Marriage of Gillmore: Must Re-Reading for QDRO Drafters

This article examines the basic relationship between Gillmore and federal retirement plan legislation. See the notice at end of this article re impact of In re Marriage of Oddino decision on In re Marriage of Gillmore.

Authors

Barbara A. DiFranza, of Salinas CA (408) 663-1800, is a Certified Family Law Specialist whose practice emphasizes pensions, retirement, and deferred compensation plans in the context of marital dissolutions.

Donald A. Parkyn, of Reno NV (800) 831-3825, is a forensic actuary, and a member of the Editorial Board of Family Law News.

An earlier version of this article was published in the State Bar's Family Law News (Summer 1992).

Reprinted with permission of the authors.

Introduction

The article's purpose is to assist counsel to draft Qualified Domestic Relations Orders (QDRO's) to obtain the non-employee spouse's full community share of private pension plans [Plans governed by ERISA (The Employment Retirement Income Security Act of 1974). For the most part, this article concerns defined benefit (pension-providing) retirement plans "qualified" under Internal Revenue Code 401 to which the anti-alienation provision of §401(a)(13) applies.] as called for by In re Marriage of Gillmore [(1981) 29 Cal.3d 418, 174 Cal.Rptr. 493, 629 P.2d 1.] and Civil Code §4800.8.

Throughout the rest of this article, "Participant" will refer to the employee spouse and "Alternate Payee" will refer to the non-employee spouse. "Plan" will refer to the pension plan.

QDRO's Should be Drafted Early

The QDRO should be completed at the earliest possible stage in the dissolution proceedings. Without a QDRO, the Alternate Payee could be preempted by a QDRO from a previous or subsequent marriage under the first-qualified-first-served rule of the Retirement Equity Act (REA). [REA, passed in 1983, first took effect in 1985. REA created the Qualified Domestic Relations Order vehicle. It's major provisions are found in ERISA §205 and 206 (29 U.S.C. §1055 and 1056) as well as Internal Revenue Code §414(p). The first-to-qualify rule is found at Internal Revenue Code §414(p)(3)(C) and ERISA Act § 206(d)(3)(D)(iii).] Also, without a QDRO in place at the termination of the marriage, there may be no benefits for the Alternate Payee if the Participant dies before retirement. [See "Attention Bifurcators", Family Law News, Vol. 14, No. 1, Summer, 1991.] Finally, as pointed out herein, the failure to specify all QDRO terms at the time of the property division can result in the Participant's loss of the opportunity to mitigate the effect of Gillmore on Participant's pension benefits.

The Earlier the Benefits Start the Higher The Value--Generally

Election by the Alternate Payee to receive benefits at the Participant's earliest retirement age frequently produces the maximum actuarial present value for the Alternate Payee's community interest. This phenomenon is created by such a plan's early retirement subsidy. [This article does not discuss the ad hoc retirement packages now being offered by many plans in exchange for immediate cessation of employment. These programs offer, for example, severance pay, additional years of credited service and/or advancement of the Participant's age. The early retirement subsidy discussed in this article is a feature that would typically be found in the plan benefit structure during the pendency of the marriage. Whether some or all of these benefits are Participant's separate property under In re Marriage of DeShurley (1989) 207 Cal.App.3d 992, 255 Cal.Rptr. 150 and In re Marriage of Lawson (1989) 208 Cal.App.3d 446, 256 Cal.Rptr. 283 remains to be settled by the courts.]

Often, plan sponsors design plans to encourage early retirement of higher paid, older personnel in order to decrease the cost of keeping such workers on the payroll. The plan incurs additional significant costs to subsidize early retirement in order to obtain payroll savings for the employer. REA recognizes that it would be unfair for a plan to incur this additional cost and not receive the benefits resulting from the employee's retirement. For this reason, the actuarial value of payments under a QDRO at early retirement age cannot exceed the actuarial value (reduced to early retirement age) of the accrued benefits payable at normal retirement age. [ERISA Act § 206(d)(3)(E)(I)(II); IRC § 414(p)(4)(A)(ii).]

