A Break on 2009 RMDs; More on Divorce Impact

Upon reaching age 70½, we must begin an annual withdrawal program from all of our pre-tax retirement savings accounts (IRA, 457(b), 401(k) and 403(b). These annual minimum withdrawals are referred to as Required Minimum Distributions (RMD). Santa arrived two days early for this group of senior citizens. On Dec. 23, 2008 President Bush signed into law the elimination of the RMD for 2009. This will give the 70½-plus crowd an opportunity to recover (let's hope) from losses sustained during the severe market decline of 2008. The RMD for 2008 must still be made. Remember, you may withdraw your RMD for 2009. You, however, are not legally compelled to do so. The choice is yours.

In last week's column I published a set of Q&A from the Web site of the New York State and Local Retirement System (NYSLRS) that addressed the issue of how a divorce can impact your pension. The following is a continuation of that set of Q&A.

1. I am an ex-spouse of a Participant entitled to a share of the pension. Can I have a cash payout of my interest in the pension?

No, you cannot obtain a cash payout of your interest in the Participant's pension benefits.

2. Can an ex-spouse leave his or her share to someone else when he/she dies?

No, an ex-spouse cannot designate a beneficiary to receive his or her share of the pension when he/she dies.

3. I am a Participant with a DRO on file and I have since remarried. The DRO requires me to elect a Joint Allowance (survivorship) option and designate my ex-spouse as beneficiary. Can I designate my current spouse for the remainder of my option benefit?

No. There is no "remainder." You can name only one beneficiary for an option that pays a lifetime benefit to another person. Under a Joint Allowance, your pension will be calculated based on your life expectancy and that of your option beneficiary as well as the amount of time the pension will be paid after your death. If the DRO permits you to elect an option that is not based on another individual's life expectancy (such as a Certain Option or a Cash Refund Option), then you can name multiple beneficiaries.

4. Can an ex-spouse obtain benefits as soon as the Participant is eligible to retire?

No, an ex-spouse cannot obtain any benefits until the Participant actually retires and his or her pension payments have begun.

5. My ex-spouse is a Participant of the Retirement System. He or she owes me child support (or alimony). Can I collect part of his or her pension for child support?

Yes, but you must have an Income Execution for support to obtain child support or alimony payments. For assistance in obtaining an Income Execution contact your county office for child support services. You can also collect child support by using a Domestic Relations Order. Please note that we cannot make payments to you until the Participant actually retires and his or her pension payments have begun.

6. Will an Income Execution served on my employer and deducted from my salary carry over to my pension?

No. A new Income Execution would have to be served on the Retirement System.

7. I will be entitled to a portion of my ex-spouse's retirement. Will I get this benefit for the rest of my life when he or she retires?

It will depend on the precise wording of the Domestic Relations Order. If the DRO requires the Participant to designate you as the beneficiary of a lifetime option, you will receive the benefit for your lifetime. If not, the Retirement System will not interpret the DRO to include it and your payments will terminate upon the Participant's death.

8. My ex-spouse is retired and I am receiving a portion of his or her retirement. Will I get this benefit for the rest of my life?

It depends on whether he or she elected a Joint Allowance (survivorship) option naming you as beneficiary at the time of retirement. If the Participant did not elect a Joint Allowance, then all payments will end upon the Participant's death. If the Participant did elect a Joint Allowance option at the time of retirement and you are the beneficiary, then you will continue to receive payments for your lifetime.

9. When I retired, I elected a Joint Allowance (survivorship) option and named my spouse as beneficiary. We are now divorced. Can I remove my ex-spouse from my option or change my option?

No. A retirement option becomes irrevocable 30 days after the date the retirement benefit is payable. With certain options, including the Joint Allowance options, the beneficiary designation is also irrevocable after the 30-day period.

10. What if the Participant fails to designate the ex-spouse as an option beneficiary when he or she retires?

If there is a valid DRO on file providing the ex-spouse with a Joint Allowance (survivorship) option benefit, the Retirement System will require the Participant to make that election before processing his or her retirement.

Mr. Frank is a fee-only Retirement Financial Planner and a retired city high school Teacher of Accounting. He can be reached by telephone at (732) 536-9472, or via e-mail at rollover@optonline.net