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Timestamp: 2019-04-20 14:38:51+00:00

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MARIETTA and JACK R. LEHMAN.
We granted review in this cause in order to address an important question relating to the characterization of retirement benefits as community or separate property under a so-called "defined benefit retirement plan," which specifies payments in advance in accordance with a formula that comprises factors such as final compensation, age, length of service, and a per-service-year multiplier: Does a nonemployee spouse who owns a community property interest in an employee spouse's retirement benefits under such a plan own a community property interest in the retirement benefits as enhanced? As we shall explain, we conclude that the answer is: Yes.
Jack R. Lehman (Husband) was born on September 3, 1940, and Marietta Lehman was born on November 13, 1941. On June 15, 1959, he was hired by the Pacific Gas and Electric Company (PG&E). On June 11, 1960, the couple married. On May 1, 1962, he began to participate in PG&E's defined benefit retirement plan, and thereby began to accrue a right to retirement benefits thereunder. On October 29, 1977, the couple separated. On December 19, 1978, they obtained an interlocutory judgment of dissolution of marriage from the superior court, which retained jurisdiction for purposes including the division of the community property interest in his retirement benefits at the time of retirement. On February 23, 1979, they obtained a final judgment of dissolution.
In March 1993, in order to avoid discharging certain employees, PG&E offered an enhanced retirement program, called the "Voluntary Retirement Incentive" (VRI). It described the VRI program as a "management tool" to "reduc[e] costs" by "bring[ing] our workforce in line with the needs of our changing business" through enhancement of retirement benefits by means of "two special improvements to the retirement benefit formula," namely, the crediting of 3 putative years of service and the waiving of the normal actuarial reduction of 18 percent for early retirement, which is designed to account for more projected payments. It stated that the "decision to participate . . . is completely voluntary." For eligibility, it required, among other things, that the employee in question had attained the age of 50, and had accumulated 15 years of service, as of December 31, 1992. Husband met the conditions. He elected to retire early at about 541 3 years of age under the VRI program effective January 1, 1995, with enhanced retirement benefits in the amount of $3,059.30 per month -- based on final compensation of $5,360.43 per month, length of service of 35.67 years, including 3 putative years, and a per-service-year multiplier of 1.6 percent. (Without the three-year putative service credit, he would have received enhanced retirement benefits in the amount of $2,802 per month; without the waiver of the normal 18 percent early retirement actuarial reduction, he would have received enhanced retirement benefits in the amount of $2,508.63 per month.) Had he waited to retire early at 55 years of age, without the 3-year putative service credit and without the waiver of the normal 18 percent early retirement actuarial reduction, he would have received retirement benefits in the amount of $2,350.39 per month -- based on (presumed) final compensation of $5,360.43 per month, length of service of 33.42 years, and a per-service-year multiplier of 1.6 percent. Had he waited to retire at 65 years of age, without the 3-year putative service credit and also without any early retirement actuarial reduction (inasmuch as retirement at that age is not early), he would have received retirement benefits in the amount of $3,724.00 per month -- based on (presumed) final compensation of $5,360.43 per month, length of service of 43.42 years, and a per-service-year multiplier of 1.6 percent. By electing to retire early at about 54 1 3 years of age under the VRI program instead of waiting to retire early at 55 years of age, he received enhanced retirement benefits in an amount of $708.91 per month.
After Husband retired, Wife made various motions in the superior court, seeking various orders together with a determination as to characterization that she owned a community property interest in his retirement benefits as enhanced. In response, Husband admitted that she owned such an interest in his retirement benefits, but denied that she owned one in them as enhanced. What was in contest was solely characterization, i.e., whether the enhancement was a community asset in any part, and not apportionment, i.e., to what extent the enhancement, if a community asset at least in some part, belonged to the community and separate estates. Generally following In re Marriage of Gram (1994) 25 Cal.App.4th 859 (hereafter sometimes Gram), which had recently been decided, the superior court issued orders favorable to Wife, including the determination that, by owning a community property interest in Husband's retirement benefits, she owned a community property interest in his retirement benefits as enhanced. As to apportionment, it applied the so-called "time rule." (See, e.g., In re Marriage of Judd (1977) 68 Cal.App.3d 515, 522; In re Marriage of Adams (1976) 64 Cal.App.3d 181, 186.) Under that method, the community property interest in retirement benefits is the percentage representing the fraction whose numerator is the employee spouse's length of service during marriage before separation, here 17.39 years, and whose denominator is the employee spouse's length of service in total, here 32.67 years; the separate property interest is the percentage representing the remainder of 100 percent minus the community property interest percentage. The superior court determined that the community property interest in Husband's retirement benefits as enhanced was 53.23 percent and that the separate property interest therein was 46.77 percent. It proceeded to award Wife, as her share, one-half of the community property interest, here 26.62 percent -- which yielded her an amount of about $814.39 per month, including about $188.71 per month attributable to the enhancement. It declined to follow Gram to the extent that Gram suggested that it had to add any putative years credited to the employee spouse's service to the denominator of the time-rule fraction.
