When divorcing and working through splitting the defined benefit plan in a divorce, it can become extremely daunting. This blog focuses on the options that can be selected with a retirement benefit plan. Depending on the plan there can be multiple options available, but the most widely seen are the following:
- Single Life – this means the benefit is paid until the employee dies. The spouse or ex-spouse would not receive anything after the death of the other spouse.
- Joint or Survivor Benefit – this will allow the surviving spouse or ex-spouse to continue to get a monthly benefit, even after the passing of the employee.
- Pop-up Joint – this is the same benefit as the joint or survivor benefits with the one caveat that the benefit paid to the surviving spouse or ex increases when one of them passes.
It’s important to note that the highest benefit paid would be the single life benefit. However, as you can imagine it would be hard for the surviving spouse or ex if the employee spouse dies. #2 above would be a smaller benefit payout than #1 and #3 above would be a smaller benefit amount payout that #2.
When determining which option to take, you need to look at how long it would take to make up the difference in the benefit awarded. The obvious best option above is the pop-up joint option, but you would need to calculate how much less would be received from the pop-up option to the joint option. For example, you may find that the difference in payout from #2 to #3 is minimal, so switching to #3 might make sense. It may take 1 year to make up for 10 years of payouts at the reduced rate.
Each benefit plan has it’s own options and criteria, so make sure to research all before selecting and writing a QDRO or DRO. Don Desroches is a CDFA (Certified Divorce Financial Analyst) and is trained and experienced in splitting retirement funds.