Opinion ID: 1148886
Heading Depth: 1
Heading Rank: 4

Heading: Community Property Status of DROP Account

Text: The employment and retirement contributions that gave rise to Mr. Bailey's right to have funds credited to the DROP account occurred prior to and during the existence of the community, and not after the termination. [1] It follows then that the right to receive the funds in the DROP account, at least the portion attributable to Mr. Bailey's labor and efforts and retirement contributions during the existence of the community prior to entering the DROP program, [2] constitutes a community asset. This court addressed the interplay between ordinary retirement plans and community property rights in two seminal cases: T.L. James & Co. v. Montgomery, 332 So.2d 834 (La.1975), and Sims v. Sims, 358 So.2d 919 (La.1978). In T.L. James, we recognized that deferred compensation earned during the existence of the community accrues to the benefit of both spouses. In Sims, we articulated the following principle: [A]t the dissolution of the community, the non-employed spouse is entitled to judgment recognizing that spouse's interest in proceeds from a retirement annuity ... when they become payable with the spouse's interest to be recognized as one-half of any payments to be made, insofar as they are attributable to the other spouse's contributions or employment during the existence of the community. Id. at 922 (collecting cases). We noted that the community interest in the retirement benefits stems not only from contributions made by community funds, but also by reason of any right to receive proceeds attributable to such employment during the community (i.e., as an asset `acquire[d] during the marriage,' Civil Code Article 2402), (now La. Civ.Code art. 2338). Id. at 921. We held that although the benefits would not become due until sometime in the future, the non-employee spouse was entitled, at the time of the dissolution of the community, to have recognized his or her one-half interest in this community asset, i.e., the right to receive payments from employee benefit plans, to the extent (proportion) that these payments result from the employment or contributions during the community. Id. at 923. Still further, we enunciated in Sims the following formula for calculating the non-employee spouse's interest (in cases in which the employee spouse has not yet retired): Portion of pension attributable to creditable service during existence of community × annuity (or lump sum) × ½ --------------------------------------------- Pension attributable to total creditable service (yet to be determined) Application of the Sims formula to a DROP account is complicated by the fact that the employee spouse's base retirement benefits are fixed as of the date of entry into DROP and by the fact that the retirement is a fictitious retirement. The fixing of ordinary retirement benefits is deferred until the employee spouse retires and is then divided according to the formula set forth in Sims. In the DROP situation, the employee spouse's election to enter the DROP program operates, as of the date of that election, to fix the base amount of the employee's eventual monthly retirement benefits, [3] and this amount is credited to the DROP account monthly as retirement benefits, although the actual receipt of the funds in that account is deferred until the employee actually retires. In the case of ordinary retirement benefits, the non-employee spouse's right to share is calculated under the Sims formula as of the date the community terminates, but the exact percentage cannot be fixed until the employee spouse actually retires. In the DROP context, however, the Sims formula must be applied as of the date of the employee spouses's entry into the DROP program, because that is the date the base amount of the eventual monthly retirement benefits is fixed, and the employee spouse earns no further credit toward these retirement benefits while in the DROP program. Significantly, the trial court applied the Sims formula as of the date Mr. Bailey entered DROP, albeit without discussion. Thus the trial court implicitly recognized that Mrs. Bailey's right to share in Mr. Bailey's eventual monthly retirement benefits was fixed as of that date, but then proceeded to treat Mrs. Bailey's right to share in the DROP account as if the funds in that account were attributable to Mr. Bailey's employment after he entered the DROP program. This is where the trial court erred. If Mr. Bailey had actually retired on the date he entered the DROP program, Mrs. Bailey clearly would have had the right to share, in the stipulated percentage, in the retirement benefits he would have received. [4] The fact that the same amount of monthly retirement benefits was credited to a deferred-receipt account under a fictitious retirement for a specific temporary period should not change that result. The amount of the base retirement benefits that Mr. Bailey will receive upon actual retirement was fixed as of the date he entered the DROP program. Mrs. Bailey is entitled to her Sims formula percentage of that fixed amount. When Mr. Bailey reentered LASERS upon completion of the DROP program, he began accruing supplemental retirement credits to be added to his base retirement benefits in the eventual calculation of his total monthly benefits when he retires. Mrs. Bailey, of course, is not entitled to any portion of the supplemental benefits he will receive upon retirement, because these benefits are attributable to Mr. Bailey's employment after the termination of the community. But just as Mrs. Bailey is entitled to her Sims formula percentage of Mr. Bailey's base benefits he will receive upon retirement, she also is entitled to the same percentage of his DROP account, inasmuch as both the base retirement benefits and the funds in the DROP account are attributable to Mr. Bailey's employment and retirement contributions prior to the termination of the community. The statutory provisions governing the DROP program refer repeatedly to the DROP benefits as retirement benefits and fix such benefits as of the date of entry into DROP. Moreover, the statutes expressly provide that if an employee elects to remain in state employment after the DROP period, any future retirement credits earned are in the nature of a supplemental pension. La. Rev.Stat. 11:450 D. The latter treatment fully supports our holding that the date of entry into DROP fixes a non-employee spouse's interest in the entirety of the retirement benefits, both the DROP benefits and the regular retirement benefits. Thus we glean no legislative intent to alter a non-employee spouse's right to such retirement benefits by virtue of the employee spouse's opting to participate in the DROP program. We hold that the entirety of Mr. Bailey's DROP account is apportionable between community property and the employee spouse's separate property, in accordance with the Sims formulai.e., 53.65 percent to the community. Accordingly, that portion of the judgments of the lower courts declaring the funds credited to the DROP account between the date of the termination of the community and the date of the completion of the DROP program to be Mr. Bailey's separate property is set aside. Judgment is rendered declaring these funds to be community property to the extent of 53.65 percent. CALOGERO, C.J., additionally assigns concurring reasons. TRAYLOR, J., concurs in part and dissents in part.