QILDRO, INC.

Judges are generally very well versed in procedure and the substantive area of domestic relations, but no one is an expert in all subject areas of family law. The subject of retirement by Qualified Illinois Domestic Relations Order (QILDRO) is often underappreciated, misunderstood or glossed over by many practitioners, including Judges.

It was recently suggested to me by a rightfully well-respected Judge that I put together a presentation of the most common things to be on the lookout for in QILDRO and Qualified Domestic Relations Order (QDRO) cases. I am writing this blog to organize my thoughts into what is hopefully a helpful bullet point list on QILDRO cases, and share it with a wider audience. I previously wrote a companion blog on QDRO cases separately, which you can check out here. The final blog in this “series” will address the second part of the QILDRO process, the QILDRO Calculation Court Order.

General Point

A QILDRO is an Order entered by a State Court Judge dividing a retirement plan based upon a property distribution or support order, typically a Judgment for Dissolution of Marriage (divorce decree), and in compliance with the Illinois Pension Code. For those looking for more on the Illinois Pension Code (or just, the Code), click here for Section 1-119 of the Code, specifically addressing QILDRO’s.

What to Consider Shortlist

Long prior to drafting a QILDRO, there is a myriad of issues to consider when drafting the Judgment and Marital Settlement Agreement that directs that a QILDRO be entered. What follows is truly an oversimplification, a bare minimum, and one to be applied by a practitioner (attorney or Judge), not layman, but anyone can benefit from reading it.

• Initial Question: is this a defined benefit or contribution plan.
     o Defined benefit: pays monthly for life, often called a pension plan. Tip: these are by far the most common plans under the Code.
     o Defined contribution: employee and/or employer contribute and upon retirement, withdrawals are taxed (typically). The Code refers to these as “self-managed plan.” Tip: think of it as a pile of money to draw from at will (with various tax consequences depending on when/how much is withdrawn) such as a 401(k). These are not very common, and in the author’s experience mostly encountered within the State Universities Retirement System (SURS).

We will address the more complicated scenario first:

Pension or Defined Benefit Plan

• Identify. Does the Judgment clearly identify which plan is to be divided?
• Division Method. Is the Judgment clear on which approach is being used? Only two options exist in Illinois (In re Marriage of Culp, 399 Ill. App. 3d 542):
     o Immediate Offset: how much is the spouse to receive for his/her share of the plan and when (lump sum or payments). No QILDRO.
     o Reserved Jurisdiction: no buy-out, must wait until retirement age is reached. QILDRO needed.

We proceed assuming a QILDRO is needed and look for clear language to be included.

• Amount or Percentage. Does the Judgment state an amount or percentage that the Alternate Payee (party being granted a share of the Member’s plan or AP) will receive?
     o If amount, is it per month or something else
           Per month:
           starting when?
           Does it include automatic increases/cost of living adjustments (COLA)?
           Something else like total contributions or “balance:” unless this is included only as guidance, a sidenote, it may be an indication that the parties misunderstand what they are dividing and expect either an immediate pay-out, not possible from a pension under the Code, or payments to be only made for a certain period of time. The latter would have to be explicit: for X number of months/years.

     o If percentage, percentage of what?
          All/gross
          Marital portion. Is the marital portion defined?
                Is everything marital?
                If less than everything is marital, is the marital portion determined by the Hunt formula (In re Marriage of Hunt, 78 Ill.App.3d 653) or only the time/credit/contributions during the marriage.
                     If only contributions during the marriage, this may require an actuary to determine what the AP would receive had the Member only worked & contributed during the marriage. This determination necessitates having a date when AP will be eligible to start receiving the pension, which is often not known by the parties. Tip: this is the method that the parties think is being utilized almost regardless of what the provision in the Judgment actually says, as most are unaware of Hunt.
                     Hunt gives the AP an increased benefit for work/contributions after the marriage, so language that states “only from date of marriage until the date of divorce” is misleading. The formula divides what accrued during the marriage by the total credit accrued at retirement, so as the Member continues to work after divorce, the marital formula seems to be getting smaller. However, the result is then multiplied by the benefit at retirement, which continually increases the longer the Member works after divorce, in nearly all cases resulting in a larger marital portion. The policy reason is that the final pension would not be possible without the earlier, marital years. Tips:
                               parties do not understand that this is the method being used, but AP’s readily adopt it when they learn of it (usually at retirement) because it benefits them, and Members nearly universally want to challenge it at retirement.
                               A simple way for the Judgment to call for the use of the formula is to state that the formula in the QILDRO form will be utilized to determine the marital portion.

