When the parties divorced, their judgment awarded each party fifty percent of the marital portion of the other party’s pension. [Plaintiff, a teacher, has a pension with the State of Michigan. Defendant’s pension was with Chrysler. As appropriate for each pensio, a Qualified Domestic Relations Order (QDRO) or Eligible Domestic Relations Order (EDRO), was prepared and incorporated by reference in the judgment.The judgment provided each alternate payee the right to elect to begin receiving his/her benefits at the Participant’s earliest retirement age. the JOD also provided that “[t]o the extent that the Plan charges an administrative or actuarial cost for reviewing or administering the QDRO/EDRO, the Plaintiff and Defendant agree to split this cost equally.”
So far, so good, right? Well, Ms. Wolf got a big surprise when her ex-husband elected to begin receiving benefits at her earliest retirement age.
On March 31, 2011, she learned that her share of the pension would be reduced by a state policy known as "recoupment." The recoupment policy was designed to prevent a loss to the retirement system from administering and paying benefits to both participants and alternate payees, as opposed to just participants.
The COA explained the recoupment policy:
"In its simplest terms, an alternate payee who elects to receive benefits before the participant retires receives a set monthly payment and the participant, when he or she retires after age 60, receives a recouped or reduced monthly benefit to account for the alternate payee’s early receipt of payments."
As applied here, if Mr. Mahar began receiving his share of Ms. Wolf's benefits in 2011 and she did not retire until 2016 (at age 65), when she plans to retire, her monthly benefit would be reduced by $712.65 to offset the payments Mr. Mahar received from 2011 to 2016.
Although the COA gave Ms. Wolf the relief that she requested, modification of the EDRO, this was not an easy or an inexpensive way to fix the problem. The information about recoupment is on the State's website in discussion of EDRO's--their requirements and administration.
Family law attorneys frequently draft EDROs--simply because the State makes sample forms available to them. Note the significant problems in this case and exercise caution when your client asks for an EDRO. Better yet, consult with one of the several capable firms that exist to draft orders dividing qualified plans.
You may review the case here. Download Wolf_v_Mahar For Publication, Docket No. 310479 (November 18, 2014)