On Husband's appeal, the Court of Appeal affirmed. Husband claimed that the superior court erred in its determination as to characterization that, by owning a community property interest in his retirement benefits, Wife owned a community property interest in his retirement benefits as enhanced. Reviewing the ultimate question, as it appears, independently, the Court of Appeal concluded that the superior court was correct in its characterization. In this regard, it agreed with Gram. At the same time, it disagreed with the then-recent decision in In re Marriage of Frahm (1996) 45 Cal.App.4th 536 (hereafter sometimes Frahm), which it read to be in conflict. Neither Husband nor Wife claimed that the superior court erred in its determination as to apportionment of Husband's retirement benefits as enhanced between community and separate property interests through its application of the time rule. Hence, the Court of Appeal did not address the point.
On Husband's petition, we granted review. We now affirm.
The question before us is one of characterization of retirement benefits as community or separate property under a defined benefit retirement plan, specifically, whether a nonemployee spouse who owns a community property interest in an employee spouse's retirement benefits under such a plan owns a community property interest in the latter's retirement benefits as enhanced.
Thus, the stream's volume at retirement may turn out to be even less than feared, as when the right to retirement benefits fails to vest or mature (In re Marriage of Brown, supra, 15 Cal.3d at p. 848), or when the employment itself ceases because the employer ceases to do business. By contrast, it may turn out to be even more than hoped for, as when the employer increases the per-service-year multiplier of the retirement-benefit formula (see In re Marriage of Bergman, supra, 168 Cal.App.3d at pp. 767_768 [referring to "future liberalized pension rules or conditions"]; see also In re Marriage of Gowan, supra, 54 Cal.App.4th at p. 86 [recognizing the possibility of such liberalization]), or when the employee spouse lives to a greater than expected age, or serves more than expected years, or attains a higher than expected final compensation (In re Marriage of Gillmore, supra, 29 Cal.3d at p. 428, fn. 9).
That the nonemployee spouse might happen to enjoy an increase, or suffer a decrease, in retirement benefits because of post-separation or even post-dissolution events or conditions is justified by the nature of the right to retirement benefits as a right to draw from a stream of income that begins to flow, and is defined, on retirement (see In re Marriage of Cornejo, supra, 13 Cal.4th at p. 383; In re Marriage of Gillmore, supra, 29 Cal.3d 418, 428; In re Marriage of Brown, supra, 15 Cal.3d at p. 848), with the nonemployee spouse, at one and the same time, holding the chance of more (see In re Marriage of Anderson (1976) 64 Cal.App.3d 36, 39; In re Marriage of Adams, supra, 64 Cal.App.3d at p. 186), and bearing the risk of less (In re Marriage of Brown, supra, 15 Cal.3d at p. 848), equally with the employee spouse. Because the nonemployee spouse is compelled to share the bad with the employee spouse (see ibid.), he or she must be allowed to share the good as well.
The fact that a nonemployee spouse who owns a community property interest in an employee spouse's retirement benefits owns a community property interest in the latter's retirement benefits as enhanced does not mean that the enhancement is a community asset in its entirety. But the question what extent such an enhancement belongs to the community and separate estates is one of apportionment and not characterization.
Beyond that point, however, the Gram court and the Frahm court diverged in their analytical approaches to resolve the issue of characterization.
The Gram court disagreed. After invoking a test derived from a series of decisions in the area of severance payments, See footnote 3 which looks to whether the benefit in question constitutes deferred compensation for services during marriage before separation or present compensation for loss of earnings thereafter, and after considering what it deemed to be "relevant factors" identified in those decisions (In re Marriage of Gram, supra, 25 Cal.App.4th at pp. 862_866), it held that the nonemployee spouse owned a community property interest in the employee spouse's retirement benefits as enhanced (id. at pp. 866_867): the "enhanced retirement benefit should have been included in the computation of" the nonemployee spouse's "community interest in the retirement payment" because "it was a part of, and intended to be, the realization of" the employee spouse's "retirement expectation and thus a form of deferred compensation for services rendered" (ibid.).
On their respective facts, Gram and Frahm are each correct in its result as to characterization. Gram concludes that a nonemployee spouse who owns a community property interest in an employee spouse's retirement benefits owns a community property interest in the latter's retirement benefits as enhanced. For its part, Frahm concludes that a nonemployee spouse does not own a community property interest in an employee spouse's severance payment when the latter accrues a right thereto solely after separation.
