Determining the Non-Marital Portion of a Pension

Pensions are hard to divide when the participant is not yet receiving the payments. Without knowing the amount of the benefit, how are the parties supposed to know how much was earned during the marriage, and thus the amount to transfer to the alternate payee?

States have determined what is referred to as a ‘coverture fraction’ or ‘marital share formula’ which resolves this issue. In Maryland it is referred to as the Bangs Formula, because that is the case that first figured out a version of this formula in Maryland (59 Md. App. 350, 475 A.2d 1214 (1984)). However, for Maryland attorneys it is important to remember that the formula was updated in Pleasant v. Pleasant, 97 Md. App. 711, 632 A.2d 202 (1993).

In Maryland, the Bangs Formula (as updated by Pleasant) is as follows: (1) the total monthly benefitreceived by the participant times (2) a percent times (3) a fraction. The fraction is defined such that the numerator (the top number) is the total number of months of service credited toward retirement earned during the marriage, and the denominator (the bottom number of the fraction) is the total number of months of service credited toward retirement as of a certain date.

Certain parts of the formula above are bolded. This is because those are variable based on which pension is being divided, or as the parties may agree. But, first to break down the entire formula.

(1) The total benefit received by the participant. Typically, this is the largest, unreduced amount earned by the participant. So this number is pre-tax, pre-division for any other QDROs (if applicable), and pre-deductions (if the participant is paying for health insurance deductibles, life insurance deductibles, or other benefits from their pension). Alternatively, the parties could agree to divide a smaller amount, such as the net amount after all of the deductions and withholdings are made. Not all plans will allow a division of any smaller amount, so it is important to get plan QDRO procedures in advance to make sure the parties are agreeing to an amount that can be implemented.

(2) A percent. This percent is the share of the marital portion that will be awarded to the former spouse. Typically this percent is 50%, however parties can agree to any percent they wish. Reasons parties agree to an amount other than 50% is to offset for another asset or decrease for the anticipated cost of survivor benefits.

Again here, not all plans will allow for an amount greater than 50% of the entire pension, or even 50% of the amount earned during the marriage to be transferred to the alternate payee. This is only a restriction on what the plan will pay to the alternate payee directly. It is not under any circumstances a limitation on the amount that can be awarded to the alternate payee. If the parties agree to award the alternate payee more than the plan will pay directly, then they parties must agree on a way for the participant to pay the additional amount directly to the alternate payee.

(3) A Fraction. The fraction is the total number of [unit of measurement] earned by the participant during the marriage divided by the total number of [unit of measurement] earned by the participant as of [insert date]. The result of the fraction will be the percent of the pension that was earned during the marriage.

Many retirement plans will use months of service that count as credit in the retirement plan as the unit of measurement. These plans are for the more typical types of employment such as teachers, government employees, executives, and skilled labor union members where the work is more predictable in terms of the effort is expended on a day-to-day basis.

Some plans have other units of measurement. For example, the reserve military members accrue retirement points based on drills completed throughout the year (or time served in active duty). Some months the member will earn more than others, and therefore counting the points earned, rather than months served is a more accurate means to determine how much effort was expended during the marriage to earn the marital portion of the pension. As an example, some reserve programs used to advertise as requiring only one weekend per month and two weeks during the summer. Using the points unit of measurement, the month in which the 2 weeks is served is properly weighted more heavily than the months in which only a weekend is served.

Finally, the date the parties pick can also alter the fraction. Picking the amount of service earned as of the date of the participant’s retirement may mean only the months of service actually worked and earned as credit in the retirement system will be used for the denominator of the fraction. Alternatively, picking the amount of service earned as of the date the participant begins to receive benefits may inflate the denominator to include unused sick or vacation leave accrued by the participant. Typically, a retirement plan’s QDRO procedures will not describe the plans’ default setting here, nor will it flag this as a potential area that the parties may change. Some plans may not allow for the parties to pick between these two dates and may require a certain date be used. As mentioned above, when in doubt (or just to double check), always ask for more information from the plan.  

If your case involves a pension division, the attorneys at Markham Law Firm are available to assist by drafting the retirement order (QDRO), consulting on the retirement division and drafting proposed language for a settlement agreement or proposed judgment of divorce, or consulting on certain plans.