Dividing Hybrid Plans in a Divorce
In my last article, I discussed the difference between qualified and non-qualified retirement plans. In divorce, it is important to determine what type of plans you and your spouse have as soon as you can. But, qualified and non-qualified plans are not the only ones out there. In addition, you need to consider other types of plans. Here, I will discuss hybrid plans, including local, state, and federal government plans.
Dividing Hybrid Plans
If you have more than one retirement plan, one of them might constitute a hybrid plan. A hybrid retirement plan is one that the employee makes contributions to. They use a certain amount of their pay contributed to a separate account that generally accrues earnings. When the employee retires or leaves the company, the employee has the option of get the contributions with earnings. If they do this, they waive their right to monthly payments that the plan would yield. If the employee opts to do this, any restrictions need to get included in the settlement agreement. In addition, this should get reflected in the division order.
To make sure that you accurately represent your hybrid plan during your divorce, you should contact a divorce lawyer such as myself.
Local Government Plans
You might have a government plan which needs to be considered in divorce. Local, state, and federal government plans are all unique. While they are all usually considered hybrid plans and will have some overlap, they also contain some differences.
If you have a local government plan, this plan is considered statutory. Like non-qualified plans, these plans are exempt from ERISA. These plans only allow division through a DRO or a QDRO. If you have a local government plan, you need to consider the specifics of your particular plan. Many of these plans will vary considerably in their terms and provisions. These plans are subject to provisions such as Deferred Retirement Option Program (DROP) and TRA. To determine how these will get divided, you should contact an attorney.
State Government Plans
State government plans are similar to local government plan in a few ways. For example, they also don’t have to comply with ERISA. In addition, they require an employee to make contributions which usually occurs in the form of a percentage of their pay. A few common state government plans in Texas include:
- Employees Retirement System of Texas (ERS).
- Teachers Retirement System of Texas (TRS).
- Texas County and District Retirement System (TCDRS).
- Texas Municipal Retirement System (TMRS).
- These plans don’t allow lump sum distribution when a QDRO is involved.
- This is something that is important for you and your spouse to understand if you are trying to divide a state government plan in divorce.
Federal Government Plans
Hybrid defined benefit plans at the federal government level are the Federal Employees Retirement System (FERS) and the Civil Service Retirement System (CSRS). If you have one of these plans, keep in mind that they are not subject to ERISA. These plans can be divided in a divorce, but this division must occur through Court Orders Acceptable For Processing instead of a QDRO. The plan itself contains three different parts – survivor annuities, the refund of employee contributions, and employee annuities. It is important to consider all three parts when dividing a plan in divorce.