Marital Property in Illinois Public Pension

Plans (PART II): Actuarial Valuation, QILDROs

and the QILDRO Discount

Part II of my article discusses the difference in the actuarial valuation of the marital estate if “horse-trading” marital assets versus the actuarial value of the marital estate if divided by Qualified Illinois Domestic Relations Order (“QILDRO”).Actuarial Valuation: In Part I of this article published last month, our fact pattern assumed a member’s Teachers Retirement System “TRS” single life annuity of $2,000/mo is worth $486,000 in today’s dollars. If the court awards former spouse 40% of the total pension, the former spouse’s share would be worth $486,000 x 40% = $194,400 assuming the member lives to the actuarial projected life expectancy -as there are no joint and survivor benefits for former spouses under the Illinois Pension Code.However, consider ILCS 5/1-119(g)(1) which adds another layer of how you might want to value Illinois pension plans; because while a former spouse is not entitled to any survivor benefits if the member dies first, a former spouse is also not permitted to name a beneficiary to continue receiving their marital property interest should the former spouse predecease the member. That is, a former spouse is only permitted to collect their QILDRO interest while both the member and former spouse are jointly alive. This is what I commonly refer to as the “QILDRO Discount”.

Example if divided by QILDRO: Assume a former spouse is awarded 40% of the total pension (see above), the actuarial present value to former spouse should be $194,000. If divided by QILDRO, former spouse’s 40% share applies ONLY to the benefit while both member and former spouse are jointly alive (the QILDRO discount). The value of the QILDRO benefit and QILDRO discount are as follows:

Value while both parties are alive: $420,000 (subject to QILDRO) Value while member is alive only: $66,000 (off limits to QILDRO) Value while former spouse is alive only: $0 (survivor benefit off limits) Total Value of all payments: $486,000. Less value while member alive only: ($66,000) (off limits to former spouse)

Loss of value to former spouse if QILDRO is implemented instead of valuation:

Intended award: $194,000 QILDRO award: ($168,000) Loss in value to former spouse: $26,000 (the QILDRO Discount)

Ultimately, when dissolving a marriage that involves a QILDRO it is crucial as my colleague Anne Prenner Schmidt notes “to look holistically at the assignment of the pension and other property and income of the parties to fully understand the limitations in of the former spouse’s share. Having a valuation done can help the parties fully understand what the dissolution proceedings are leaving on the table or assigning away and make sure the parties are making decisions that will have long lasting success, thereby, preventing post decree actions and confusion.

Article published in the Newsletter of the Illinois State Bar Association’s Section on Family Law. The publication can be found here.

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