WHAT HAPPENS TO YOUR PENSION RIGHTS IF THE QDRO DOES NOT GET FILED? FLINT DIVORCE ATTORNEY

GOOD MORNING FLINT! date 01/27/2013
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By Terry R. Bankert [trb] terry@attorneybankert.com
www.attorneybankert.com , https://www.facebook.com/attorneybankert, Flint Divorce & Bankruptcy 810-235-1970

QUESTION : HYPOTHETICAL QUESTION ISSUE DOES NOT INVOLVE A CURRENT OR PREVIOUS CLIENT- Divorced May 2012 in judgement of divorce a 401(k ) was to be divided. The company is requiring a QDRO in order to begin the division of funds.

The husband the original holder of the 401(k) submitted two QDRO’s but each has been returned as they were not within the acceptable guidelines.
SEE: http://michigandivorce.blogspot.com/2013/01/what-happens-when-your-do-not-gety-your.html

The ex-spouse asks Is there a time limitation for the lawyer to submit this QDRO to the company? She would also like to know what is it for the state of Mich. and what are the consequences for not complying with this time limit.

RESPONSE:

THERE ARE A LEAST TWO PROBLEMS .AFTER SIX YEARS THE TRANSFER OF THE 401(K) WILL NOT BE PRESUMED TO BE NON TAXABLE. THE HUSBAND MAY HAVE DIED AND THE 401(K) DISPERSED OTHERWISE.

Retirement benefits are often the largest single asset in a divorce. Michigan law requires every judgment of divorce (or separate maintenance) to determine the rights, including contingent rights, of the parties to (1) any vested pension, annuity, or retirement benefits; (2) any accumulated contributions in any pension, annuity, or retirement system; and (3) any unvested pension, annuity, or retirement benefits. MCL 552.101(4). [2]

Your Pensions earned during a marriage are marital property subject to division. [1] This division of retirement or pension plans can be divided using qualified domestic relations order (QDRO) procedures. [1]

The QDRO rules In Michigan apply to private tax-qualified pension, profit-sharing, and stock bonus plans, including defined benefit pension plans, 401(k) plans, most 403(b) plans and 457 plans, money purchase pension plans, cash balance plans, and employee stock ownership plans (ESOPs). [2]

A Michigan state court domestic relations order (DRO) that is a QDRO within the meaning of IRC 414(p) and 29 USC 1056(d)(3) must be honored by retirement plans that are subject to ERISA. If a DRO is a QDRO, the qualified plan may pay benefits to a former spouse or another alternate payee in accordance with the terms of the order without violating the antialienation rule. It is this exception to the antialienation rule that allows state courts the ability to divide and reallocate retirement benefits in domestic relations actions.[2]

A Domestic Relations DRO may be a judgment, decree, or order made pursuant to a state domestic relations or community property law that relates to the provision of child support, alimony, or the property rights of a spouse, former spouse, child, or other dependent of a plan participant (referred to as an alternate payee). To be a QDRO, the DRO must, among other requirements, specify (1) the name and mailing address of the plan participant and each alternate payee, (2) the amount or percentage of the participant’s benefit to be paid to each alternate payee or how it is to be determined, (3) the number of payments or the period to which the order applies, and (4) the identity of each plan to which the order applies.[2]

The general rule of IRC 1041 is that transfers of property between spouses or former spouses incident to divorce are not taxable. This provision applies not only to transfers at divorce but after as well, provided the transfers are incident to the divorce.[3]

• Six-year presumption. Transfers made pursuant to divorce documents within six years of divorce are presumed incident to divorce and not taxable
• After six years. The reverse presumption—that transfers after six years are not incident to divorce and asre taxable —may be rebutted by presenting evidence to the contrary.

The nontaxable treatment applies to transfers of cash or property, the surrender of marital property rights, and the assumption of liabilities. It does not apply to assignments of income such as an accrued bonus or a right to income from rental property (unless ownership of the rental property itself is also transferred). This is the reason QDROs and EDROs are necessary to transfer pensions tax free.[]3]

Property settlement. Attorneys should also consider the tax consequences of transferring property between divorcing spouses. Generally, no gain or loss is recognized on transfers of property between spouses (or former spouses) incident to divorce—that is, transfers that occur within one year after the marriage is terminated or, if beyond a year, are nonetheless related to the cessation of the marriage.[4]

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[source]

[1]
Information for Clients in a Divorce Case,Contributed by Thomas L. Saxe,
ICLE ,11/11

[2]
Michigan Family Law ch 16 (Hon. Marilyn J. Kelly et al eds, ICLE 7th ed 2011), at
http://www.icle.org/modules/books/chapter.aspx?lib=family&book=2011553510&chapter=16
(last updated 01/18/2013).