Apart from their results, however, Frahm is sounder in its reasoning as to characterization because it cleaves closely to Brown, and Gram is weaker because it wanders away in the direction of ad hoc decisionmaking. As we held in Brown, what is determinative is the single concrete fact of time. To the extent -- and only to the extent -- that an employee spouse accrues a right to property during marriage before separation, the property in question is a community asset.
And to recall what we made plain in Brown and its progeny: The right to retirement benefits represents a certain kind of property interest. It is a right to draw from a stream of income that begins to flow, and is defined, on retirement. (See In re Marriage of Cornejo, supra, 13 Cal.4th at p. 383; In re Marriage of Gillmore, supra, 29 Cal.3d 418, 428; In re Marriage of Brown, supra, 15 Cal.3d at p. 848.) Hence, it is a right to payments specified in accordance with a formula as such payments may be specified in accordance with such formula as then obtains -- not to some "pre-retirement" payments specified in accordance with some "pre-retirement" formula. As stated, various events and conditions after separation and even after dissolution may affect the amount of retirement benefits that an employee spouse receives. But not their character. Once he or she has accrued a right to retirement benefits, at least in part, during marriage before separation, the retirement benefits themselves are stamped a community asset from then on.
Turning to the proceeding at bar, we now consider the decision of the Court of Appeal sustaining the superior court's determination as to characterization that, by owning a community property interest in Husband's retirement benefits under PG&E's defined benefit retirement plan, Wife owns a community property interest in his retirement benefits as enhanced by the VRI program.
On the merits, we also believe that the Court of Appeal properly concluded that the superior court's determination as to characterization was correct.
The superior court did not err insofar as it determined that Wife owns a community property interest in Husband's retirement benefits. That is undisputed and indisputable. Indeed, Husband admits the point.
Neither did the superior court err insofar as it determined that Wife owns a community property interest in Husband's retirement benefits as enhanced. As explained, a nonemployee spouse who owns a community property interest in an employee spouse's retirement benefits owns a community property interest in the latter's retirement benefits as enhanced. Husband's right to retirement benefits, which accrued, in part, during marriage before separation, underlies the right to the enhancement, which is derivative thereof. It bears emphasis that the enhancement is not a separate retirement benefit, still less a benefit separate from the retirement benefits themselves. It is the mere description that we apply to the result that we reach when we subtract the amount of retirement benefits that Husband would have received if he had waited to retire early at 55 years of age from the amount that he did in fact receive by electing to retire early at about 5413 years of age under the VRI program. It is no different from an enhancement effected through "additional years of service," "increase in earnings," or "increase in age" -- which is uncontestedly a community asset (In re Marriage of Adams, supra, 64 Cal.App.3d at p. 186).
Husband argues against our conclusion as to characterization. He proves unpersuasive.
Husband asserts that Wife does not own a community property interest in his retirement benefits as enhanced. He concedes that, as a general matter, a nonemployee spouse who owns a community property interest in an employee spouse's retirement benefits owns a community property interest in the latter's retirement benefits as enhanced. He maintains, however, that a nonemployee spouse does not own a community property interest in the employee spouse's retirement benefits as enhanced through a post-separation "contract" between the employee spouse and the employer independent of any right to retirement benefits that accrued, in some part, during marriage before separation -- whereby, for example, the employer gives the enhancement in consideration for immediate retirement, and the employee spouse immediately retires in consideration for the enhancement. Husband's retirement benefits, however, were not enhanced by a "contract" of this sort. Any such "contract" was derivative of the right to retirement benefits that accrued, in some part, during marriage before separation. Contrary to his position -- to quote Olivo -- the "enhancement" is a "modification of an asset not the creation of a new one." (Olivo v. Olivo, supra, 82 N.Y.2d at p. 210.) By its very terms, it results from "improvements to the retirement benefit formula" under PG&E's existing defined benefit retirement plan, not from a new plan altogether. Husband's premise, viz., that he accrued a right to the enhancement solely after separation, is unsupported.
