Domestic Relations Order (DRO)

This information is designed to give the parties involved in a marriage dissolution a better understanding of how the retirement benefit from Denver Employees Retirement Plan can be divided in a divorce, legal separation, or invalidity of marriage proceeding through a Domestic Relations Order (DRO). If you are vested (five years of credited service), your retirement benefit from Denver Employees Retirement Plan (the Plan) is considered marital property just like your house, car, or other items of value. If you have been married at any time while an active member of the Plan and are considering a divorce, your spouse may be legally entitled to receive a portion of your retirement benefit and/or DROP or DROP II account. In addition, if you are retired, your retirement benefit is also part of your marital property. The information in this brochure should not be considered legal advice. Each party in a divorce should consult with his or her own attorney.

Denver Employees Retirement Plan is a defined benefit (DB) plan operating as a tax-qualified plan under section 401(a) of the Internal Revenue Code. In a DB plan, those who vest and meet certain age and service requirements are guaranteed a lifetime monthly retirement benefit when they retire at age 55 or older (60 or older, for members hired on or after July 1, 2011). There are no lump-sum payouts from the defined benefit plan as there are for participants with a DROP or DROP II account.

Section 18-418 of the Revised Municipal Code of the City and County of Denver permits the Denver Employees Retirement Plan to divide your retirement benefit in the event of a divorce that is final on July 1, 2004 or after. The law allows a portion of your pension benefit to be paid directly to your former spouse at the time you begin receiving retirement benefits from the Plan.

What Is a Domestic Relations Order (DRO)?

An Alternative to the DRO

When Will You Be Vested?

Summary of DRO Provisions

DRO and the Plan’s Member

When Former Spouse Payments Begin

How the DRO Payment is Calculated

When the DRO Terminates

Acceptance of the DRO

How to Obtain a DRO

QUESTIONS AND ANSWERS

WHAT IS A DOMESTIC RELATIONS ORDER (DRO)?

A Domestic Relations Order (DRO) is a judgment, decree, or other order made in accordance with Section 18-418 of the Revised Municipal Code of the City and County of Denver which relates to the division of a member’s retirement benefit and/or DROP or DROP II account in conjunction with an action for dissolution of marriage, legal separation, or declaration of invalidity of marriage.

The DRO does not provide for any benefit of a type or form, or any option, not otherwise provided under the terms of the Plan. The DRO cannot provide for payments for which the member and spouse would not otherwise be eligible if there were no dissolution of marriage, legal separation, or declaration of invalidity or provide for payment of benefits to a former spouse prior to the member’s retirement.

Please do not use a “Qualified Domestic Relations Order” (QDRO). A QDRO cannot be accepted. The Plan is exempt from QDROs provided for by the 1984 Retirement Equity Act. These only relate to private sector pension plans. Government pension plans like Denver Employees Retirement Plan are exempt from this provision of federal law.

AN ALTERNATIVE TO THE DRO

If both parties cannot reach written agreement, the Court cannot order a DRO. There are four important details to rememeber when considering whether or not to use a DRO:

1. No payment will be issued to your former spouse until you begin receiving retirement benefits from the Plan. The earliest retirement age is 55 for members hired before July 1, 2011, age 60 for members hired on or after July 1, 2011, and Normal Retirement is age 65.

2. The DRO terminates if your former spouse dies. No contingent beneficiary can be named by the former spouse or anyone else to receive continued payments after his or her death.

3. The DRO will terminate upon your death unless the former spouse has elected an extended payment option.

4. The only way the Plan is legally authorized to divide your retirement benefit is by using a DRO that the Plan and Court have approved.

However, as an alternative to the DRO, you can choose to include the present value of your retirement benefit at the time of divorce as part of the marital property division. There may be other alternative methods not involving the Plan available to you as well. Please consult with your attorney to decide which method of dividing your retirement benefit is best for you.

WHEN WILL YOU BE VESTED?

