This is a presentation where I provided a general overview of Pension Plan Division of Assets in a Divorce to High Net Worth Individuals, specifically Professional Athletes going through a divorce
Division of Non-Qualified Plans for Professional Athletes
1. Dealing with Allocation of
Non-Qualified Pension Plan Assets in Divorce
Robert G. Hetsler, Jr.
J.D., CPA, CVA, CFF, CFFA, FCPA , CMAP
WWW.QDRONOW.COM
2. Credentials
• B.S. Accounting – University of North Florida
• Graduate Studies Accounting and Tax – University of
North Florida
• Doctorate Degree in Jurisprudence (J.D.) - Florida Coastal
School of Law
• Certified Public Accountant (CPA)
• Certified Valuation Analyst (CVA)
• Forensic Certified Public Accountant (FCPA)
• Certified in Financial Forensics (CFF)
• Certified Forensic Financial Analyst (CFFA)
• Chartered Merger and Acquisition Professional (CMAP)
• Licensed Florida Real Estate Agent
3. Dealing with Allocation of Non-Qualified
Pension Plan Assets in Divorce
Florida Law
§61.075 of the 2014 Florida Statutes sets forth the
requirements for distribution of the marital estate in
Florida
§61.075(1)(f)
§61.075(2)
§61.075(6)(a)1(d)
4. Professional Athlete Retirement Account
Option Summary
Major League Baseball (MLB)
National Football League (NFL)
National Basketball Association (NBA)
PGA Tour (PGA)
National Hockey League (NHL)
Major League Soccer (MLS)
Women’s National Basketball Association (WNBA)
5. Major League Baseball
Best pensions in professional sports
Players qualify for pension benefit after 43 days on
the active roster
Fully vested after 10 years of service time
The plan offers 100% joint-survivor benefits
If player is single, named beneficiary gets
distribution
6. National Football League
Players are vested after 3 credited seasons
Benefits range from $3K to $6K per month
Full benefits offered at 55 years old
Also eligible for 401(k) and Player Annuity
Program
7. National Basketball Association
One of the most generous pensions in all of
professional sports
Vested in pension plan at 3 years of service
Minimum benefit at 62 is $57K; maximum benefit
is $195K
Distribution can start at 50 years old
Also eligible for 401(k)
8. PGA Tour
Most convoluted pension program of all
professional sports
No guaranteed benefits
Rewarded for participating in and playing well in
tour events
FedEx Cup offers additional retirement benefits
9. National Hockey League
Eligible for pension after one regular-season game,
but qualify for maximum pension after active for at
least 160 games
Less than 160 games, qualify for maximum benefit
under Canadian law; more than 160 games, qualify
for maximum benefits under US law
Fully vested and can begin receiving benefits at 45
years of age
Early retirement option available at 35 with
reduced benefits
10. Major League Soccer & Women’s National
Basketball Association
Major League Soccer
No pension plan
401(k) program only
Women’s NBA
No pension plan
401(k) program only
11. What are Non-Qualified Plans
Non-Qualified Plans do not have those same ERISA
requirements and Protections
Do not have the same benefits or protections as that of
Qualified Plans
Non Qualified Plans come in all Shapes and Sizes
Most Common Type of Non-Qualified Plan is Deferred
Compensation Plans
Other examples of Non-Qualified Plans or Excess Benefit
Plans (EBP), Top-Hat (THP) and Supplemental Executive
Retirement Plans (SERP)
12. Funded vs Unfunded Non-Qualified Plans
Funded Non-Qualified Plans is a plan where there is some
kind of investment set aside to pay out or “fund” the future
Employee Distributions
Unfunded Non-Qualified Plans is where there are no
investments set aside to “fund” future distributions
With Unfunded Non-Qualified Plan the Employee has only
the employers unsecured promise to pay the benefits in the
future.
There are no guarantees of the continuation or security of
the Plan so if the business goes under or if it is sold.
Assets of plan have no requirement to be held in trust and
are not protected from employers creditors.
13. Suggested Options for Distribution of Non-
Qualified Plans
Require the employee spouse to send a portion of each
payment he receives, “if, as and when” he receives it, to the
non-employee spouse
If non-divisible plan is the only marital asset, consider
increasing alimony payments in lieu of a share of the non-
qualified plan benefits
When dealing with Survivor Benefits Name the non-
employee spouse as a beneficiary of the retirement plan in
the event of the death of the employee spouse
Often, simplest solution is to offset value of non-qualified
plan benefits with other marital assets
Florida is an equitable distribution state, meaning the court starts with a presumption of equal distribution but has discretion to favor one party or the other as circumstances warrant. The factors that can influence distribution are enumerated within the statute itself.