Husband then asserts, more radically, that Wife does not own a community property interest in his retirement benefits as enhanced because the enhancement amounts to a severance payment and, as such, is his separate property. The enhancement here, however, was not a severance payment either in name or in nature. It called itself, and was in fact, an increase in retirement benefits. Distinguishable, accordingly, is In re Marriage of Lawson, supra, 208 Cal.App.3d 446. There, the court held that a nonemployee spouse did not own a community property interest in a severance payment given to an employee spouse after separation. (Id. at pp. 448_454.) But, unlike Husband and his retirement benefits, the employee spouse had not previously accrued any right to the payment whatsoever. (Ibid.) Distinguishable as well is In re Marriage of Nelson (1986) 177 Cal.App.3d 150. There, the court held that a nonemployee spouse did not own a community property interest in a stock option granted to an employee spouse after separation. (Id. at pp. 156_158.) Again, unlike Husband and his retirement benefits, the employee spouse had not previously accrued any right to the option whatsoever. (Ibid.) See footnote 8 At oral argument, Husband acknowledged that what the employer does is material and not why. It is of no consequence that PG&E enhanced his retirement benefits because it wanted him to retire immediately. Just as it would be of no consequence that he himself enhanced his retirement benefits, as by seeking and obtaining higher final compensation, because he wanted to retire comfortably. (See In re Marriage of Gillmore, supra, 29 Cal.3d at p. 428, fn. 9.) Rather, it is dispositive that PG&E enhanced his retirement benefits -- in which Wife admittedly owns a community property interest.
Although neither Husband nor Wife claimed in the Court of Appeal, or claims here, that the superior court erred in its determination as to apportionment of Husband's retirement benefits as enhanced between community and separate property interests through its application of the time rule, we shall address that question because their arguments about characterization may be deemed to reach apportionment by implication.
Reviewing the matter, as we must, for abuse of discretion (see, e.g., In re Marriage of Adams, supra, 64 Cal.App.3d at p. 187), we believe that the superior court did not err in its apportionment of Husband's retirement benefits as enhanced between community and separate property interests through its application of the time rule. The use of the time rule is not unreasonable when the "amount of the retirement benefits is substantially related to the number of years of service." (In re Marriage of Poppe, supra, 97 Cal.App.3d at p. 8; accord, In re Marriage of Judd, supra, 68 Cal.App.3d at pp. 522_523.) That is the case here. The amount of Husband's retirement benefits as enhanced was the product of his final compensation, length of service, and a per-service-year multiplier. Moreover, the result of the time rule is not unreasonable when the "relative contributions of the community and separate estates" are accounted for. (In re Marriage of Poppe, supra, 97 Cal.App.3d at p. 11.) That is also the case here. Reflecting Husband's length of service of 17.39 years during marriage before separation and his length of service of 32.67 years in total, the community property interest in Husband's retirement benefits as enhanced was fixed at 53.23 percent and his separate property interest was fixed at 46.77 percent.
We find unsound Gram's suggestion that, in applying the time rule to apportion an employee spouse's retirement benefits as enhanced between community and separate property interests, the superior court must add any putative years credited to the employee spouse's service to the denominator of the time-rule fraction. (See Reddall, supra, 17 Fam.L.News at pp. 23_24 [criticizing the suggestion of In re Marriage of Gram, supra, 25 Cal.App.4th at p. 867].) Such years are fictive -- they have no independent existence, but are merely a means by which the employer effects the enhancement. The employer can achieve exactly the same outcome, for example, by crediting a putative sum to the employee spouse's final compensation -- in this proceeding, $492.23 to $5,360.43 per month, for a total of $5,852.66 per month. Or by increasing the per-service-year multiplier in the retirement-benefit formula that operates on the basis provided by the employee spouse -- in this proceeding, from 1.6 percent to 1.74692 percent. Neither the community nor the employee spouse supplied the putative service credit as a mechanism of enhancement. The employer did. But both the community and the employee spouse supplied part of the basis on which the retirement-benefit formula operates, specifically, the years of service. And they both must share in what the putative service credit yields, because that credit amounts to a post-separation and even post-dissolution event or condition on which the volume of the stream of income that constitutes retirement benefits depends. When, in a case such as this, the superior court uses the time rule, with the employee spouse's length of service during marriage before separation in the numerator, and with the employee spouse's length of service in total in the denominator, it arrives at a result that is "reasonable and fairly representative of the relative contributions of the community and separate estates." (In re Marriage of Poppe, supra, 97 Cal.App.3d at p. 11.) The superior court would disturb the balance if it were to add to the denominator any putative years credited to the employee spouse's service: the employee spouse did not supply this fiction. It would not restore the balance if it were to add such putative years to the numerator as well: even if the fact that the community did not supply this fiction is ignored, the value of a fraction, other than 11, does not remain constant through the addition of the same number to both numerator and denominator. It must, accordingly, leave the balance as it finds it, without adding any putative years credited to the employee spouse's service to either the numerator or the denominator. To the extent that Gram is to the contrary, it is disapproved.
For the reasons stated above, we conclude that we must affirm the judgment of the Court of Appeal.
DISSENTING OPINION BY BAXTER, J.