You must be vested (five years of credited service) on the date of your divorce to divide your retirement benefit through a DRO. You must be eligible to ultimately receive a retirement benefit with the service you accrued during your marriage, without regard to future service.

If you are not vested on the date of divorce, the Plan can calculate your personal contributions that were made during the period of your marriage. On October 1, 2003, Plan members started contributing to the Retirement Plan. The amount of your personal contributions may be a part of your marital assets and can be included with your other marital property. However, no lump-sum distributions of your personal contributions can be made by the Plan unless you terminate employment prior to vesting. A DRO cannot be used to divide your personal contributions.

SUMMARY OF DRO PROVISIONS

-To be eligible for a retirement benefit and use a DRO, you must be vested (five years of credited service) on the specified date of the dissolution of marriage.

-The DRO cannot provide for any benefit of a type or form, or any option, not otherwise provided under the terms of the Plan.

-The DRO cannot provide for payment for which the member and spouse would not otherwise be eligible if there were no dissolution of marriage, legal separation, or declaration of invalidity.

-No payment will be issued to your former spouse until you begin receiving retirement benefits from the Plan. Age 55 is the Plan’s earliest retirement age for members hired before July 1, 2011, age 60 is the earliest for members hired on or after July 1, 2011, and age 65 is the normal unreduced retirement age, but there is no mandatory retirement age.

-The payment to your former spouse will be an agreed upon percentage or exact amount of the retirement benefit calculated, as of the date of dissolution, for the time of your marriage.

-If you are a DROP or DROP II participant, your former spouse shall receive a lump-sum payment at the time you receive your initial distribution or when you are eligible to receive a distribution, whichever occurs first.

-The DRO will terminate upon the death of the former spouse. No contingent beneficiary can be named by the former spouse or anyone else for continued payments after his or her death.

-If you die prior to retirement, the former spouse can receive monthly payments specified in the DRO that will commence the first day of the month following the date you would have reached age and other requirements for a Normal Retirement benefit under the Plan provisions.

-If the DRO is issued after you have retired, the payment to your former spouse can start on the first day of the month 30 days after the valid DRO is received and the application is completed.

-The payment to your former spouse will continue until the former spouse’s death or your death unless the former spouse has agreed to an extended payment option. This option actuarially reduces the agreed upon DRO payment to the former spouse to provide, upon your death, a continued payment to the former spouse. This payment will continue until the death of the former spouse.

-The former spouse’s payment will include any Cost of Living Adjustments if adopted by the Retirement Board for all retirees.

-The former spouse will not be eligible for health insurance or any other benefit from the Plan.

-The Plan’s DRO Order and Agreement forms must be used.

-The DRO Order and Agreement forms must be approved by the Plan before submitting them to the Court.

-The Court/Judge must sign the Order with the Agreement attached and a certified copy sent to the Plan. The DRO must be approved by the Plan.

-The DRO Order with the attached Agreement must be approved and entered by the court either upon the entry of the decree and permanent orders, or within 180 days afterwards. The DRO Order with the Agreement must be submitted to the Plan within 90 days after entry of the DRO by the court.

-If you marry and divorce more than once, the Court can authorize more than one DRO. Each order can only divide the benefit accrued during that marriage.

DRO AND THE PLAN'S MEMBER

Your retirement benefit will be divided at the time of your first retirement check or, if you are already retired, on the first day of the month 30 days after the approved DRO is received by the Plan. The exact amount will be determined in the DRO. If a percentage was elected, the amount may be reduced up to 30% depending on your age at retirement, and may be reduced depending on the retirement option you elect when you retire. If you are remarried when you retire, you must elect a Joint and Survivor option for your spouse, unless waived by that spouse.

If you are retired when the former spouse dies, your benefit is increased the month after the former spouse’s death to include the amount the former spouse was receiving.

WHEN FORMER SPOUSE PAYMENTS BEGIN

The former spouse’s payments under a DRO will begin when you start receiving retirement benefits from the Plan or, if you are already retired, on the first day of the month 30 days after the date the approved DRO is received by the Plan. The Plan’s earliest retirement age is 55 for members hired before July 1, 2011, age 60 for members hired on or after July 1, 2011, and the Normal Retirement age is 65. However, employees can continue to work indefinitely.