How the Early Retirement Subsidy Works

John, age 65, and Art, age 55, each have worked at XYZ, Inc. for 30 years, each ending their career with final monthly average compensation of $5,000. The XYZ Retirement Plan provides a benefit starting at age 65 of one and one half percent (1.5%) of final monthly average compensation for each year of service payable for life. However, the plan requires a reduction of one percent (1%) per year for each year that the Participant retires before age 65. John will receive a monthly benefit of $2,250; however, Art's monthly benefit will be reduced by ten percent (10%) to $2,025.

John and Art are not receiving equally valuable pensions, when measured by actuarial present value. The monthly benefit that would be the actuarial equivalent of John's pension payable over Art's life is $787.50, 35 percent (35%) of John's benefit. [This equivalent was based upon a typical table that might be utilized by a plan to determine equivalency. Some plans use tables that produce a less drastic reduction.] As a result, $1,237.50 of Art's pension of $2,025 is subsidized. Only the actuarial equivalent of the $2,025, or $787.50 per month, is available under a QDRO which commences payments to the Alternate Payee at Art's age 55.

If Art's former spouse Ann were seeking a QDRO based upon a marriage during half the years of employment, she is entitled to a monthly benefit, under the time rule, payable over Art's life, of $506.25. [Such a benefit would be reduced if Ann elects to receive the benefit for her lifetime, assuming that Ann is younger than Art and that the plan utilizes separate female-dominated actuarial tables to calculate annuity values for beneficiaries.] If the QDRO is not properly worded, there is a chance that Ann, by electing to take benefits before Art retires, will receive $196.88 per month. It is left to the reader to imagine Ann's reaction be when she compares $196.88 to her expected $506.25 monthly entitlement. Ann will not be a happy camper.

The Full-Gillmore QDRO Provision

To obtain full Gillmore rights for the Alternate Payee who seeks to receive benefits prior to the actual retirement of Participant, consider adding the following clause--or one very like it:

Alternate Payee's share of Participant's annuity shall be determined by the plan as of the annuity starting date chosen by Alternate Payee. It shall be the same monthly amount that would have been payable had the Participant retired on that date. Alternate Payee's share shall be payable from but not exceed the total unsubsidized benefit accrued as of the annuity starting date chosen by the Alternate Payee.

Any subsequent restoration of subsidy shall belong entirely to Participant. [If actuarial analysis of the plan discloses a possibility that the accrued benefit will be insufficient, one should include additional language, such as "except as may be necessary to pay Alternate Payee any amount necessary to fund Alternate Payee's benefit per the foregoing paragraph. If the initial amount of the payment to Alternate Payee is insufficient due to the limitation regarding the accrued/unsubsidized benefit, the court shall reserve jurisdiction to determine the additional amount required to fund Alternate Payee's benefits, to be paid from Participant's separate property, including his pension benefits. The latter may be accomplished by way of a subsequent QDRO to be set in place prior to Participant's retirement."]

California Domestic Relations Law Requires that Alternate Payee Cannot be Disadvantaged by the Decision of Participant to Continue to Work Beyond the Date Alternate Payee Elects to Begin Receipt of Benefits

The Gillmore case holds that, if an employee ". . . does not wish to retire, [the employee] . . . must pay . . . [the non-employee spouse] an amount equivalent to the non-employee spouse's interest. Id. at page 427.

In order to provide Alternate Payee with an interest from the plan equivalent to what Alternate Payee would have received had Participant retired (i.e., full-Gillmore share), the domestic relations order must state "the manner in which such amount or percentage is to be determined," [IRC § 414(p)(2)(B); ERISA Act § 206(d)(3)(C)(ii)] by reference to the situation that would occur if Participant actually retired.