I respectfully dissent. A marital community has a contractual entitlement to all benefits earned by a spouse during the marriage under terms and conditions of employment then in effect. In my view, however, a dissolved community has no stake, by contract or otherwise, in any "enhancement" of benefits that was first offered after the marital separation and was not in effect during the marriage. This should particularly be the rule when the enhanced benefits are a new employer "subsidy" provided for the purpose of inducing a voluntary termination of employment, the future earnings and pension rights from which would themselves have been the employee spouse's separate property.
While this couple was married, the marital community, through the employed husband, contributed its services in return for a contractual right to compensation including (1) the husband's current salary during that period, and (2) the conditional future right to collect retirement pension benefits, insofar as attributable to work performed during coverture, under the terms of the company retirement plan as in effect when the work was performed. That plan would apparently have allowed the husband to choose either "normal" retirement at age 65, or "early" retirement between ages 55 and 65 subject to a reduced monthly benefit payment. The monthly payment for "early" retirement would be lower for two reasons. First, by selecting early retirement, the husband would cease earning service credits and salary increases relevant to computation of a final pension. Second, he would sustain an actuarial adjustment in the monthly benefit, reflecting the longer life expectancy over which the pension earned would be paid.
Years after the marital community ceased to exist, at a time when the employee's salary and service credits were his alone, the employer, in an effort to eliminate positions, sought to induce his voluntary early retirement by offering him an increase in the reduced monthly pension benefits to which early retirement would otherwise entitle him. The increase was accomplished by granting years of putative future service credit and waiving the actuarial adjustment for early retirement.
The erstwhile community performed not one minute of work under an employment contract that included these "enhanced" benefits, or in expectation thereof. Instead, the community offered its services under the terms and conditions of compensation then in effect, and passed from existence with that understanding. The new benefits, announced long after dissolution of the marriage, sought to encourage and compensate the divorced husband's early withdrawal from his own employment, the future earnings and pension credits from which would have accrued solely to him.
Yet the majority go further. They reason that once an employee "has accrued a right to retirement benefits, at least in part, during marriage before separation, the retirement benefits themselves are stamped a community asset from then on." (Maj. opn., ante, at p. 15.) Hence, they conclude, when a pension's terms change in the employee's favor after the marriage has ended, as a means of inducing the employee to forego his own future work earnings and retire early, the ancient community retroactively gains a full proportionate share of the enhancement. The majority refuse even to concede the now-unmarried employee the full benefit of years of future age and service credit attributed to him under the "enhanced" voluntary retirement plan, though by actually working during the same future period, the husband would without doubt have accrued those same years of age and service for his sole account.
I cannot accept such a holding. The majority's result is at odds with the fundamental premise that community property is limited to that acquired during the marriage (Fam. Code, § 760), while assets earned or accumulated by the marital parties at any time after their separation are their separate property (id., §§ 771, 772).
In support of their views, the majority advance two related premises. First, the majority imply, by contributing labor toward a spouse's pension, the community makes an "investment" in, and thus earns and acquires a pro rata "property" right to, the "stream of income" for which the employee will finally be eligible, as determined by all intervening events, both good and bad, that precede the employee's retirement. Second, the majority suggest, the community has earned an interest in any final pension, including post-marital "enhancements" thereof, insofar as it contributed eligibility credit toward the final pension. These theorems, in the extreme form the majority apply them, are supported neither by our prior decisions nor by sound logic.
Neither of the majority's reasons for now deeming post-marital pension "enhancements" to be community property is persuasive. The majority first advance the notion that even if "enhanced" pension benefits were first offered only after the marriage was dissolved, the community nonetheless earned and thus "acquired" rights thereto during the marriage insofar as community efforts account for a portion of the employment (including age and service credit eligibility requirements) which "underlies" the pension as a whole. The premise appears to be that when the community contributes, during any period, its time, effort, and skill to a particular employment, it then and there earns and acquires rights to a pro rata share of any pension the employee spouse ultimately receives, including amounts that stem from post-marital improvements to the pension plan.
The majority insist their rule is necessary to treat the community fairly because, having borne the "risk" of intervening contingencies that might reduce or eliminate the ultimate pension amount, the community is entitled to the potential "reward" of beneficial contingencies, including post-marriage improvements to the plan. But this reasoning is flawed, because the "risks" the community faces are not commensurate with the "reward" the majority confers.
When a married employee performs labor and accrues rights under the terms of an existing plan to pay future pension benefits, the community faces, and can assess as it continues to work, the "risk" that the contingencies and conditions set forth in the plan itself will not come to pass in the most advantageous way. As the community works, it well understands by reference to the plan already in existence that the pension amount ultimately due, and the community's share thereof, may be eliminated or reduced insofar as the employee dies before retirement, retires early, changes jobs, is discharged from employment, or fails to attain the hoped-for level of final compensation. By the same token, the community should reap the "reward" when the pension rules under which the community's labor was contributed turn out to produce a favorable result.