[3]
Michigan Family Law Benchbook ch 9 (ICLE 2d ed 2006), at
http://www.icle.org/modules/books/chapter.aspx?lib=family&book=2006553550&chapter=09
(last updated 01/18/2013).

[4]
Michigan Family Law ch 18 (Hon. Marilyn J. Kelly et al eds, ICLE 7th ed 2011), at http://www.icle.org/modules/books/chapter.aspx?lib=family&book=2011553510&chapter=18
(last updated 01/18/2013).

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HAS THE "TEA PARTY" CAUSED NATIONAL MUNICIPAL INSOLVENCY?

IS MUNICIPAL INSOLVENCY THE FAULT OF THE “TEA PARTY” MOVEMENT?

MY OPINION.( FLINT-Terry Bankert) Narrowly focused Tea Party leadership with its  head in the sand and  sanctimonious  anti- intellectual  leadership will cost this country more than it will save. It’s time for a change. Keep Obama  and replacing by election of Democrats  the Republican Congress.What do you think?

SOME SAY INSOLVENT PUBLIC ENTITIES, CITY, TOWNSHIP, SCHOOL BOARDS,  ARE CAUSED BY MICHIGAN GOVERNOR SNYDER AND HIS WITHDRAWAL OF STATE FUNDING.

Simply put, in the aftermath of the financial crisis emanating from Wall Street, the federal financial mess is bleeding over into state budgets in profound ways, adding enormous costs to already overburdened state coffers. That spillover, in conjunction with broader national crises in finance and healthcare, is overwhelming state and federal finances. [3]

ITS TIME FOR THE PUBLIC TO ENGAGE IN THIS PROCESS OF CHANGE.

States' current spending, taxation and budget practices cannot be sustained, and the public must take action to change fiscal problems that go well beyond the 2007-09 economic recession, an independent bipartisan committee said on Tuesday.[8] The public can start by keeping Obama replacing the Republicans in Congress with Democrats.

VOLKER SAYS CITIZENS SHOULD ARISE TO DEMAND CHANGE!WHAT CHANGE?

"It's very difficult to get people interested in the problem and to do something about it," said former Federal Reserve Chairman Paul Volcker at a news conference, joking that the best result of the committee's work would be that the "citizenry arises" to demand change. "A lot has been going on in various state budgets, not much of it good."[8] It takes boots on the street and strong public voices to cause real change.

IN THIS ENVIRONMENT HOW CAN STATES DELIVERY BASIC SERVICES?

Rising Medicaid costs and pension expenses for public employees threaten states' abilities to provide basic government services as they continue struggling with unreliable tax bases in a weak economy, according to a task-force report.[5]

The public is numbed to financial chaos from Congress to the City and School Boards. Foolishly many think pensions are protected they are not. Without a critical eye we look away for public official in the  spotlight of elected office to the private sector lurks in the shadows or hiding in the bowels of hell. The citizens must stay engaged in the process of resolving our financial affairs. Others are. “ Its a core tactic of contemporary capitalism using Friedman's SHOCK DOCTRINE  to cause real structural change in our society in these crisis. Its more about long term economic and social policy that suits the private sector that solving the citizens current problem . [see generally 4 page 7]

One agenda in this turmoil is to destroy the union movement and by loss of retirements the members that had supported it.

WILL A MUNICIPAL BANKRUPTCY AFFECT THE PENSION OF CITY OF FLINT MI RETIREES? LOOK TO CALIFORNIA FOR DIRECTION.

What happens in California eventually finds its way here.

In California, the names of the latest victims are well known. San Bernardino, Stockton and Mammoth Lakes all filed for bankruptcy within the last few weeks. And Vallejo emerged from Chapter 9 protection just last year. The questions appear to be "Why all in California?" and "Who will be next?" [3]

The public pension reform legislation that the Legislature and Gov. Jerry Brown adopted very carefully avoided any changes of current pensioners' benefits and those of future recipients now on state and local payrolls.[1]

The working person’s American Idol is the the Pension. Touching that will cause a scandal far greater than Kate Middleton’s with the ferocity of Typhoon Sanba. [seo]

Presented here by Flint Divorce Bankruptcy Attorney 235-1970 Lawyer Terry R. Bankert.[seo]

DOES THE MICHIGAN CONSTITUTION HAVE A BARE ON “IMPAIRING THE OBLIGATION OF CONTRACTS”?

CALIFORNIANS THINK THEIR PENSIONS ARE SAFE-Not only would that have been politically impossible,...[eliminating pensions]... but it's widely assumed that pensions are protected by the state constitution's ban on "impairing the obligation of contracts."[1]

Therefore, all of the pension benefit changes apply only to future employees.[1]

See; Dan Walters: Bankruptcy ruling could alter California pension law [1]


As municipal bankruptcy is becoming more common Michigan officials are comparing the process to the state's revamped emergency manager law, known as Public Act 4.[2]

The moneyed class is ready to cause long term political change that benefits it in this financial crisis.

