Robert Treat, Esq.
Similar to public sector plans governed by the Employee Retirement Income Security Act (ERISA) and divisible by Qualified Domestic Relations Orders (QDROs), State of Michigan defined benefit pension plans, which are governed by Public Act 46 of 1991, MCL 38.1701-38.1711 (the EDRO Act) and divisible by Eligible Domestic Relations Orders (EDROs), provide for preretirement and postretirement survivor annuities. However, there is considerably less flexibility in specifying the amount of the survivor annuities payable to the former spouse.
In addition to an award of a portion of the basic accrued benefit, an EDRO can designate the employee's former spouse as the surviving spouse for a portion of the preretirement survivor annuity. This would provide an income stream to the former spouse-alternate payee if the plan participant died before benefits to the alternate payee commenced.
The postretirement survivor annuity provides an income to the alternate payee if the participant dies after benefits commence, and if the alternate payee's benefit is based on the participant's lifetime. If the alternate payee's benefit is based on the alternate payee's lifetime, the participant's death will not affect the alternate payee's continued right to receive his or her benefit, and the postretirement survivor annuity is not necessary.
How The Preretirement Survivor Annuity Operates In EDROs
The preretirement survivor annuity works the same for all four State of Michigan defined benefit pension plans. The EDRO can specify that if the participant predeceases the alternate payee, such alternate payee will be treated as the surviving spouse and receive a preretirement survivor annuity in the amount of the entire portion being shared by the participant and alternate payee, but no larger than the amount that would be payable to a survivor. This means the alternate payee may well receive more if the participant predeceases him or her before benefits commence, than the alternate payee's awarded portion of the pension. This is the only level of survivor benefit allowed, so an attempt to specify another amount will cause the EDRO to be rejected. If the alternate payee predeceases the participant before the alternate payee commences benefits the participant's benefit will be restored to its full amount.
How The Postretirement Survivor Annuity Operates In EDROs
The postretirement survivor annuity treated differently for the four State of Michigan pensions, which are the Michigan Judges Retirement System, the Michigan Public School Employees Retirement System, the Michigan State Employees' Retirement System, and the Michigan State Police Retirement System. The post retirement survivor annuity is not available for the Michigan State Police Retirement System because the only form of benefit available to alternate payees is a single life annuity ending upon the death of either the participant or the alternate payee. For the other three plans the postretirement survivor annuity operates according to the form of payment specified in the EDRO. For the Judges Retirement System the only form of benefit that provides for the postretirement survivor annuity is the 50% Joint Survivor Option. This means that one-half of the shared portion will be paid to the party who survives the other. If the alternate payee's share of the pension is 50%, the alternate payee's postretirement survivor annuity will be the same dollar amount. For the School Employees Retirement System and the State Employees Retirement System, the forms of benefit that provide for a postretirement survivor annuity are the 50%, 75% and 100% Joint Survivor Options. The specified percentage of the shared portion of the pension would be payable to the survivor. If the alternate payee predeceases the participant before benefits commence, the alternate payee's benefit will revert to the participant as if the Joint Survivor Option had not been elected.
Different Rules If The Participant Has Retired
Note that the above rules apply to EDROs, and EDROs can only issue when the participant has not yet retired. If the participant is already retired and commenced benefits the rules are different. The nomenclature changes. The Order is no longer called an EDRO. Rather, it is simply called a Domestic Relations Order (DRO). The retired employee is referred to as the retirant and the former spouse is referred to as just that, the former spouse.
In addition to different nomenclature, the survivorship rules are different. The preretirement survivor annuity no longer applies, since the participant has retired. If the alternate payee was married to the participant at the time of retirement, the alternate payee will remain as the sole surviving spouse unless the DRO removes the alternate payee as designated surviving spouse or specifies a survivor annuity amount less than what she or he was entitled to as sole designee. If the former spouse is removed as designated surviving spouse, the DRO or Judgment of Divorce containing certain specific language may change a joint survivor option that was chosen at retirement to straight life . Note that the spouse who was married to the participant on the participant's retirement date can be removed as surviving spouse, but no new surviving spouse can be designated.
The participant may have chosen a straight life option upon retirement. If this is the case there is no postretirement survivor annuity available, but the DRO may provide that the alternate payee's share of the basic accrued benefit shall be based on the alternate payee's lifetime. If the alternate payee's benefit is based on the alternate payee's lifetime, the alternate payee's benefit will not revert to the participant. If the alternate payee's benefit is based on the participant's lifetime and the alternate payee predeceases the participant, the alternate payee's benefit will revert to the participant.
A Word About Municipal Defined Benefit Plans
Municipal defined benefit plans are also subject to the EDRO Act. Most municipal plans generally follow the state's example for EDROs and DROs with respect to survivor benefits.
The Municipal Employees' Retirement System (MERS), however, uses the 100%, 75% and 50% Joint Survivor Options differently. It applies the percentage to the alternate payee's share only, and not to the entire shared portion. For example, the 100% Joint Survivor Option would pay the alternate payee 100% of what the alternate payee received before the participant died, whereas the state plans would pay 100% of the entire shared portion.
Counties and cities that have defined benefit plans other than MERS generally follow the example set by the State of Michigan pension plans. Most counties have very similar EDRO and DRO requirements that differ slightly from the state's format and phraseology. Many cities also have similar requirements, which vary slightly from those of the counties and the state. In summary, the preretirement survivor annuity is available under state and municipal plans, but the amount is 100% of the portion of the pension being shared, and the state will not allow any other amount. The postretirement survivor annuity is available by electing a Joint Survivor Option, which is available in all plans except the State Police pension. The rules are different if the participant is already retired, and such rules should carefully be considered when negotiating the terms to be included in the judgment. MERS treats the various joint survivor percentages differently than other plans. Counties have similar requirements, as do cities, and the state, county, and city requirements vary slightly.
The next installment in this series of articles on survivorship considerations will address federal plans such as the Federal Employees Retirement System (FERS), the Civil Service Retirement System (CSRS), Military Retired Pay (military pensions) and Railroad pensions.