But an improvement in the plan that occurs only after the marriage has ended is not the mere favorable resolution of a contingency or condition the community assumed when performing its services. Instead, such an enhancement is a new and unforeseeable development, one unrelated to the assumptions under which the community supplied its labor. Such a post-marital improvement constitutes no legitimate "reward" for the "risks" the community faced when earlier deciding whether to contribute its time, effort, and skill. Considerations of fairness do not suggest that the community, long interred, may rise from its ashes to claim a retroactive stake in such a benefit. See footnote 14 On the contrary, by retaining its rights under any and all pension terms in existence when community contributions were made, the community obtains the full benefit of its bargain.
Even if there are circumstances in which a former community might properly participate in post-marital pension changes, this is not such a case. The "enhanced" benefits offered the husband in this case were not part of a company-wide retroactive upgrade of the terms and conditions of employment. On the contrary, they were part of a limited program, targeted at a particular category of employees, and based upon specific personnel considerations applicable to that group at the time the program was announced. They were not intended as a reward for an employee's past work, nor did they reflect the true value of pension credits earned by the employee's actual service (including community service). On the contrary, they represented a new subsidy by the employer, offered for the sole purpose of inducing the targeted employees including husband, who was now unmarried and working for his sole account, to forego future employment and the earnings associated therewith.
As the majority disclose, the program, announced in March 1993, was labeled a "Voluntary Retirement Incentive." (Italics added.) It was offered only to employees who, as of December 31, 1992, were 50 or older with at least 15 years of credited service, and who, as of February 17, 1993, worked in specified departments of the company. Those eligible were promised "valuable financial incentives" (italics added), "available only if you elect to retire through the program" (italics added), which would "make retirement an even more attractive option." The informational brochure described the program as a "management tool" to "reduc[e] costs" by "bring[ing] our workforce in line with the needs of our changing business." "This VRI," the brochure explained, "is developed to suit the needs of a particular situation[,] . . . is targeted to areas where reduction [in the workforce] is most needed[,] and strikes a balance between the stated objectives of cost reduction and fair treatment for our employees." As already recounted (see fn. 5, ante), the proffered "incentives" included, for the first time, the rights (1) to retire up to nine months before the usual minimum early retirement date, (2) to receive fictional years of service credit, and (3) to receive a monthly benefit calculated as though retirement was occurring at age sixty-five, the "normal" retirement age.
In concluding otherwise, the majority merely restate the same unpersuasive theories discussed above. The dispositive point, the majority insist, is that the early retirement inducement was provided through the pension, a form of benefit that "derive[s]" from past employment and depends in part on effort, years of chronological age, and service longevity contributed by the community. By earning rights in the pension itself, the majority conclude, the community thus also earned and acquired a right in any terms under which the pension was ultimately payable, even terms first offered after the marriage ended in order to induce the employee to retire early. As I have already demonstrated, however, the majority's expansive notion of community pension rights does not comport with the contract and community property principles set forth in Brown. Moreover, for reasons the majority themselves suggest, the community or separate nature of a post-marital early retirement inducement should not depend on the precise means by which an employer has chosen to provide the inducement. The employer acts for its own business convenience, and is not primarily motivated by a concern for the community property consequences of its action. Here it is clear that by promising a new benefit to designated employees who agreed to retire early, the employer sought to encourage such early retirements and to provide the workers who chose that option at least partial compensation for their resulting loss of future earnings. That the employer elected to accomplish these goals through "enhanced" pension benefits, rather than some other means such as stock options or lump-sum severance payments, should not affect how the inducement is treated under the laws of community property.
Finally, the majority's holding will be a negative influence on the overall disposition of dissolution proceedings. Wherever possible, the parties to a marital dissolution should be encouraged to divide their property promptly and get on with their lives. (See, e.g., Phillipson v. Board of Administration (1970) 3 Cal.3d 32, 46.) However, the rule announced today will weigh against a nonemployee spouse's decision to "cash out" of the employee's pension at the time of dissolution. If, and only if, division of the pension is left open until the employee retires -- often years after the marriage has ended -- the ex-spouse may gain a share of favorable pension terms later offered to the employee as an inducement to retire early. There appears no persuasive ground to impose this further incentive for delay in the final division of marital property.
For all these reasons, I conclude that the instant community is entitled to share pro rata, by application of the "time rule," in the $2,350.39 monthly benefit the husband would receive for early retirement at age 55 under the previously existing pension plan, but has no interest in the additional $708.91 monthly amount attributable to the VRI "enhancement." I would therefore reverse the judgment of the Court of Appeal. I would remand the cause to that court with directions to order further trial court proceedings consistent with the views expressed in this opinion.