If the DROP or DROP II account is part of the DRO, the lump-sum payment will be made to your former spouse when you receive your first payment or when you are eligible to take a distribution, whichever occurs earlier. DROP and DROP II distributions can only be made 60 or more days after you have terminated employment. If you are currently eligible for a DROP or DROP II distribution, the lump-sum payment to your former spouse will normally be made on the first of the month after the application is received.

If you die as an active member, your former spouse will receive the approved DRO payments starting at the time you would have been eligible for a Normal Retirement (but for death). The former spouse must take the DROP/DROP II distribution at the time the lump-sum payment becomes available.

The Plan benefits are paid on the first of the month for that month. If the completed application for the DRO payment is received by the 15th of the month, the first payment will be made on the first of the following month. If the application is received later, the first payment will be made on the first of the month following 30 days after receipt.

The Plan will notify your former spouse of your retirement or death. A notice will be sent to the last known address. The former spouse should inform the Plan of any address changes.

THE FORMER SPOUSE'S EXTENDED PAYMENT OPTION

When the former spouse completes an application for the agreed upon DRO payment, the former spouse can choose to have the DRO payment actuarially reduced to provide a lifetime annuity which does not stop upon your death. The reduction will be based on your age and your former spouse’s age at the time the DRO payment begins. Because this option extends the DRO payment past your death, the payment is reduced. The Plan will prepare an estimate of the reduction at the time the former spouse applies for the DRO payment. The reduction or division of your retirement benefit is based on the agreed upon DRO payment, not the monthly amount the former spouse will actually receive.

WHEN YOU ARE ALSO IN DROP/DROP II

The DROP/DROP II account is also eligible to be distributed through a DRO. The DROP/DROP II account cannot be distributed until 60 days after you terminate employment. If you have already terminated employment, the DROP/DROP II account shall be distributed to the former spouse in a lump-sum 30 days after the Plan receives a valid DRO authorizing distribution from the DROP/DROP II account. The DRO can stipulate a percentage or exact amount of the DROP/DROP II account to be distributed. In addition, your former spouse can receive part of your monthly regular retirement annuity for the marital period.

HOW THE DRO PAYMENT IS CALCULATED

The payment to the former spouse will be based on a percentage or exact amount of your retirement benefit for the period of marriage. The calculation for a lifetime monthly retirement benefit is based on the average monthly salary (highest 36 or 60 consecutive months) multiplied by 2%* multiplied by years and months of service. The years and months of service will be the service accrued during the period of marriage and the retirement date will be age 65, the normal unreduced retirement age. The average monthly salary will be the highest 36 or 60 consecutive months at the date of the dissolution. The calculation is based on whole months.

*Deferred members and new members may have a different multiplier.

For example:

Assumptions:
Date of employment: 9/1/1985
Date of marriage: 10/1/1994
Date of dissolution: 10/1/2004
Average monthly salary: $3,000
Former Spouse awarded 50% of your retirement

The benefit calculation is:

$3,000 Average monthly salary
x .02 2% multiplier
x 10 10 years of marriage/service
$600.00 Benefit eligible for division
x .50 Percentage specified in the DRO
$300.00 Former Spouse payment

The actual DRO payment will be calculated when the DRO is received by the Plan, unless the member is already retired or the DRO payment is based on the date you and your former spouse separated. A Dissolution of Marriage is not always complete when it is estimated to be. There may be a slight change in the estimated benefit based on additional service. When the Plan receives the DRO that has been entered by the Court, letters will be sent to you and your former spouse acknowledging the Plan’s approval and stating the exact amount of the DRO payment.