The law has been touted by Gov. Rick Snyder's administration as providing an "early warning system" and tools to help cities in financial trouble avoid municipal bankruptcy. [2]


CAN A MUNICIPAL BANKRUPTCY JUDGE BREAK THROUGH STATE CONSTITUTIONAL PROTECTIONS FOR PENSIONS? Lets  look to Stocktone CA.

But is the legal barrier to changing current pension promises absolute?

Or could Stockton's municipal bankruptcy filing punch a hole through it?

STOCKTON CALIFORNIA FILED FOR MUNICIPAL BANKRUPTCY!

Under bankruptcy protection, Stockton wants those who hold millions of dollars in city-issued bonds – or their insurers – to take a haircut, but it doesn't reduce the $29 million it pays each year to the California Public Employees' Retirement System. That doesn't sit well with the bond insurers.[1] (CalPERS)

THE BOND ISSUERS WILL HAVE A SEAT AT THE TABLE OF A MUNICIPAL BANKRUPTCY.

Assured Guaranty Ltd., which insured many of those bonds and could lose over $100 million, complained in a bankruptcy court filing that Stockton "targeted its bondholders and left CalPERS and serious labor concessions off the negotiating table."[1]

Another insurer, National Public Finance, added, "Rather than face the hard realities imposed by its unbearable liability to Cal-PERS, the city takes a pass."[1]

BONDHOLDERS WILL INSIST THAT THE PENSION DEBT MUST BE REDUCED.

The insurers, in essence, are asking bankruptcy Judge Christopher Klein to declare that the city's bankruptcy plan is inadequate because it ignores pension debt, thereby presumably requiring it to reduce pension costs. In reaction, Cal-PERS has told Klein that pensions should have more status than bonds.[1]

VALLEJO CALIFORNIA WENT THROUGH BANKRUPTCY

During Vallejo's bankruptcy reorganization a few years earlier, CalPERS warned the city not to attempt to cut pensions and it didn't. Nevertheless, Vallejo generated union-backed, albeit unsuccessful, legislation to force cities to get permission from a union-friendly state board before filing for bankruptcy protection.[1]

WHAT PROTECTION FOR A PENSION WHEN VIEWED AS A CONTRACT?

But what about the state constitution's protections of pensions as contracts? Wouldn't that shield them in bankruptcy court?[1]

CALIFORNIA BANKRUPTCY JUDGE RULED FEDERAL FEDERAL BANKRUPTCY LAW TRUMPS STATE CONSTITUTION CONTRACT RIGHT AS IT RELATES TO HEALTH CARE AND OTHER ISSUES.

Not necessarily, as Judge Klein's ruling in a related matter implies. Stockton cut health care for its retirees, and they asked Klein to restore coverage, claiming "vested contractual rights." But last month, he declared that federal bankruptcy law trumps the state constitution's contract impairment provision.[1]

CONGRESS CAN BREAK A CONTRACT WHEN A STATE MAY NOT.

"In other words," he wrote in a 40-page ruling, "while a state cannot make a law impairing the obligation of contract, Congress can do so.[1]

GOAL OF MUNICIPAL BANKRUPTCY

The goal of the Bankruptcy Code is adjusting the debtor-creditor relationship. Every discharge impairs contracts."[1]

THE PENSION IN MUNICIPAL BANKRUPTCY BATTLEGROUND IS IN CALIFORNIA

Could bond insurers force Stockton to reduce its retirees' pensions?
It's certainly possible. If it happens, long-held assumptions about the sanctity of California's public pensions will change.[1]

Although California's problems are extreme, the state is hardly alone in financial difficulties. Towns and counties in Alabama, Illinois, Michigan, New Jersey, New Hampshire, New York, Pennsylvania and Rhode Island are all having trouble meeting their financial obligations. If these conditions continue to spread, the United States will be facing a crippling debt crisis at the state and local levels, which is where Americans receive much of what matters for their quality of life.[3]

This was a central point in a report released July 17 by the State Budget Crisis Task Force headed by former Federal Reserve Chairman Paul Volcker and former New York Lt. Gov. Richard Ravitch.[3]
MICHIGAN , NEW YORK AND ILLINOIS SHOULD LOOK TO CALIFORNIA AND ACT NOW!

If they don't take action, the extremes of California will ultimately become a reality in those states too.[3]

IS MUNICIPAL INSOLVENCY THE FAULT OF THE “TEA PARTY” MOVEMENT?

