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A number of important decisions must be made when developing the mechanics of a deferred distribution. Method of Payment The ideal method of paying both parties their share of the benefits is to have the pension plan itself send payment checks directly to both parties. This can be accomplished by using a Qualified Domestic Relations Order (QDRO). The court can also order the pensionholder to pay the spouse his/her share directly as such benefit checks are received by the pensionholder. However, structuring payment this way can cause future enforcement problems. For this reason most courts tend to shy away from this type of arrangement. However, some state retirement systems do not permit court orders assigning benefits to the spouse. In this case, a direct payment from the pensionholder to the spouse is the only solution. Time of Commencement of Benefits Under the Deferred Distribution Method, benefit commencement to the spouse can occur either at the same time benefits commence to the pensionholder or at any time after the pensionholder is eligible to commence benefits. Using the actual date the pensionholder commences benefits as a benchmark coincides with the notion that this method attempts to award the spouse a portion of benefits actually received by the pensionholder. However, restricting benefit commencement to the spouse until the actual date of commencement of the pensionholder gives the pensionholder complete control over commencement of benefits to the spouse. Therefore, if the pensionholder wanted to defer retirement for personal unknown reasons, commencement of benefits to the spouse would also be deferred. By deferring retirement, the pensionholder can inflict hardship upon the spouse. To avoid this issue of control, benefit payments could begin being made to the spouse when the pensionholder reaches his/her earliest date of eligibility for retirement. In terms of this issue, the pensionholder's earliest date of eligibility would be the earliest date he/she could retire and receive full unreduced benefits. Using this date as a benchmark, eliminates the pensionholder's control over benefit commencement and removes his/her ability to inflict harm on the spouse. Remarriage As explained earlier, in most cases, deferred distribution of retirement benefits relates to division of property and not alimony or spousal support. It is therefore incorrect to restrict distribution of benefits based upon the marital status of the spouse. Modification of the Award Similarly, since distribution of retirement benefits is not typically done for alimony or spousal support, but instead represents payment for distribution of property, such distribution should not be eligible for modification under any circumstances. Taxes When a Qualified Domestic Relations Order (QDRO) is used to accomplish a deferred distribution, the Plan will send separate benefit checks to each party. Therefore, each party is responsible for the tax liability on the amounts received. If a deferred distribution is accomplished by requiring the pensionholder to send checks to the spouse after the benefits are received from the Plan, the pensionholder pays all of the taxes associated with the benefits. Death From the standpoint of the terms of a pension plan, the death of the pensionholder under a deferred distribution can either terminate the distribution of benefits to the spouse or initiate payment of a survivor benefit to the spouse in lieu of the retirement benefits. The cause of action after the death of the pensionholder is dependant upon the agreement of the parties or the instruction of the court. Obviously, the Plan will stop paying benefits to the pensionholder upon his/her death. This can also trigger the same termination of benefits for the spouse. However, in order to eliminate the termination of benefits for the spouse, there are a few options that can be exercised:
It is incorrect to award interest on a deferred distribution award from a defined benefit plan. Typically, a defined benefit plan does not maintain a separate account which would be inclined to accumulate interest. Therefore, an award of interest would not be consistent with the style of the plan. It is appropriate to award interest on a deferred distribution award from a defined contribution plan. For example, the spouse could be awarded 50% of the pensionholder's account as of the date of the parties divorce. However, the funds are not actually distributed to the spouse until a year later. The pensionholder has had the advantage of using these funds, and the spouse has had the disadvantage of not being able to use these funds. If the funds belonged to the spouse as of the date of divorce, but were not distributed to him/her on that date, it is logical that the spouse should receive some compensation, in the form of interest, until he/she takes physical ownership of the funds. Future Pension Options As mentioned earlier, one of the major problems with a deferred distribution is the possibility that the pensionholder will elect or not elect certain benefit options available under the Plan which could jeopardize the spouse's interest in the pension. For example, the pensionholder remarries and elects to provide a survivor annuity for his/her new spouse. Maintaining this survivor annuity reduces the amount of pension benefits paid by the Plan on behalf of the pensionholder. Therefore, the amount paid to the spouse is also reduced. Further, the pensionholder could cancel his/her preretirement survivorship coverage assuming it is not necessary since he/she is no longer married. The premature death of the pensionholder could eliminate the spouse's claim for any benefits from this plan. To prevent the pensionholder from having the ability to either intentionally or unintentionally harm the spouse's interest in the benefits, the Court can dictate the choices to be made by the pensionholder. Loss of Pension Benefits Opinions are divided relative to what happens when the pensionholder loses his/her right to pension benefits due to termination of employment based upon grave misconduct. If the pensionholder commits an act after the divorce which justifies the pension plan to revoke all retirement benefits, is it fair that the spouse should also suffer these same consequences? If benefits are revoked, the Plan will not be able to pay the spouse his/her share, since all benefits payable on behalf of the pensionholder are terminated. However, the pensionholder could be ordered by the court to compensate the spouse directly for his/her loss of benefits. Using Present Value to Set a Maximum Amount Payable Some Courts have attempted to use a present value figure to establish a maximum amount payable to the spouse under a deferred distribution. For example, the present value of the pensionholder's benefit was $60,000, of which the spouse has been awarded 50%. A court may award the spouse 50% of each pension payment until a total of $30,000 has been sent to the spouse (50% of $60,000 equals $30,000). Using this approach results in a substantially inaccurate award to the spouse. Present Value, in its very nature, relates to the value of something at the present time. However, a deferred distribution pays benefits at a point in the future. Structuring an award in this manner equates $30,000 payable right now with monthly installments that total $30,000 beginning at some point in the future. These two payment arrangements are not equal. For example, if a borrower owed a bank a total of $10,000 on an outstanding loan, would the bank offer the borrower the choice of either a payment schedule where the total $10,000 is repaid in cash now or monthly payments starting 5 years from now until the bank receives the total $10,000? There is not a bank in the world that would offer such a deal to its customers. The $10,000 in cash now is worth more than monthly installments that equal $10,000 in excess of five years from now. The proper method of fashioning a deferred distribution award to the spouse is to pay him/her a portion of each benefit check received by the pensionholder with no limitation. The very nature of the Deferred Distribution Method is to distribute between the two parties the actual benefits that are payable to the pensionholder. 
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