Opinion ID: 2025844
Heading Depth: 1
Heading Rank: 4

Heading: ipers

Text: Pensions are divisible marital property. See In re Marriage of Branstetter, 508 N.W.2d 638, 640 (Iowa 1993) (Pensions in general are held to be marital assets, subject to division in dissolution cases, just as any other property. (Citations omitted.)); see also Iowa Code § 598.21(1)( i ) (stating vested and unvested pensions are circumstances to be considered in equitably dividing property). There are two accepted methods of dividing pension benefits: the present-value method and the percentage method. In re Marriage of Benson, 545 N.W.2d at 255; 24 Am.Jur.2d Divorce and Separation §§ 585-86, at 747-50 (1998). Additionally, there are two main types of pension plans: defined-benefit plans and defined-contribution plans. In re Marriage of Benson, 545 N.W.2d at 254. Although both methods of dividing pension benefits can be used with both types of pension plans, it is normally desirable to divide a defined-benefit plan by using the percentage method. The present-value method requires the present value of the benefits to be determined before allocating a portion of the benefits to the pensioner's spouse. In re Marriage of Benson, 545 N.W.2d at 255 (citing In re Marriage of Branstetter, 508 N.W.2d at 642). Present value derived under this method represents the `restatement in current dollars of a payment or series of payments to a current lump sum equivalent.' Dylan A. Wilde, Note, Obtaining an Equitable Distribution of Retirement Plans in a Divorce Proceeding, 49 S.D. L.Rev. 141, 150 (2003) [hereinafter Wilde] (quoting Gary A. Schulman & David I. Kelly, Learning from the Pension Experts Dividing Pensions in Divorce (1996)). Yet, the determination of present value of a defined-benefit plan is a complicated process that requires the use of actuarial science. In re Marriage of Benson, 545 N.W.2d at 255 (citing In re Marriage of Mott, 444 N.W.2d 507, 511 (Iowa Ct.App. 1989)); see also Thompson v. Thompson, 183 Conn. 96, 438 A.2d 839, 841 (1981) (The present value of a pension benefit may be arrived at by using generally [sic] actuarial principles to discount for mortality, interest and the probability of the employee remaining with the employer until retirement age.); see 24 Am.Jur.2d Divorce and Separation § 586, at 748 (stating the present-value method requires discounting to present value and further discounting to account for the probability of death before qualification for benefits and for vesting as well as consideration of the employee's life expectancy as a retiree). [2] The complicated nature of determining the present value of a defined-benefit plan and dividing the benefits, as well as the economic difficulty for a pensioner to pay a lump-sum amount representing the present value of a defined-benefit plan, normally makes the second method of division and distribution of pensions much more attractive for defined-benefit plans. Under the second method to divide and distribute a pension plan, the percentage method, the court awards a spouse a percentage of the pension payable in the future at the time the benefits mature. IPERS is, of course, a defined-benefit plan. See Iowa Code § 97B.49A(3) (For active or inactive vested members retiring on or after July 1, 1994, with four or more complete years of service, a monthly benefit shall be computed which is equal to one-twelfth of an amount equal to the applicable percentage of the three-year average covered wages multiplied by a fraction of years of service.); In re Marriage of Benson, 545 N.W.2d at 254 ([I]n a defined benefit plan the future benefit is specified in advance by a formula.). The plan uses a  percentage of earnings per year of service formula, which provides a benefit that is related to the employee's earnings and length of service. In re Marriage of Benson, 545 N.W.2d at 254-55 (citing Steven R. Brown, An Interdisciplinary Analysis of the Division of Pension Benefits in Divorce and Post-judgment Partition Actions: Cures for the Inequities in Berry v. Berry, 39 Baylor L.Rev. 1131, 1146 (1987)). Donna is a vested member. See Iowa Code § 97B.1A(25)( a )(4) (stating a member is vested if he or she [h]as completed at least four years of service). In this case, the district court divided the IPERS pension based on the current value of Donna's personal contributions to the plan over the years of the marriage at the time of the divorce. See id. § 97B.11 (Each employer shall deduct from the wages of each member of the system a contribution in the amount of three and seven-tenths percent of the covered wages paid by the employer, until the member's termination from employment. The contributions of the employer shall be in the amount of five and seventy-five hundredths percent of the covered wages of the member.). This value was not based on actuarial evidence. Instead, this value was obtained from information made available to Donna showing the amount of her personal contributions over the years and the interest earned on her personal contributions. However, the present value of her IPERS plan is more than the present value of her contributions. See In re Marriage of Scheppele, 524 N.W.2d 678, 679 (Iowa Ct.App.1994) (We note that if we do not include Marcia's employer's contributions, the present value of Marcia's contributions and accrued interest in her IPERS plan is $26,000. However, the value of Marcia's IPERS pension is not limited to her vested contributions.); In re Marriage of Johnston, 492 N.W.2d 206, 208 (Iowa Ct.App.1992) (The exact value of Karin's IPERS pension is not ascertainable. We, like the district court, will not assume the value is limited to Karin's vested contributions. However, we disagree with Karin's argument that a remand to take actuarial testimony to value the pension is necessary.). In fact, the amount of Donna's IPERS contributions has no relation to the present value of her future benefits because the contributions are not used to calculate benefits. Instead, the benefits are ultimately tied to a percentage of the employee's average wages. See Iowa Code § 97B.49A(3) (For active or inactive vested members retiring on or after July 1, 1994, with four or more complete years of service, a monthly benefit shall be computed which is equal to one-twelfth of an amount equal to the applicable percentage of the three-year average covered wages multiplied by a fraction of years of service.). Thus, the district court's valuation and distribution of Donna's IPERS plan fell far short of our accepted methods and was inequitable. Without actuarial evidence, the district court could not have divided the retirement plan based on the present value of Donna's future benefits. See In re Marriage of Johnston, 492 N.W.2d at 208 (The exact value of Karin's IPERS pension is not ascertainable. We, like the district court, will not assume the value is limited to Karin's vested contributions.). On our de novo review, we conclude that the better way to divide and distribute the IPERS account is to use the percentage method normally applicable to cases involving IPERS. See In re Marriage of Scheppele, 524 N.W.2d at 680 (modifying decree, where present value of IPERS account was not ascertainable on the record, to order a QDRO using the percentage method to divide the future benefits when received). Under the percentage method, the non-pensioner spouse is awarded a percentage (frequently fifty percent) of a fraction of the pensioner's benefits (based on the duration of the marriage), by a qualified domestic relations order (QDRO), which is paid if and when the benefits mature. In re Marriage of Benson, 545 N.W.2d at 255 (citing In re Marriage of Branstetter, 508 N.W.2d at 642). The fraction represents the portion of the pension attributable to the parties' joint marital efforts. Id. The numerator in the fraction is the number of years the pensioner accrued benefits under the plan during the marriage, and the denominator is the total number of years of benefit accrual. Id. (citing In re Marriage of Mott, 444 N.W.2d at 511); accord Barker Brandt, 35 Fam. L.Q. at 472-73. Applying this method, we modify the decree to provide for a QDRO to divide Donna's monthly IPERS benefits when received under the following formula: # of quarters Donna contributed to IPERS while married [3] ______________________________________________________ Ray's Share = 50% × # of quarters Donna contributed to IPERS before retirement × Monthly Benefits This modification will require further adjustment of the district court's property distribution. We will address the necessary adjustment after considering the distribution of the other specific items with which Ray takes issue.