Participant may argue that Participant is being forced to either retire or to pay Alternate Payee an unfair portion of the pension plan. Gillmore answered this objection directly:

Earl's claim that he is being forced to retire misses the point. He is free to continue working. However, if he does so, he must reimburse Vera for the share of the community property that she loses as a result of that decision. ...If he does not wish to retire, he must pay her an amount equivalent to her interest. [fn 7]

The Supreme Court analysis provided additional, sophisticated rationale for its determination in its seventh footnote:

One commentator argues that when an employee who is eligible to retire chooses to continue working, part of his or her salary is actually attributable to community effort. From an economist's perspective, the employee spouse's compensation for continued employment is not the full amount of his paycheck. Rather, his compensation is only that amount above the pension benefits that he will not receive while he continues working. For example, in the matured pension situation, if the employee can receive retirement pay in the amount of X dollars without working, then his actual compensation for services rendered is not the amount of his paycheck, Y dollars, but Y minus X dollars. This is nothing more that a reapplication of the "benefits foregone" formula of Stenquist [21 Cal.3d 779]. [Fn. omitted.] Therefore, rather than penalizing the spouse for not retiring, the contrary is true--the community is being penalized because it is forced to subsidize the employee spouse's salary, which becomes his separate property." (Note, In re Marriage of Stenquist: Tracing the Community Interest in Pension Rights Altered by Spousal Election, supra, 67 Cal.L.Rev. 856, 879.) [p.427]

The court recognized the diminution of the community's share which would occur while the employee continued working. It properly assigned the burden of paying the Alternate Payee's share of the pension to the Participant.

REA's Proscription Against Payment of More Than the Actuarial Equivalent of the Accrued Benefit is Not Intended to Affect Alternate Payee's Gillmore Rights

The proposed QDRO would pay Alternate Payee's share of the full-Gillmore (subsidized) community interest, based upon a fraction derived from the "time rule." Some plans, however, resist the language of such an order and apply the time-rule fraction to the unsubsidized early retirement benefit, [The plan should be reminded that the court in the dissolution proceeding has jurisdiction to determine the status of the domestic relations order. Internal Revenue Code § 414(p)(7)(A) specifically provides for the determination of qualification of a domestic relations order to be made by a court. See for example, Stinner v. Stinner (Pa. 1989) 554 A.2d 45.] based upon a misconstruction of a portion of REA:

A domestic relations order shall not be treated as failing to meet [qualification] . . . solely because such order requires that the payment of benefits be made to an Alternate Payee--before Participant has separated from service--as if Participant had retired on the date on which such payment is to begin under such order (but taking into account only the present value of the benefits actually accrued and not taking into account the present value of any employer subsidy for early retirement). . . [IRC § 414(p)(4).]

This provision was discussed in the congressional report issued along with the legislation

When payments are made to an alternate payee before the Participant retires, the payments are computed by taking into account only benefits actually accrued and not taking into account any employer subsidy for early retirement. The amount to be paid the Alternate Payee is to be calculated by using the Participant's normal retirement benefit accrued as of the date payout begins and by actuarially reducing such benefit based on the interest rate specified in the plan or 5 percent, if the plan does not specify an interest rate. A plan providing only normal and subsidized early retirement benefits would not specify a rate for determining actuarially equivalent, unsubsidized benefits. [98th Congress Report, 2d Session, Senate 98-575 (Dole, Committee on Finance)].

If the above is read out of context, the Plan's reaction to a full-Gillmore clause is understandable. However, when one looks at the evidence of a Congressional policy of non-interference in domestic courts' disposition of pensions, discussed below, and when one reviews other portions of the act, the paragraph will be understood: The Alternate Payee's share cannot exceed the total of the unsubsidized benefits.

REA's "Taking Into Account" Language Was Not Intended to Constitute a Pre-emption of Community Property Law

Did Congress intend to legislate rules of property division in divorces? Did they intend to mandate that the accrued benefit become the basis for all formulas given in a QDRO despite the clear wording of the order? The negative answer to this question is found in other parts of the act and in the legislative history.

For example, the same 98th Congress Report, 2d Session, Senate 98-575 (Dole, Committee on Finance), gives the following insights:

. . . the bill provides that the general ERISA preemption rule does not apply to these qualified domestic relations orders. * * *

. . . State law providing for these rights and payments under a qualified domestic relations order will continue to be exempt from Federal preemption under ERISA.