For example: If your dissolution was final on 11/1/2004 instead of 10/1/2004 the calculation would be as follows:

$3,000 Average monthly salary
x .02 2% multiplier
x 10.083 10 years 1 month of marriage/service
$604.98 Benefit eligible for division
x .50 Percentage specified in the DRO
$302.49 Former Spouse payment

At the time you retire or when the DRO is entered, if you are already retired, the former spouse will complete an application for the DRO payment and, at that time only, can elect an extended payment option. The former spouse’s payment will be actuarially reduced to provide a lifetime annuity which does not stop upon your death. The example below is calculated with both parties age 65:

The DRO has ordered a $302.49 per month payment to the former spouse. This payment will stop at the Member’s death. If the former spouse elects the extended payment option, the former spouse would receive $261.35 until his or her death, based on the applicable mortality table.

The DRO Calculation for Retired Members
If you are retired when the DRO is entered, the calculation is based on the retirement benefit the member is currently receiving. The DRO must stipulate a percentage or exact amount of the current retirement benefit.

The DRO Calculation for a DROP/DROP II Account
If you are a DROP or DROP II participant, your regular retirement annuity has been set based on salary and service when you entered DROP or DROP II. The DRO can include the benefit accruals of the DROP/DROP II account. The Plan will calculate the amount you will have in your DROP/DROP II account to the expected date of the DRO order, or date of your separation from employment, if applicable. The DRO can stipulate a percentage or exact amount of the DROP/DROP II account that is to be distributed as a lump-sum to the former spouse at the time you receive the initial payment or when you are eligible to receive the payment, whichever occurs first. Your lifetime monthly regular retirement annuity can also be part of the DRO, as noted earlier.

WHEN THE DRO TERMINATES

-The former spouse’s payment stops the month after your death unless the former spouse elected an extended payment option.

-The DRO terminates upon the death of the former spouse.

ACCEPTANCE OF THE DRO

When the Court entered DRO is accepted by the Plan, letters will be sent to both parties acknowledging the acceptance of the DRO and the exact amount (which may be reduced depending on the retirement option you elect when you retire) of the DRO payment to the former spouse and/or the amount from the DROP or DROP II account. If the payment can be made immediately after the time of acceptance of the DRO, an application for payment will be sent to the former spouse.

HOW TO OBTAIN A DRO

1. Contact the Plan or go to our web site, www.derp.org, for a Request for DRO Estimate form to get your estimated statement of retirement benefits for the period of your marriage.

The DRO estimate will show the amount of credited service and accrued monthly retirement benefit attributable to the period of the marriage. The retirement benefit will be calculated as if you retired at age 65, the normal unreduced retirement age. The Plan will need a release signed by you or under a subpoena duces tecum if your former spouse requests this same information without your permission. When the Plan responds to the subpoena, you will also receive a copy of the response.

2. A DRO information packet will be sent to you with an estimate of your retirement benefit earned during the period of marriage, and the amount in your DROP/DROP II account, if applicable.

3. You and your former spouse must agree to the terms of the DRO, using the Plan’s Form of Agreement.

4. Complete the Order and Agreement forms and submit them to the Plan for approval at least two weeks prior to submitting them to the Court. The Agreement submitted to the Court must be signed by all parties.

5. The DRO Order with the Agreement attached must be signed by the Judge.

6. A certified copy of the Court-approved DRO must be submitted to the Plan for processing. The Court Clerk can provide this for you.

7. For the DRO to be valid, it must be signed by both parties, the Denver Employees Retirement Plan, and signed by a Judge. If Denver Employees Retirement Plan does not approve the DRO, you will have to go back to the Court again. If you and your spouse cannot reach agreement, the Court can require you to divide your retirement benefit as part of the marital assets without involving Denver Employees Retirement Plan, and therefore without a division of the retirement benefit by the Plan.

8. The DRO Order with the attached Agreement must be approved and entered by the Court either upon the entry of the decree and permanent orders, or within 180 days afterwards. The DRO Order with the Agreement must be submitted to the Plan within 90 days after entry of the DRO by the court and 30 days prior to the Plan making any distribution.