For two years, the conservative Tea Party has pressed the U.S. Congress to rein in spending and cut the government's debt and deficit. In response, Congress has slashed many domestic programs, which are often carried out by states.[8]

The committee found that reducing federal grants to states by just 10 percent would equal a $60 billion cut, "equivalent to more than doubling the corporate income tax, cutting police and fire spending almost in half, or eliminating all spending on libraries, parks and recreation."[8]
States are watching tax and spending negotiations on Capitol Hill nervously, aware they could be hurt by "the fiscal cliff," a combination of expiring federal tax cuts, spending reductions made in last summer's budget compromise, and other measures.[8]


So what can be done? [3]

1.GIVE THE CITY OF FLINT AN INTEREST RATE EQUAL TO THAT GIVEN TO INSOLVENT BANKS.We can start by asking why the Federal Reserve cannot refinance municipalities to preserve essential services at interest rates comparable to what it gave to rescue the insolvent banks that created this mess. [3]

2.NO MORE SWAP CONTRACTS. ... it is high time officials moved boldly to force the banks to break off the chain of disastrous swap contracts that have cost local authorities and states so much money.[3]

3.STRONG REGULATORY AUTHORITY. Another key point to keep in mind is the importance of strong regulatory policies. In a world in which financial institutions can receive zero-interest loans from the Federal Reserve and then lend out the capital at much higher interest rates, the opportunities for financial mischief are plentiful.[3]

4. DO NOT MASK FLINT’S PROBLEMS. For years, bankers have used municipal bonds from California and elsewhere as playthings. Wall Street has consistently helped elected officials mask budgetary problems with complex derivatives that create the appearance of cash flow today by selling years of future revenue. The only purpose for these securities is to deceive the public and create fees for the financial firms.[3]

5. DEMAND FISCAL RESPONSIBILITY. Financial chicanery in these realms is demoralizing, harmful, expensive and dangerous. California experienced this type of treachery firsthand in the 1990s when Orange County declared bankruptcy after being sold highly risky securities by Merrill Lynch.[3]

LOOK TO THE VOCKER-RAVITCH TASK FORCE FOR REPORT

That's why it's important to listen to the Vocker-Ravitch task force's call for reforming budgetary systems in the states to make them accountable and transparent and expose financial scams to deter their widespread use. [3]

The report by the State Budget Crisis Task Force, which is co-chaired by Paul Volcker, a former Federal Reserve chairman, and Richard Ravitch, a one-time lieutenant governor of New York, says states' growing gaps between entitlement spending and available revenue are becoming unsustainable. [5]

The report, released Tuesday, identified six major threats to the states' fiscal sustainability, including Medicaid spending, underfunded retirement promises and accounting gimmicks designed to solve short-term budget gaps. [6]

Mr. Ravitch, who is credited with helping to rescue New York City from collapse in the mid-1970s, said too much political energy has been focused on federal budget problems and not enough at the state and local levels. [6]

While the report doesn't offer any solutions to the fiscal problems, it urged state officials to be more transparent about the true costs of pension and retiree health-care costs. It also admonished states for using one-time revenue sources--such as asset sales and pension-obligation bonds--to balance budgets. [6]

The task force focused on the finances of five states: Virginia, Texas, New York, New Jersey and Illinois, and plans to issue separate detailed reports on these states in the coming months.
While the financial troubles of states are no secret to taxpayers, the task force's effort carries the weight of its well-known co-chairmen and its financial backers. [6]

The task force received major funding from the foundation of Blackstone Group LP (BX) co-founder Peter G. Peterson and George Soros's Open Society Foundation. Task-force board members include David Crane, an adviser to former California Governor Arnold Schwarzenegger, and economist Alice Rivlin. [6]

Task-force members said federal officials have little understanding of how efforts to reduce the nation's deficit could further strain state budgets. [6]
Ms. Rivlin, who served on President Obama's commission that recommended federal deficit solutions, said they were aware of the impact that these cuts could have on states. "But we did not do a serious analysis of what would happen." [6]


MICHIGAN AND  “The people of California have a right to know how their fiscal accounts are managed.” [3]

Presented in note format by Terry Bankert 09/17/2012

[1]
http://www.modbee.com/2012/09/17/2376756/dan-walters-bankruptcy-ruling.html

[2]
http://www.mlive.com/news/flint/index.ssf/2012/07/report_municipal_bankruptcy.html
[3] July 31 2012
http://www.latimes.com/news/opinion/commentary/la-oe-ferguson-california-bankruptcy-crisis-20120731,0,7453404.story
[4]
The Shock Doctrine , The Rise of Disaster Capitalism, by Naomi Klien 2007, Picadorusa.com
[5] July 17, 2012
http://online.wsj.com/article/SB10001424052702303933704577532971037875532.html
[6]
http://www.djnewsplus.com/rssarticle/SB134254432321665939.html
[7]
http://headlinenewstv.com/report-details-threats-to-states-fiscal-health-wall-street-journal/
[8] July 17, 2012
http://in.reuters.com/article/2012/07/17/usa-states-budgets-report-idINL2E8IHCR620120717

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