The Louisiana case of Succession of Harry Orin Netterville, (1991) 579 So.2d 1046 dispatched arguments contending that ERISA and REA were intended to control substantive aspects of community property law. The case upheld a first wife's claim to retirement proceeds under community property divorce laws despite failure of beneficiary designations:

. . . the appellant contends the trial court erred in failing to recognize the preemption of ERISA over Louisiana Community Property Laws. We disagree and affirm. The United States Supreme Court has held that state domestic relations laws are not to be preempted unless Congress has "positively required by direct enactment" that state law be preempted. Hisquiero v. Hisquiero, 439 U.S. 572, 581, 99 S.Ct. 802, 808, 59 L.Ed.2d 1 (1979). Under this standard the state law must not only conflict with the federal law, it must do "'major damage' to 'clear and substantial' federal interests before the Supremacy Clause will demand that state law be overridden. Id.

In United Association of Journeymen, Etc. v. Myers, 488 F.Supp. 704 (M.D., La. 1980), affirmed at 645 F.2d 532 (5th Cir. 1981), the federal district court held that ERISA does not preempt state community property laws. The court stated that the legislative history shows the congressional desire to preempt state law broadly, but only those laws that "relate to employee benefit plans." Id. at 712, citing 29 U.S.C. 1144(a). Finally, the court determined that the federal law was designed to protect these employees from outsiders, and not to change the relationship between husband and wife or parent and child. Id.

The appellant argues that the Retirement Equity Act of 1984 (REA) clearly expresses Congress' intention to preempt state community property laws. We disagree. The legislative history of the REA indicates, in general, that the bill creates an exception to 29 U.S.C. 1144(a), ERISA's preemption provision, with respect to certain domestic relations orders called Qualified Domestic Relations Orders. [Footnote Omitted] 1984 U.S. Code Cong. & Admin. News, 1426, 2565. We find that the REA does not express Congress' intent to preempt state community property laws. In fact, it limits the scope of ERISA's preemption provision. Thus, the trial court did not err in applying Louisiana law.

California courts agree:

There is nothing in REA or in the legislative history which indicates any disagreement with the United States Supreme Court's determination--by dismissing the appeal in Campa [In Re Marriage of Campa (1979) 89 Cal.App.3d 113, 152 Cal. Rptr. 362] for lack of a federal question--that state courts are not preempted by ERISA from dividing community property interests in a marital dissolution action." In re Marriage of Baker (1988) 204 Cal.App.3d 206, 213; 251 Cal.Rptr. 126.

The liberality with which Alternate Payee's interest is to be regarded by Congress is indicated in REA's definition of the Alternate Payee:

. . . any spouse, former spouse, child or other dependent of a participant who is recognized by a domestic relations order as having a right to receive all, or a portion of, the benefits payable under a plan with respect to such participant. [IRC § 414(p)(8).] [Emphasis supplied.]

The willingness of Congress to allow a state to provide an Alternate Payee with all of the benefits of the Participant should clarify Congress's intent to leave the pension of married persons undergoing divorce totally under the auspices of the state domestic relations court. [State courts have concurrent jurisdiction over civil actions under ERISA Act § 502 (a)(1)(b) [29 U.S.C. Section 1132 (a)(1)(b)]. Under that section, "any attempt to establish a right to benefits will involve a determination of the terms of the plan." In re Marriage of Allison (1987) 189 Cal.App.3d 849, 855 citing Pacific Bell v. Workers' Comp. Appeals Bd. (1986) 186 Cal.App.3d 1603, 1610, citing Gors v. Venoy Palmer Market, Inc. (E.D. Mich. 1984) 578 F. Supp.365, 368.]

A Plan Has No Legitimate Standing to Contest the Full-Gillmore Provision

An order must "not require the plan to provide increased benefits (determined on the basis of actuarial value)" [IRC § 414(p)(3)(B)] or from providing increased vesting on behalf of the Alternate Payee which has not been achieved by the Participant [IRC Reg. § 1.401-(a)(13)(g)(4)(C)(2)(iii)]. The full-Gillmore clause does not violate this provision.