QUESTIONS AND ANSWERS

What authority governs the Denver Employees Retirement Plan DRO?
Section 18-418 of the Revised Municipal Code of the City and County of Denver.

Do I need to have a DRO to divide my marital property?
No. Discuss this with your attorney. At times, retirement benefits are not divided if the member and spouse have agreed to exchange other assets instead of splitting the retirement benefit. To retain full ownership of your Denver Employees Retirement Plan retirement benefit, your property settlement must clearly state your account is not to be divided. Your dissolution documents should individually name each account (your Denver Employees Retirement Plan retirement benefit, DROP/DROP II account, the deferred compensation account, or other retirement account) and clearly state your former spouse has no claim against specific benefits. As an alternative to the DRO, you may choose to divide the present value of your retirement benefit at the time of divorce as part of the property division. There may be alternative methods available to you as well. You and your attorney should decide which method of dividing your benefit is best for you.

Can the Member be forced to use a DRO during a divorce?
No. If the parties cannot reach a written agreement, the Court cannot order a DRO. However, the Court may consider other options in dividing the marital estate.

Is there a fee for processing a DRO?
The Plan does not charge a fee at this time. However, the Ordinance does allow a fee to be charged.

Do I have to obtain preapproval by the Plan of the proposed DRO Agreement?
If the forms are not properly completed or the administrative requirements are not met, the Plan will reject the DRO. It is recommended that the parties send a copy of the completed DRO Agreement and Order to the Plan at least two weeks prior to the anticipated submission of the DRO to the Court.

May I make any changes to the Plan’s DRO forms?
No. The forms must be used without change. In addition, do not retype any form.

If the Plan determines my DRO Agreement is invalid, what can I do?
If the DRO was submitted for preapproval, you will only have to make the necessary changes before submitting it to the Court. If the DRO has been signed by the Court and rejected by the Plan, the parties will have to go to Court again, if time permits, to get a DRO that can be approved by the Plan.

What if I remarry?
If you and your new spouse elect a Joint and Survivor* benefit at retirement, the benefit for your new spouse will be based on your retirement benefit after the agreed upon division to the former spouse. If you are already retired, your new spouse will not be eligible to be a Joint and Survivor beneficiary since your options elected at retirement are irrevocable.

*A Joint and Survivor beneficiary receives a continuing benefit upon your death. Your retirement benefit is reduced to provide a benefit for two lifetimes.

Is the former spouse’s payment eligible for Cost of Living Adjustments?
Yes. If a Cost of Living Adjustment is approved by the Retirement Board, the former spouse will receive the increase under the same terms as the retirees.

Are the former spouse’s payments subject to taxes?
Yes. The Plan can withhold federal and state taxes and the former spouse will receive a Form 1099R. This is true even if the agreement says the member will pay all taxes. The payment will be considered retirement income to the former spouse and will be eligible for the Colorado exemption, if a resident of Colorado, just like your retirement benefit. Colorado currently exempts the first $20,000 of retirement income from state tax if you are under age 65 and $24,000 if you are over age 65. Ask your tax consultant for further tax information.

Is the former spouse eligible for medical and dental coverage?
No. These benefits are for the Plan member and dependents only.

Will the Plan accept an out-of-state DRO?
Yes. The Plan will accept an out-of-state DRO if the DRO meets the Plan’s procedural and administrative requirements.

When must the final DRO be submitted to the Plan?
The DRO Order with the attached Agreement must be approved and entered by the Court either upon the entry of decree or within 180 days thereafter. The final Court approved DRO must be submitted to the Plan within 90 days after entry of the DRO by the Court. It must be received at least 30 days before the Plan will make its first payment pursuant to the DRO.

May I modify my DRO?
Yes, as long as it is within the timeline set forth in the Plan’s ordinance. The Plan and Court must approve it. The modification must be entered by the Court within 180 days after entry of the decree, and submitted to the Plan within 90 days thereafter. Again, the Agreement must be received by the Plan at least 30 days before the Plan will make its first payment pursuant to the modified DRO.