The DRO and defined benefit retirement plans – Things to be aware of BEFORE retirement

Public employees and others – take note and definitely READ THIS BEFORE PUTTING IN YOUR RETIREMENT PAPERS! (note this is based on the NYS System and retirement as a public employee and all individual circumstances differ. We highly recommend a DRO review before putting in your retirement papers. In NYS the DRO is often called a “Qualified” DRO or QDRO)

First we reiterate DON”T GET MARRIED as it allows government interference and control of your finances. This is true if you have savings, a 401k (and deferred compensation plans), or a defined benefit plan. NYS (and most others) look at marital property as a 50-50 split (or thereabouts) at the time of the divorce. This is true regardless of who contributed towards the marital asset in what proportion, even if nothing and regardless of who wants out unilaterally. For many of us it is past the time for this sage “don’t get married advice”.

Savings (that isn’t plundered by the system) will be split into separate accounts. 401k’s (and deferred comp) may need an accountant to determine the split, especially if you contributed to it (and had gains or losses) before the marriage or if there is competing accounts with different values. But in each of these instances the numbers are crunched, amounts and methods agreed upon, and you walk from the divorce knowing what you have left and it is yours to control from here on out (If anything is left).

But in the case of defined benefit plans the courts issue a Domestic Relations Order (DRO) directing the administrator of the retirement system how the value of the retirement is to be split at the time of retirement. Let’s make this clear, the retirement value is NOT set at the time of divorce like a 401k, it is set at the time of retirement. And unlike your 401k which amounts and control of are is finalized before the judge the defined benefit plan disbursements are finalized by the administrator of of the plan. Any errors in the DRO’s, and his interpretation of what the DRO says, are only discovered AFTER retirement when it is often too late to correct them!

Unfortunately for most the issue of division of the retirement comes at the end of a long custody and divorce battle. In NYS the attorneys will usually refer to the Majauskas Formula, established by the NYS Court of Appeals in that court case. While you can enter into agreements different than this formula, the fact it was put in place by NYS highest court leads me to believe that any contested divorce action will ultimately end up in this fashion, even upon appeal.

Occurring after the divorce decree is filed, the DRO’s are usually prepared by a clerk or paralegal. Attorneys will try to slip in items, such as payments to occur at a specific date even if you’re not retired, improper number of the years of marriage, or an option selection which guarantees the spouse survivor benefits. And if it makes it past unknowing litigants and uncaring attorneys, Judges will just sign the order as entered – done deal.

Attention: especially NYS Public Employees!

Fast forward another 20 years. It’s time to retire and you’re ready to put your papers in. STOP RIGHT THERE! In the NYS Public employee pension system and the NYS teachers retirement system, among others, once you have submitted your retirement they will lock in your option and do the math according to your DRO. IF THERE ARE ANY ERRORS THEY WILL NOT CHANGE THE RETIREMENT OPTIONS AND AMOUNTS! The only recourse is to go back to court and try to get a restraining order and file for an amended DRO.

Even with a restraining order filed to stop the retirement processing the NYS Comptrollers Office argued that they could not change anything as the 30 days to withdraw the retirement were over even though the restraining order was filed within the 30 days (them sending it over the 30 days in responding). The “option election” was in place they said. In the teachers retirement system once the option is selected there is no changing it. DO NOT FILE FOR RETIREMENT UNTIL YOU GET A FULL REVIEW OF YOUR DRO!

Several days in court, postponements, letters to the retirement administrators, and $7500 later an amended order was obtained with specific wording that the DRO’s did not match the divorce order and as such were defective on their face and removed by the court and corrected orders were filed. It took the administrators another month to respond they would accept the amended orders. It was 2 month’s after that the math was corrected and the deficit reimbursed. Retirement filed in June of 2017 wasn’t finalized until March of 2019.

Needless to say the faceless bureaucrats running large retirement systems don’t care about you. As I tried to straighten things out and get answers I got the run around, answering machines, and no calls back, delays in letters sent, all while time limits ran. I got lucky and got the restraining order in within 30 days, otherwise add $5000 plus to get an attorney from the system into court and make the Comptrollers Office part of the divorce action. Another $5000 for an appeal. I expect a fight between the executive branch and the judicial branch (who was irate not at the injustice of wrongly worded orders passed by 2 attorneys and the divorce Judge but at his authority being denied) was the only reason they capitulated. That, and 20 years removed from the divorce I had the money in hand to fight, and nothing but time to fight the system.

NY MAN doesn’t endorse or recommend any professional nor do we accept any financial support outside of the small cadre of participants. But it was the skillful arguments and documents which made it hard for the administrators to ignore the action and it was her discussions with the Judge which fired his anger at the executive branch for not accepting the “NYS Supreme Courts authority” over matrimonial matters (the Judge even asked who she thought the Comptrollers Office would offer up to go to jail for contempt of court!). email jh@nymensactionnetwork.org or respond to this post if you need her name in the greater Capital District area of NYS.