A Plan opposing an order for a distribution of less than the total accrued benefit would not be appearing before the court to protect the plan benefits, but rather be appearing at plan cost to advocate the property interests of Participant. Such a Plan would lack standing to press such a claim. [The extent to which claimant violates its fiduciary duty to beneficiary under ERISA by taking such a position is beyond the scope of this article.]

Another Way to Look at the Division

Let's say the community has two accounts each with $10,000 through Husband employee's credit union. Account A is earning no interest and will continue such until husband terminates employment and Account B is earning market interest. Husband argues that he should not be stuck with Account A, as its value is diminishing; thus he calls for equal division of both accounts.

When viewed in terms of Gillmore, the solution is easy. Husband should get the interest free account because its release is in his own hands. The loss of interest can be looked at as his payment to continue working and receiving compensation that will no longer be shared with the nonemployee spouse.

The case of In re Marriage of Connolly (1979) 23 Cal.3d 590, 153 Cal.Rptr. 423, 591 P.2d 911 stated that the court has considerable discretion in awarding benefits and need not award them in kind. Under Connolly and Gillmore, the court, therefore, ought to treat the subsidized and unsubsidized portions of the assets as two different assets.

If the Court Rejects the Full-Gillmore Clause, the Court May Have to Retain Jurisdiction for Deferred Determinations, Using Complicated and Expensive Methods To Satisfy Alternate Payee's Interest

Supposing for the sake of argument that a court were to adopt a literalist construction of REA because of the item of legislative history set out above. What happens if the plan does not have to generate the as-if-Participant-retired benefit [Most plans provide calculations for employees contemplating retirement, upon request. The plan will experience no difficulty in complying with such a clause.] as a prelude to determining the Alternate Payee's interest?

The court would still be left with the task of funding Alternate Payee's full-Gillmore interest. How? The court could take other, albeit costly and circuitous, steps to fund Alternate Payee's Gillmore benefit amount. For example, the court could make a current order based on an assumed (projected) future benefit. Such an order might provide as follows:

When Participant reaches earliest retirement age, the plan shall pay Alternate Payee $_________per month over Alternate Payee's lifetime. The actuarial present value of such payments shall not exceed the actual present value of the total accrued benefit at the time Participant reaches earliest retirement age.

If the projection does not match the actual benefits at Alternate Payee's annuity starting date, a supplemental QDRO could issue to adjust the benefit based on the ratio of the actual benefit to the assumed benefit. Discovery would have to remain open until Participant's early retirement age so that either party could request that the adjustment be made. [The QDRO itself could provide for the plan to make this adjustment, and the QDRO could provide that the Alternate Payee receive a statement confirming how the ratio was determined and applied.]

Another approach might call for a clause like the following:

When Participant reaches earliest retirement age, the plan shall pay Alternate Payee her time rule share of the Participant's then accrued benefit multiplied by 2.57. The actuarial present value of such payments shall not exceed the actual present value of the total accrued benefit.

2.57 is the ratio of the subsidized to unsubsidized benefit in the XYZ Retirement Plan at age 55. However, what if the ratio of the subsidized to unsubsidized benefit changes as a result of a change in the plan or method of calculation? Again, the factor will be "wrong" and require adjustment by a future court. Another motion, more discovery, more court involvement--and more actuary and attorney fees.

Congress did not intend to create such expensive conflict nor to burden state courts with continued involvement to produce an enforceable but fair QDRO. The full-Gillmore clause does not violate REA. It achieves a lawful result for the parties and does not transgress any appropriate plan interest.

Once Gillmore has been elected, Participant's burden is to guarantee Alternate Payee with the same benefits would be provided were Participant to retire.

Under Civil Code § 4800.8:

The court shall make whatever orders are necessary or appropriate to assure that each party receives his or her full community property share in any retirement plan. . . . [Emphasis supplied.]

