Many people refer to retirement plans as pensions, but not all retirement plans are pensions, and in fact, most retirement plans are not pensions. A true pension is typically called a Defined Benefit Pension, and can have several components.
Service Related Pension:
The first component of a Defined Benefit Pension and the one most people are familiar with, is what they call a “Service Related Pension”. What that means is after so many years of service, and upon reaching a certain age, you will receive a monthly distribution for the rest of your life, based on your election (choices) at the time you retire.
In city, state, and federal pensions the elections are many. For instance, you may choose:
- The Maximum Distribution
This election allows you to get the maximum that you can collect each month, however. it doesn’t protect your spouse when you die. When you choose the maximum distribution and you die, the pension dies with you.
- The 50% Joint and Survivor Option
In separation agreements where the spouse has a marital interest in the pension, the 50% Joint and Survivor election divides the pension giving both you and your spouse a share. The spouse’s interest is based on the length of the marriage. Contributions made before the marriage (pre-marital) are excluded.
- The Ten Year or Five Year Certain
In some city, state, and federal pensions, you can elect a Ten Year or Five Year Certain, where the total amount of the pension is distributed over a 10 or 5 year period.
- The Pop-Up
The Pop-Up distributes a smaller monthly amount initially, however, in the event of your spouse’s death, the pensioner’s monthly amount will “pop-up” to the maximum distribution. If you die, the spouse’s share doesn’t change. The Pop-Up feature is not uncommon in city, state and federal pensions.
Additionally, along with a Defined Benefit Pension there may be an Annuity and/or voluntary contribution plan (pre-tax) which can take various forms such as an ASF (Accumulated Savings Fund), or a TSP (Thrift Savings Plan) or a 401(K), 457 or 403B Plan whereby the employee contributes tax deferred monies into an account that builds up over the years.
Mediation and Divorce
During the mediation process, I will explain to you the different parts of the pension you have and how to determine its value. At that point a number of options are available to you and your spouse, such as:
- Trading the marital interest in the pension for another asset
- Each keeping their own pension
- Each may waive their interest in their spouse’s pension
- Offsetting the differences in pension values
The word pension sounds like a simple thing, but as you can see, it can be one of the most complicated parts of negotiating your settlement. But don’t worry, I’ll be there with the knowledge and experience to give you the information you need to help you make the best decision regarding your pension.
Don Sinkov Your Divorce Mediator Westchester County, NY Putnam County, NY Phone: (914) 588-6258 eMail: Info@YourDivorceMediator.com