Understanding the key issues will help in drafting Settlement Agreements and avoid post judgment problems.
Connecticut State Teachers receive their pension benefit under the Connecticut State Teachers’ Retirement System (CSTRS), which is administered in the Connecticut Teachers’ Retirement Board. The benefit can be divided by QDRO in accordance with Internal Revenue Code (IRC) section 414(p)(11).
Key Issues with CSTRS Plans
Calculation of Benefit
- Benefit formula is 2% times years of credited service times high three-year average salary.
- Normal retirement benefit: 20 years of credited service and at least age 60.
- Early retirement benefit with reduced benefit: age 55 with 20 years of credited service.
- Participant vested at 10 years of credited service.
- COLA applies.
Contributions
- Mandatory Contributions (pre-tax)
- Voluntary contributions (after-tax): paid at retirement as a lump sum or extra monthly annuity.
- 1% Supplemental contributions (after-tax): paid at retirement as lump sum or extra monthly annuity.
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 paid as 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.
- Can assign by QDRO 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.
- 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 survivor annuity at retirement. The survivor annuity can be 100%, 75%, 66 2/3%, 50% or 33 1/3%. If participant is remarried at date of retirement, CSERS will still enforce this provision without the current spouse’s consent.
- If a joint and survivor annuity is elected with the alternate payee as the survivor annuitant, the participant and alternate payee’s benefits can be proportionately reduced or the QDRO can direct that no reduction will apply to alternate payee’s portion of the benefit.
- 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, 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 of COLA should be awarded on alternate payee’s assigned benefit.
- Clearly state the method for determining the marital portion.
- 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.