Footnote: 1 Contrary to what appears to be the view of our dissenting colleague, an employee spouse and a nonemployee spouse could not reasonably understand the right to retirement benefits other than as a right to draw from a stream of income that begins to flow on retirement, as that stream is then defined. In the typical case at least, the employee spouse is notified by the employer -- and the nonemployee spouse must be deemed to be informed by the employee spouse -- that, except as to what is vested, the employer reserves the right to amend or even terminate the underlying defined benefit retirement plan prior to the time of retirement. For example, in materials relating to PG&E's defined benefit retirement plan under VRI program, it is stated: "Since future conditions affecting the company cannot be foreseen, the Board of Directors reserves the right to amend or terminate the plan at any time. Although any change in [the] plan or the termination of [the] plan will not affect the benefits paid to plan members before the date the plan was changed or ended, such change may result in reduced levels of benefits or benefit coverage, or increased retiree contributions, after the effective date of any such change. [¶] However, no amendment of a plan may deprive any person of a vested interest" therein.
Footnote: 2 It is conceivable that, in a given case, a nonemployee spouse who owns a community property interest in an employee spouse's retirement benefits might not own a community property interest in the latter's retirement benefits as enhanced, as perhaps where the right to the enhancement is not derivative. (See In re Marriage of Adams, supra, 64 Cal.App.3d at p. 187, fn. 8 [stating in dictum that "we can envision an increase in benefits after separation that might be caused solely by the employee spouse's earnings"].) Such a case, however, seems the exception and not the rule. In any event, the issue is not presented, and hence need not be resolved today.
Footnote: 3 See In re Marriage of Skaden (1977) 19 Cal.3d 679; In re Marriage of Lawson (1989) 208 Cal.App.3d 446; In re Marriage of DeShurley (1989) 207 Cal.App.3d 992; In re Marriage of Horn (1986) 181 Cal.App.3d 540; In re Marriage of Kuzmiak (1986) 176 Cal.App.3d 1152; In re Marriage of Wright (1983) 140 Cal.App.3d 342; and In re Marriage of Flockhart (1981) 119 Cal.App.3d 240.
Footnote: 4 Although there is certain language in Frahm that may be read to suggest that the "Voluntary Separation Incentive Program" involved both a severance payment and also enhanced retirement benefits (see In re Marriage of Frahm, supra, 45 Cal.App.3d at p. 542), the record therein shows that any such suggestion is incorrect.
Footnote: 5 In a misstep, the Frahm court treated Gram as though it too dealt with a severance payment (In re Marriage of Frahm, supra, 45 Cal.App.3d at p. 540), instead of retirement benefits (In re Marriage of Gram, supra, 25 Cal.App.4th at pp. 861_862).
Footnote: 6 The Frahm court asserted that the severance payment therein "resulted solely from" the employer's "beneficence." (In re Marriage of Frahm, supra, 45 Cal.App.4th at p. 544.) Whether or not that is true (cf. In re Marriage of Brown, supra, 15 Cal.3d at p. 845 [holding that retirement benefits " 'do not derive from the beneficence of the employer' "]) is of no consequence here.
Footnote: 8 In In re Marriage of Hug (1984) 154 Cal.App.3d 780, the court suggested in dictum that a nonemployee spouse might not own a community property interest in a stock option granted to an employee spouse after dissolution if the employee spouse -- unlike Husband and his retirement benefits -- had not accrued any right thereto during marriage before separation. (See id. at p. 793.) Noting, however, that the "issue [was] not before" it in that matter, it passed on. (Ibid.) So shall we.
Footnote: 10 Taken out of context, Brown's assertions that pension rights "derive" from, or are "attributable to" employment, and that pension benefits are a form of "deferred compensation," may have contributed to subsequent misunderstanding in the Courts of Appeal about a former community's rights in employment benefits offered to or received by the employee after the marriage has ended. Since Brown was decided, a number of lower court decisions, addressing a wide range of situations, have assumed that employment-related benefits are community property to the extent they are "attributable" to prior community effort or appear intended as "deferred compensation" for past work rather than compensation for loss of future earnings, even though the payment or benefit was not part of the terms and conditions of employment when the community contributed its labor. (See, e.g., In re Marriage of Gram (1994) 25 Cal.App.4th 859, 862-867 (Gram); In re Marriage of Lawson (1989) 208 Cal.App.3d 446, 452; In re Marriage of Horn (1986) 181 Cal.App.3d 540, 547-548; Downer v. Bramet (1984) 152 Cal.App.3d 837, 843; In re Marriage of Wright (1983) 140 Cal.App.3d 342, 344-345; In re Marriage of Flockhart (1981) 119 Cal.App.3d 240, 242-243; also cf. In re Marriage of Gowan (1997) 54 Cal.App.4th 80, 87-91; In re Marriage of Melton (1994) 28 Cal.App.4th 931, 938-939.) However, as indicated above, Brown merely acknowledged the community's interest in enforceable contractual rights accrued by reason of the terms and conditions under which the community's employment actually took place. Neither Brown nor our subsequent cases (see text discussion, post) provide any basis for a conclusion that post-marital benefits are community property.