• Shared or Separate: unlike when drafting a QDRO, there is no option for separate interest under the Code. The AP can only receive his/her share upon the Member receiving it. Any reference to a separate share in the Judgment is incorrect.

• The QILDRO is mostly a check-box, fill in the blank form, but litigation can ensue if the Judgment does not specify which boxes & blanks should be completed, so in addition to the above:
     o If the formula will be used, should permissive service (usually unused sick days rolled into the pension at retirement), benefit upgrades and time purchased be included. If included, than should the AP pay his/her proportionate share of any price the Member paid for the increased benefit (if paid with non-marital/post-dissolution funds)?
     o Will AP receive his/her share of any partial refunds or payment upon death? This should either be specified or all inclusive language could be used: any and all benefits payable.

• Consider clarifying to all that the benefit will be paid to the AP for the rest of the Member’s life. This is something that the author finds many do not know.

Many other considerations, such as qualified preretirement survivor annuity are not covered above, and so this is not a complete list of considerations.

Self-Managed Plan

• Identify. Does the Judgment clearly identify which plan is to be divided?

• Amount or Percentage. Is AP’s interest stated as:
     o An amount
           As of what date
           Is the amount subject to market fluctuations from that date until AP receives his/her share

o A percentage
          As of when?
                As of a date (meaning no pre-marital portion)
                Only what accrued during the marriage
                     Balance as of divorce minus balance as of marriage? Simple, but not very accurate method.
                     Investment as of date of marriage traced throughout the marriage to determine their current value to be subtracted from the balance as of the date of marriage. This is more complex and the plan will not run the numbers. An actuary will be needed:
                          Who pays for the actuary?
                          Is the actuary an impartial party or one party’s expert?
                          Is the amount calculated using this method subject to market fluctuations from that date until AP receives his/her share

General provisions that should be included regardless of plan type:

• CONSENT: If the Member participated in the plan prior to July 1999, he/she will have to execute a Consent to Issuance of QILDRO and the signed original will need to be provided to the plan. Without a Consent, payments may need to be triangulated (made from another source), greatly complicating things. It has been argued successfully that a Member already consented when signing a Marital Settlement Agreement and the form is just a formality that a Judge can execute on the Member’s behalf. See: IRMO Rafferty Plunkett v,. Plunkett, 392 Ill. App. 3d 100 (Third Dist., 2009). However, that case is no accepted by all plans in all appellate jurisdictions within the state of Illinois. Strong language, or having the Consent signed before Prove Up is the best recourse.

• Cooperation. Everyone to fully cooperate in effectuating the division of the plan

• Enjoin. Do not do anything to the plan that might affect it’s value.

• Who is drafting the QILDRO
     o Participant or AP, or
     o Neutral party, but if so, who pays?

Out-of-State
Only a QILDRO entered by an Illinois court is enforceable, so if the divorce is pending outside of Illinois, Judgment language should be included subjecting the parties to Illinois jurisdiction for purposes of effectuating the division of the retirement subject to the Code.

Plan Ahead for the QCCO
If the QILDRO provides for anything other than a set amount of benefits, upon retirement, a QCCO will be needed. The Judgment should clarify this and include the QCCO process as part and parcel of the required cooperation to effectuate the division of the retirement plan.

A well drafted Judgment means the easiest part is reviewing the QILDRO:

• Does it grant interest as granted by the Judgment?
     o Percentage or amount
     o As of what date or dates
     o If marital portion, is it defined as in the Judgment

• If there is anything different from, or in addition to, what is in the Judgment, is it agreed?

• Finally, has the QILDRO been pre-approved by the plan? Not all, but most plans provide pre-approval as to form. Why enter a QILDRO without one?

Use this list to inform your attorney or check their understanding or simply serve them as a reminder. Just like when seeing a doctor, be an active and educated client.