Steve J., of Warren, New Jersey asks: "Do I need to get my 401(k) or Savings & Investment Plan evaluated for my divorce?"
Spencer Olsen, from the QDRO Department of Pension Evaluators & QDROS Of Troyan, Inc Associates Groupreplies: "Defined Contribution (cash type) Plans consist of any type of tax deferred plan which has individual accounts for participants/employees. Contributions into the account may come from the employer and/or employee. Investment risk is borne by the employee. The common types of defined contribution plans are profit-sharing, 401(k), thrift/savings, Keogh and Target plans. The value of these plans is based upon the current value of invested assets at any given point in time.
Establishing the value of a defined contribution plan is easy, if the account balance has been accumulated entirely during the marriage, the parties may use the balance for the appropriate date and decide how it is to be divided. Our service becomes necessary when there is a balance in the account prior or subsequent to the marriage.
We utilize three Court-Acceptable Methodologies to Evaluation Defined Contribution (cash type) Plans:
- Coverture Fraction Isolation Method - is based on time sensitive calculations which are applied to the account balance as of the End of Marriage Date, creating the coverture fraction to that balance. The result is the value of the account for Marital / Community Property. Required is account balance as of the end of marriage date.
- Subtraction Method- subtracts the pre-marital amount from the amount on or about the End of Marriage Date. The account balance as of the End of Marriage Date is then subtracted from the account balance as of the Date of Marriage. The difference in the account balances is the value of the account for Marital/Community Property. Required is the account balances as of the date of marriage and as of the end of marriage date.
- Tracing/Segregation Method - The account balance on the Date of Marriage, plus the gain/loss investment experience attributable to this sum is subtracted from the account balance on the End of Marriage Date. The difference is the value of the account for Marital / Community Property. Required are the statements with Investment experience from the Date of Marriage to the End of Marriage Date.
A Pension Evaluation provides the lump sum present value of pension benefits earned during a marriage (for divorce purposes) or during an entire career (for retirement planning purposes).
The lump sum present value provided by a Pension Evaluation is determined by a number of actuarial assumptions, including mortality rates (life expectancy), interest rates, retirement ages and probability of plan insolvency."
Spencer Olsen
Lead QDRO consultant