The addition of the words whatever, assure, and full emphasize the duty of the court to protect the Alternate Payee's interest. Alternate Payee may, under Gillmore, demand ["Frequently, parties are able to arrive at a reasonable settlement....For example, the non-employee spouse may choose to wait, preferring to receive the retirement benefits when the employee spouse actually retires * * *. However, if the non-employee spouse chooses to receive immediate payments, as Vera does, he or she has a right to do so." Gillmore at page 428.] the same payment amount, timing, and security that would be received if the Participant were to retire or its present equivalent value. [Gillmore, at 427.] Alternate Payee may be well advised to consider deferred distribution methods of achieving actuarial value equivalent to the full-Gillmore order. However, if the settlement proposal is complicated and expensive to implement and maintain, Participant should bear such costs, including the cost of Alternate Payee's actuarial and legal fees to verify the appropriateness of the proposal. [How much will the Alternate Payee get if Participant dies--now or later? This question should be asked, answered, and understood before Alternate Payee agrees to an alternate arrangement.] If the scheme is expensive and complicated to pursue, [For example, payment of the subsidized benefit outside of the plan may require constant CPA involvement to insure that the amount received by the Alternate Payee has the same after-tax value as would the taxable pension payments for each year of payment. There are numerous important "what-if's" to invoke under such an arrangement.] Participant should bear the legal and other expense created by Participant's proposal of an alternate scheme, including the cost of obtaining plan compliance and the cost of Alternate Payee's actuary and counsel to verify the appropriateness of the arrangement.

Afterthoughts and Ameliorations

Don't blanch after reading this article and reviewing your prior QDROs or reservation orders. If your reservation order says that Alternate Payee will get the benefit when Participant retires, see In re Marriage of Crook (1992) 92 Daily Journal D. A. R. 1450, which held that the following language in an incorporated marital settlement agreement did not constitute a sufficiently express and unequivocal waiver of her Gillmore rights to bar her claim for Gillmore payments: "At such time as Husband begins receiving retirement payments, Wife shall receive from each retirement payment..."

If the order now in place does not clearly call for the full-Gillmore share, then a supplemental QDRO might be obtained based upon a Civil Code § 4353 claim for the "omitted asset" resulting from the early retirement subsidy. Under the rationale of Crook, the Alternate Payee cannot be held to waive such a valuable right without express and unequivocal language to that effect.

However, if the Alternate Payee is receiving spousal support, there may be no reason to disturb the existing order. The Gillmore court was prescient enough to suggest a modification of spousal support at such time as a demand for immediate payment would take effect. Thus, in many cases, the gain to the Alternate Payee in making a Gillmore election is more than offset by the loss of current support. In fact, the supported spouse should not make the Gillmore demand without an actuarial analysis of the financial impact.

Can Participant be Helped and Alternate Payee Too?

This article illustrates a serious consequence to the Participant who resists a pension "cashout" at the time of trial. If the Participant wishes to work until age 65, Participant's former spouse may have consumed all of the community years of benefit plus several of the separate years as well. Because of the requirements of REA\1/, the pay increases that would have increased the value of these years will be lost. [Note: The authors were misinformed, and these increases should not be lost. There is no reason that the Participant should not receive cost-of-living generated increases on the portion of the benefit that was earlier devoted to funding the benefit due to the Alternate Payee. Otherwise, the plan would receive a windfall due to the early commencement of the Alternate Payee.]

Footnote 1: The early retirement subsidy will be partially restored when the Participant actually retires. The restoration will gradually diminish to zero at normal retirement age as Participant continues to work.

A more satisfactory settlement, may be achieved with the help of a forensic actuary who can analyze all aspects of the retirement including the interplay of the spousal support order. Alternate Payee, typically female and younger, may benefit from shifting the pension to her later years when she may need the higher monthly benefits and at a time when the benefits may be taxed at lower rates. The actuary may develop an arrangement that achieves the Alternate Payee's actuarial equivalent and yet be less onerous to the Participant by preserving the pension value attributable to salary-increase additions to the community years of benefits.

