Terms Beginning with ‘S’

Salary Projection: For purposes of estimating employer contributions that fund a defined benefit pension plan, an actuary will often use a salary scale table to project future pay increases for the covered group of plan participants. Some employers may show estimated future pension benefits with illustrated future pay increases in annual benefit statements to participants. There are three general methods used in salary projections:

1. Use a fixed annual interest rate to calculate the average annual pay increase for future years (e.g., 3 percent or 5 percent per year).
2. Use salary scale tables that have been developed by actuaries. There are 15 to 20 such tables available.
3. Develop the pay history from the experience of the covered group for a particular employer or by industry.

Salary projections are generally not used for valuations of pensions in divorce except in New Jersey, where family courts allow their use.

Separation Date: The cutoff date in some jurisdictions for measuring marital property, also known as the marital separation date. The separation date has significance in the valuation of pensions in two respects: (1) The monthly pension benefit accrued for service and pay may be valued up to the separation date, and (2) the separation date may be used in the denominator of the marital coverture fraction to measure the marital portion of the pension benefit or value.

Note that spouses sharing a house may be legally separated. The date that one spouse moved out of the bedroom into a separate bedroom on a different floor of the house may mark the separation date. Living in separate areas of the same house, not socializing, not eating meals together, and virtually not speaking to each other constitutes living separated and apart.

Service: Retirement plans measure an employee's length of service in three ways:

1. Continuous service represents the actual length of employment.
2. Credited service represents the period of time during which the employee is earning pension credits.
3. Vesting service is the period of time that is counted in the plan's vesting schedule to obtain partial or full nonforfeiture rights to a benefit. Each service may have its own definition in the plan, when it starts, when it ends, how absences are counted, conditions of minimum and maximum time periods, and so on.

Service Purchase: Some plans offer this option, also known as buy-back, which allows an employee who terminated service and was subsequently reemployed to recoup prior service credits. A service purchase provision may also be found in governmental pension plans for obtaining credit for military service.

Severance Pay: There are conflicting opinions on whether severance pay should be considered marital property. Two cases in California dealt with whether a spouse's employment severance benefits are community property when they are received when the marriage is ending. The rulings in both cases affirmed that severance payments are not community property, because, unlike pensions, they are made in lieu of future service, not as a reward for past service and not as deferred wages. In re Marriage of De Shurley, 207 Cal.App.3d 992 (1989); In re Marriage of Lawson, 208 Cal.App.3d 446 (1989). However, in Arkansas, a nonemployee-spouse was awarded one-half of the employee-spouse's severance pay when the court decided that the benefit was earned by years of service during the marriage. Dillard v. Dillard, 772 S.W.2d 355 (Ark.Ct.App. 1989).

Social Security Benefits: Social Security benefits are not subject to equitable distribution, so present values are not computed and a QDRO cannot be used. A court may, if it wishes, recognize that a person will or will not receive Social Security benefits for purposes of measuring income. In occupations not covered by Social Security, there may be a generous defined benefit pension plan that presumably makes up for the absence of Social Security benefits. In such a case, it is possible to compute a theoretical Social Security pension and then subtract its present value from the actual pension present value to arrive at a net value for the basis of equitable distribution. It is also possible to make such an adjustment in deferred distribution.

Social Security Integration: Social Security benefits and taxes are structured upon a wage base established by federal law. The wage base changes from time to time, generally increasing every year by a cost-of-living measure. An individual whose annual income exceeds the wage base in a particular year pays taxes and eventually will receive a benefit conditioned only on the wage base. The pay in excess of the base is not counted for Social Security. An individual whose pay is always below the wage base receives benefits based on entire pay. This disparity leads to an allowance for a pension plan to provide higher benefits in a formula using pay above the wage base. A plan is said to be integrated with Social Security when it recognizes Social Security either in terms of benefits or the taxable wage base, which results in more benefits for the higher-paid participants and less for the lower-paid participants. This differential is known as a permitted disparity. Another approach is to subtract from the pension formula benefit a percentage of the Social Security benefit. In all cases, Social Security itself is not affected. The person receives the Social Security benefits to which he or she is entitled. It is the pension plan that works around Social Security.

Social Security Offset: A defined benefit pension plan may be integrated with Social Security in that the plan benefit formula subtracts a percentage of a computed Social Security benefit. Social Security itself is not affected, only the pension from the plan is modified. Some individuals are not covered by Social Security by virtue of their employment. For example, civilian employees of the federal government in the Civil Service Retirement System are not in Social Security. In most of these cases, and in the Civil Service especially, the employer provides a pension benefit that is larger than would be available in comparable jobs. The theory is that the pension benefit subsumes Social Security. If this reasoning is followed, then in valuing such a pension as marital property a theoretical value representing imputed Social Security would be subtracted out of the pension value. Cornbleth v. Cornbleth, 580 A.2d 369 ( Pa. Super. 1990).

Social Security Retirement Age: The age at which an individual may apply for and receive full, unreduced Social Security benefits, known as the primary insurance amount (PIA), depends on the individual's year of birth according to the following table:

Stipulation of Value: In the interest of saving time and expense, and with the perception that pension values are difficult to ascertain and to understand, the parties to a divorce may stipulate the equitable distribution of pension values. Before the stipulation is made, however, counsel for the spouse whose pension is at issue should obtain a reasonable estimate of the pension value. Occasionally, circumstances are such that the court will reject a stipulation. A change in pension value after the stipulation may or may not be considered depending on the situation. If a stipulation is a reasonable compromise, it may be accepted even though it is not as precisely accurate as possible. In re Marriage of Hahn, 273 Cal.Rptr. 516, 517 (Cal.Ct.App. 1990); In re Marriage of Norris, 302 Or. 123, 727 P.2d 113 (1986); Wayda v. Wayda, 576 A.2d 1060 (Pa.Super. 1990); Negrotti v. Negrotti, 98 N.J. 428, 487 A.2d 328 (1985).

Summary Plan Description: Every qualified ERISA plan is required to have a summary plan description (SPD) that summarizes the terms and conditions of the plan in language designed to be understood by the typical plan participant. Because it is usually printed in the format of a booklet, the SPD has come to be known as the plan booklet even if it is not in the size or shape of a booklet. The plan administrator must keep a supply of SPDs available and must give one to every employee, whether or not the employee is a plan participant (with certain exceptions for nonunion members). Note that the SPD is not the same as the governing plan document. The plan document must be made available for inspection at no cost at the main office of the plan administrator, and a reasonable fee may be charged for making a copy for a plan participant.