Understanding the key issues will help in drafting Settlement Agreements and avoid post judgment problems.
Connecticut State Employees receive their pension benefit under the Connecticut State Employees Retirement System (CSERS), which is administered in the Office of the State Comptroller. The rules differ depending on whether the employee is hazardous duty or non-hazardous duty. The benefit can be divided by QDRO in accordance with Internal Revenue Code (IRC) section 414(p)(11).
Key Issues with CSERS Plans
Non-Hazardous Duty Benefit
- Benefit formula is 1.33% times years of credited service times high three-year average salary plus .5% of average salary in excess of the year’s breakpoint.
- Normal retirement age differs by Tier.
- Participant vested at 5 years of state service.
- COLA applies.
- Some Tiers require employee contributions.
Hazardous Duty Benefit
- The hazardous duty benefit is significantly higher.
- Benefit formula is 2.5% times years of credited service times high three-year average salary, with 2% for service over 20 years.
- Normal retirement age is at 20 years of service.
- Participant vested at 20 years of state service.
- COLA applies.
- Employee contributions required.
Marital Portion
The marital portion is determined by Marital Fraction. The numerator of the fraction is the number of months of marriage and the denominator is the total number of months from the initial date of participation to the date of divorce
Vesting
Non-vested assets may be divided. Bornemann v. Bornemann, 245 Conn. 508, 752 A.2d 978 (1998). A portion of participant’s benefit calculated as of the date of divorce can be assigned to alternate payee even if participant is not vested
Shared Interest Payment
Alternate payee’s assigned share of the benefit is a shared interest where the payment is based on the life of participant and alternate payee receives the assigned share when the benefit is paid to participant.
Pre-retirement Survivor Benefit.
- Alternate Payee cannot be treated as surviving spouse.
- If participant dies pre-retirement, alternate payee will not receive assigned benefit.
- QDRO may assign some or all or any employee contributions available for distribution. If participant is remarried at date of death for at least one-year, current spouse receives monthly death benefit and no employee contributions are available for distribution to former spouse.
- Depending on length of marriage, consider life insurance and specify how the premium will be paid.
Post-retirement Survivor Benefit.
- Settlement Agreement and QDRO can mandate that participant elect a joint and 50% or 100% survivor annuity at retirement. If participant is remarried at date of retirement, CSERS will NOT enforce this provision unless the current spouse consents.
- If a joint and survivor annuity is elected with the alternate payee as the survivor annuitant, the participant and alternate payee’s benefits will be proportionately reduced.
- If participant is the first to die, payments to alternate payee will cease and alternate payee will be paid the survivor benefit, which is the designated percent of the total benefit being paid.
- If a joint and survivor annuity is not mandated or is mandated but a current spouse will not consent, consider life insurance and specify how the premium will be paid.
Settlement Agreement Provisions.
- Specify a valuation date for determining the amount of the assigned benefit.
- Specify if COLA should be awarded on alternate payee’s assigned benefit.
- Clearly state the method for determining the marital portion.
- If hazardous duty benefit is not vested, consider assigning to alternate payee both a hazardous duty benefit and a non-hazardous duty benefit with payment determined by which benefit is paid to participant.
- Address pre-retirement and post-retirement survivor benefits by assigning employee contributions, providing for life insurance and/or mandating a joint and survivor annuity form of payment.