A Participant should seek such a restriction on Alternate Payee's Gillmore rights at the time that the property division as a whole is being negotiated--before the horse and the rest of Participant's negotiation leverage have left the barn. The rule of "get the QDRO done early" serves the interest of the Participant as well as the Alternate Payee.

* * *

Postscripts

1. The author ran into a new wrinkle with the IBM plan. Check yours for such a provision. P terminates with a benefit available of $2000 per month. AP is to get $500 of this. There are no subsidy-compensating provisions in the QDRO. P doesn't commence the benefit, preferring to wait till he needs the funds and being unaware that the early benefits are subsidized. AP commences her benefit and discovers she is short by several dollars. The problem: The early retirement subsidy language in REA allows the plan to hold on to the subsidy until the P actually "retires."

The problem was solved when the employee was educated as to the loss. But what if the AP hadn't asked for a full "audit" of her benefit which allowed her to find this out?

Moral: Don't assume that the P will "retire" on termination. In fact, don't assume anything!

2. Have the Authors Missed the Obvious?

A noted commentator on pensions observes as follows:

An early retirement subsidy is not defined by the Act. A subsidy for early retirement presumably would be any benefits paid in excess of the actuarial value of the benefits at the early retirement date.

Some defined benefit plans provide a fixed percentage reduction for early retirement benefits to avoid actuarial valuations for each employee. For example, benefits may be reduced by five percent for each year that a participant retires before the normal retirement date. The difference between the fixed reduction and an actuarial reduction should not be treated as an early retirement subsidy.

One example of an early retirement subsidy is a Social Security supplement under which the employer pays the amount by which the participant's Social Security is reduced due to the early retirement.

If this is true, then the Gillmore problem is solved--or is it? The authors intend to do further research into this area and would appreciate any insights the reader may have.

POST-PUBLICATION NOTES

(1) In re Marriage of Cornejo (1996) 13 Cal. 4th 381, 53 Cal. Rptr. 2d 81, 916 P. 2d 476: It is necessary to file a Notice of Motion in order to preserve retroactivity for purposes of a Gillmore election.

(2) In re Marriage of Oddino (1997) __ Cal.4th __, 65 Cal.Rptr.2d 566, 939 P.2d 1266:

The court cited the holding in Gillmore to the effect that "[u]nder California law, a nonemployee spouse may be entitled to begin receiving his or her community interest in an employee spouse's retirement benefits prior to the employee spouse's actual retirement." In footnote 8 (appended to this sentence), the court went on to say that: "In re Marriage of Gillmore, supra, did not, however, hold the nonemployee spouse is entitled to receive benefits directly from the retirement plan, rather than from the employee spouse. Family Code section 2610, subdivision (b)(2), prohibits the court dividing community property from ordering preretirement payment of benefits by a plan, unless the plan provides for such benefits or such benefits are provided for in certain California statutes regarding public employee retirement benefits, or in 'similar enactments.' (Citations omitted.) In the present case the Plan, by its terms, allows the payment of benefits to a nonparticipant pursuant to a QDRO; the Summary Plan Description provided to participants, moreover, explains that such payment could begin 'as early as your attainment of age 55 even if you are still employed and contributing to the Plan.' We do not decide whether Mary [nonemployee spouse] would be entitled, under Gillmore (and ERISA), to receive from James [employee spouse] the unreduced early retirement benefits we will hold the Plan may not pay under ERISA."

Some plans take the position that they need not honor a Domestic Relations Order before the employee spouse goes into pay status because their plans do not have a QDRO provision like that included in the Hughes plan involved in the Oddino case. A spouse seeking an early-pay order from the plan should point to the Legislative history of Family Code Section 2610(b)(2), which indicates that this code section was passed to shield state and local plans from such orders--not private plans governed by QDRO's. Also, one can argue that the payment-per-QDRO provisions of the Retirement Equity Act are implied in all plans subject to ERISA. If a plan still maintains such a recalcitrant position, it may be most economical to obtain the nonemployee spouse's share of the early retirement benefits by an order for direct Gillmore payments from the employee spouse until retirement, securing the payment with the preretirement provisions of the plan if death occurs prior to actual retirement.