one of the following:

Take an immediate lump sum payment of the amount in the segregated account.
Rollover the distribution to an eligible retirement plan.
Leave the money in the account and remain eligible for a lifetime annuity upon retirement, if the member was vested at the time of divorce.

An account is segregated only if the member has not yet retired. If the member is retired, or is a member of the FRF (retired or not), a separate account is not created for the ex-spouse. Instead, the ex-spouse is paid a portion of the member's monthly benefit directly from PERSI. That portion is either a set dollar amount or a percentage of the monthly benefit. If the ex-spouse predeceases the member, the amount paid to the ex-spouse reverts to the member or other person entitled to the benefit.

Contingent Annuitant May Waive Benefits at Time of Divorce

Effective July 1, 2004, a Contingent Annuitant of a retired member who last contributed to PERSI after June 30, 1992, may waive interest in survivor benefits at the time of divorce. [A Contingent Annuitant is a person chosen by the member to receive a monthly lifetime benefit after the member's death.] Contact an attorney or PERSI for more information.

ADRO Requirements

There are three requirements common to all ADROs.

The order must clearly specify it applies to PERSI. It is not enough to refer to "retirement benefits," "state benefits," or "employer benefits." The order must specifically reference PERSI benefits.
The order must contain sufficient information including an effective date, and the name, address, date of birth, sex, and last known mailing address of both parties. It must also include the member's PERSI identification number.
The order must provide for a proportional reduction of the amount awarded to the ex-spouse should the law reduce the benefits available to the member.

Additional information required in an ADRO depends on whether the member is active or inactive, retired, or an FRF member.

Because an active or inactive member's account must be segregated, the order must specify the amount or percentage of the member's contributions as well as the months of credited service to be transferred to the segregated account. If the member is retired or is an FRF member, the order must specify the amount or percentage of the member's benefit to be paid to the ex-spouse. In these cases, there is no account segregation and no transfer of contributions and credited service.

There are also several prohibitions related to ADROs. The DRO will not be approved if it provides for benefits inconsistent with the PERSI plan or if it imposes conditions or contingencies. The order cannot provide benefits to an ex-spouse that have previously been ordered paid to a different payee under another order. It also cannot segregate the right to repay previous credited service. Finally, an order cannot result in a greater benefit than would have existed had the member's account not been divided.

Approval Process

The DRO must be submitted to PERSI to obtain an ADRO. PERSI will examine the DRO and notify the involved parties within 90 days if it has been approved or rejected. If the order is not approved, PERSI will notify the court and the parties so action can be taken to amend the order. Effective July 1, 2004, Social Security numbers are no longer required in the order. However, a copy of the alternate payee's Social Security card must be provided to PERSI before an order will be approved.

Changing Pre-July 1,1998, Decrees

The new process is effective only for DROs issued on or after July 1, 1998. Any divorce order issued before July 1, 1998, falls under the pre-existing law that requires divided benefits to be sent to the court for distribution. However, pre-July 1, 1998, orders can be modified to meet the requirements of an ADRO if the modifications are limited to the distribution of PERSI benefits, the value of the division is not materially changed, and the DRO is submitted and approved as an ADRO.

Members who are near retirement age should consider whether it would be best to segregate their accounts before they retire or divide the benefit after they retire. There are advantages and disadvantages to each process. Decisions should be made based on individual circumstances and judgments. PERSI strongly recommends that parties consult an experienced attorney for advice regarding possible options.

Dividing the Choice 401(k) Plan Account

A Choice Plan account comprises any gain sharing contributions and voluntary, employer, or rollover contributions to the 401(k) account. Because the benefit in the Choice Plan consists solely of the funds in that account (rather than service as in the Base Plan), dividing the account is less complicated than dividing the Base Plan account. However, certain information is still needed to set up a separate account for the alternate payee. To divide the Choice Plan account, a separate DRO that substantially meets the requirements of a Qualified Domestic Relations Order (QDRO) as required by section 414(p) of the Internal Revenue Code, excluding subsection (9), must be submitted. Most attorneys, particularly those experienced in divorce actions, will be familiar with QDRO requirements. The order should clearly designate it applies to the PERSI Choice Plan. If the order is approved by PERSI, the member's Choice Plan account will be segregated and a separate account will be established for the alternate payee.

Questions

If you have any questions, or would like to receive a divorce packet for a new or existing divorce decree, contact PERSI at 1800-451-8228.