Opinion ID: 2265862
Heading Depth: 1
Heading Rank: 1

Heading: Immediate Offset Distribution

Text: Where it is probable that the employee-spouse will overcome obstacles to realization of the benefit, [4] the benefit is assigned a present value estimated to be the amount of monies the employee would take in return for giving up his right to an unknown number of future payments. This amount is discounted by actuarial calculations reflecting contingencies that could affect future pay outs, with such discounts being given for mortality, inflation, interest, probability of continued employment and probability of vesting. Skoloff, How to Evaluate and Distribute Employee Benefits in a Divorce, Nat'l L.J., February 13, 1984, at 25. Since marital property consists only of property acquired by either party during the marriage, a coverture fraction must be applied to the present value of the pension benefit in order to determine the percentage of the pension benefit attributable to the marriage. King. The numerator of the coverture fraction is the period of the employee-spouse's pension plan participation during the parties' marriage, from the date of marriage to the date of separation (23 P.S. § 401(e)(4)) and the denominator of the fraction is the total period of the employee-spouse's pension plan participation. Multiplying the present value of the pension benefit by the coverture fraction yields the portion of the pension benefit which is marital property. The court must then decide whether the marital property portion of the benefit is amenable to immediate equitable distribution between the parties. If at the time of the entry of a distribution order, an award of the pension benefit to the employee-spouse could be immediately offset by an award to the nonemployee-spouse of other marital property of comparable value (usually the marital residence), the pension benefit is subject to present division and distribution. An award of all the pension benefits to the employee-spouse and an award of other marital property to the nonemployee-spouse protects both spouses from problems that can occur. Such problems include the establishment and maintenance of contact between the nonemployee-spouse and the pension plan administrator and the fact that the employee-spouse could choose certain benefit options that would defeat the nonemployee-spouse's entitlement. See discussion of deferred distribution disadvantages, infra. The advantages of immediate offset distribution are that the parties receive a final resolution of their litigation. [5] Moreover, the nonemployee-spouse is protected against any attempts by the employee-spouse to change pension plan beneficiaries. Finally, the court is not required to retain jurisdiction in order to allocate the pension benefits when they are received or to enforce an award of a percentage of the benefits as they are received. The chief disadvantages of immediate offset distribution are that a pension benefit may be offset by a liquid asset and thus afford the nonemployee-spouse greater immediate economic opportunities than those of the employee-spouse and that the risk of nonpayment of the pension benefit is born principally by the employee-spouse. With respect to the risk of nonpayment, it must be remembered, however, that the present value of the pension benefit reflects actuarial discounts for contingencies that might prevent realization of the benefit so that the nonemployee-spouse does, to some extent, share the risk of nonpayment by receiving an immediate offset of property that may prove less than the worth of the pension benefits ultimately received by the employee-spouse. Additionally, the pension may be taxed as an annuity, . . . in part at ordinary income rates . . . while the nonemployee spouse's `equivalent' asset, e.g., a home, may be taxed at capital gain rates . . . or not at all . . . . Kalinoski, supra, at 3036.