Sections of this statute that are potentially relevant to non-qualified (and presumably non-divisible) retirement assets, include:
§61.075(1)(f) The desirability of retaining any asset…intact and free from any claim or interference by the other party.
§61.075(2) If the court awards a cash payment for the purpose of equitable distribution of marital assets, to be paid in full or in installments, the full amount ordered shall vest when the judgment is awarded and the award shall not terminate upon remarriage or death of either party, unless otherwise agreed to by the parties, but shall be treated as a debt owed ffrom the obligor or the obligor’s estate to the oblige or the obligee’s esate unless otherwise agreed to by the parties.
§61.075(6)(a)1.”Marital assets and liabilities” include:
(d) All vested and nonvested benefits, rights, and funds accrued during the marriage in retirement, pension, profit-sharing, annuity, deferred compensation, and insurance plans and programs.
Major League Baseball
Best pensions in professional sports, also most well-funded pension program
Players qualify for pension benefit after 43 days on the active roster (receive min. $43K benefit)
Fully vested after 10 years of service time ($100,000+ per year for life)
The plan offers 100% joint-survivor benefits, spouse can receive benefits if vested player dies
If player is single, named beneficiary gets distribution
National Football League
Players are vested after 3 credited seasons
Benefits range from $3K to $6K per month, depending on length of playing time
Full benefits offered at 55 years old
Also eligible for 401(k) with up to 200% employer match and Player Annuity Program
National Basketball Association
One of the most generous pensions in all of professional sports
Vested in pension plan at 3 years of service (three seasons in the league)
Minimum benefit at 62 is $57K; maximum benefit is $195K
Distribution can start at 50 years old
Also eligible for 401(k) which offers a 140% employer match
PGA Tour
Most convoluted pension program of all professional sports
No guaranteed benefits, instead based on individual player performance
Rewarded for participating in and playing well in tour events
FedExCup offers additional retirement benefits
Runs the entire season
Provides a total of $35M deferred compensation
Champion receives $10M, balance distributed by rankings at end of series
Top 10 players receive mostly cash, rest of qualifying players receive a retirement account distribution
National Hockey League
Eligible for pension after one regular-season game, but qualify for maximum pension after active for at least 160 games
Less than 160 games, qualify for maximum benefit under Canadian law; more than 160 games, qualify for maximum benefits under US law ($45K annually)
Fully vested and can begin receiving benefits at 45 years of age
Early retirement option available at 35 with reduced benefits
Remember Enron, MCI Worldcom, Lehman Brother, American Airlines or delta filing chapter 11 protection
Not protected from any creditors and can simply disappear
Require the employee spouse to send a portion of each payment he receives, “if, as and when” he receives it, to the non-employee spouse
*Burden on employee spouse to write a check every month to the ex-spouse for the rest of his life
*Non-employee spouse is at the mercy of employee spouse to tell her when he retires and begins receiving payments
If non-divisible plan is the only marital asset, consider increasing alimony payments in lieu of a share of the non-qualified plan benefits
*Employee spouse may object if the benefits are unsecured and not guaranteed
Can name the non-employee spouse as a beneficiary of the retirement plan in the event of the death of the employee spouse
*Not desirable for young divorcing couples, since remarriage is likely
*Plans may not permit anyone other than a current spouse to be named as a beneficiary
*Alternative is for employee spouse to maintain a life insurance policy for the non-employee spouse to provide equal benefits in case of death
Often, simplest solution is to offset value of non-qualified plan benefits with other marital assets
*Since division of non-qualified plans is so difficult, it is often in both parties’ best interest to avoid the issue of division altogether
*However, employee spouse may object to this option since future benefits of the non-qualified plan may not be guaranteed
Ideally, during the discovery phase, and well before a settlement agreement is signed, you should do your due diligence to see which plans are dividable via a QDRO or DRO so you can then plan for contingences for those plans that cannot be divided via QDRO or DRO. However, if you must conclude the case before determining whether the retirement account is divisible by QDRO (or DRO), then include language in the Settlement Agreement to account for alternate provisions. Always include a fallback method of accounting for the asset. Remember since you are not dealing with Qualified Plans, those Governed Under ERISA, The IRS Code Section 72 that allows the withdrawal of money from a qualified plan tax penalty free does not apply to non-qualified plans no more than it does in any other non-Qualified Plan like IRA’s. If cannot find out enough information about plan prior to reaching a settlement agreement, it is ALWAYS best to include language of an alternative way to handle the division of this asset. Revenue Ruling 2002-22 deals with Nonstatutory stock options (NSO’s) and unfunded non qualified deferred compensation rights incident to a divorce.