Footnote: 11 In Gillmore, supra, we observed that a nonemployee spouse who elects to "cash out" of the employee's pension at the time of dissolution thereby forfeits the right to share in the "increased [future] value" of the pension benefits. However, we made clear that any such "increased value" was that which "might accrue due to increased age, longer service and a higher salary." (Gillmore, supra, 29 Cal.3d 418, 428, fn. 9, quoting In re Marriage of Luciano (1980) 104 Cal.App.3d 956, 961, italics added.) This passage does not imply that the nonemployee spouse, by deferring his or her pension share until the employee becomes eligible to retire, thereby acquires an interest in intervening changes in the pension formula.
In establishing the general principle that an employee cannot manipulate his pension rights to the prejudice of the former community, our decisions have suggested that the employee can agree to a post-marital "modification" of the pension terms so long as the former community's interest in the pension is not thereby defeated or substantially impaired. (E.g., Gillmore, supra, 29 Cal.3d 418, 425-426; Brown, supra, 15 Cal.3d 838, 849, & fn. 11.) But by placing limits on the employee's contractual right to undermine the pension already earned by the former community, we did not intimate that more favorable pension terms first offered to the employee after the marriage has ended must inure to the benefit of the former community, which did not supply its labor on those terms .
Footnote: 13 Even if I agreed that post-marital pension "enhancements" should inure to the former community's benefit insofar as the community contributed years of age and service bearing on the employee's entitlements, I would dispute the majority's application of that principle to the facts before us. Besides allowing retirement up to nine months before the usual minimum retirement age of fifty-five, the instant employer's "Voluntary Retirement Incentive" (VRI) plan "enhanced" the employee's pension in two ways: first, by adding three years of putative or "fictive" service credit, and second, by waiving the actuarial reduction for retirement at an early age. The majority accord the community a full pro rata share of both "enhancements" by direct application of the "time rule;" under their formula, the community's years of service credit are divided by the husband's total actual years of service credit to determine the community's percentage share of the total "enhanced" monthly pension amount. (Community years of service (17.39) divided by husband's actual total years of service (32.67) equals .5323 or 53.23 percent.) However, neither of the "enhancers" in the VRI plan operates or depends, by its terms, upon years of age or service credit previously contributed by the community. Instead, the "fictive" additional years of service credit serve as a replacement for credits the husband, but for the early retirement, would have earned for his own account in the future. (See Gram, supra, 25 Cal.App.4th 859, 867 [concluding that "fictive" years of service credit in post-marital early retirement plan must be added to husband's actual years of credit before "time rule" is applied].) The actuarial waiver also seems simply a means of redressing a disadvantage caused by the early retirement itself, and is the equivalent of adding "fictive" years of employee age which were not contributed by the community. (Cf. Gram, supra, at p. 861.) No persuasive reason appears why "enhancing" features of this kind should simply be allocated pro rata to the community.
Footnote: 14 The majority imply that the community may indeed face the "risk" of disadvantageous changes in a pension plan which occur after dissolution of the marriage. But that "risk" is sharply limited by the principles of vested contractual rights. In essence, these provide that pension rights already earned cannot be eliminated or materially impaired, either by the employer unilaterally (see, e.g., Betts v. Board of Administration (1978) 21 Cal.3d 859, 863-864; Brown, supra, 15 Cal.3d 838, 846, & fn. 7; Hunter v. Sparling (1948) 87 Cal.App.2d 711, 725), or by the employee's agreement (see fn. 3, ante). Indeed, while the instant employer reserved the right to amend the VRI plan as changing circumstances might require, it acknowledged in the VRI brochure that "no amendment of a plan may deprive a person of a vested interest in the Retirement Plan and Savings Fund Plan benefits."
The issues and policies under consideration in Oddino are not directly dispositive here. However, Oddino's analysis supports the principle that pension amounts not actually earned by employment, but offered after the employee's marriage has ended as a subsidy for early retirement, are a matter between the employee and employer alone, and are not "attributable" to community effort so as to transmute them into community property. Indeed, the "fictive" service and age credits provided by the instant VRI plan closely resemble the "subsidized" pension enhancements at issue in Oddino.

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