Domestic Relations Order (DRO) Practice Guide
THIS DOCUMENT AND SAMPLE DRO ARE FOR INFORMATIONAL PURPOSES ONLY. THEY SHOULD NOT BE CONSTRUED AS LEGAL ADVICE TO ANY PERSON.
This practice guide is intended to provide information to Participants, Alternate Payees, and attorneys regarding filing a DRO with NYCERS.
I. DRO Requirements
Payments and distributions from NYCERS to a former spouse are made pursuant to a DRO. A DRO orders NYCERS to abide by the divorce judgment, decree, or order sections that relate to the marital property rights of a former spouse pursuant to the New York State Domestic Relations Law. The DRO must create or recognize the existence of an Alternate Payee’s (former spouse) right to receive all or a portion of the benefits payable with respect to a Participant under the plan. NYCERS only makes payments under a DRO to an Alternate Payee, who, for purposes of NYCERS, is defined as a former spouse of a Participant who is recognized by a DRO as having a right to receive all, or a portion of, the benefits payable under a plan with respect to such Participant.
NYCERS is a government plan within the meaning of §3(32) of the Employee Retirement Income Security Act of 1974 (“ERISA”) and §414(d) of the Internal Revenue Code (“IRC”). As a government plan, NYCERS is exempt from the provisions of ERISA and IRC relating to Qualified DROs. Therefore, the DRO must not be subject to ERISA and/or IRC requirements. The DRO may contain references to ERISA/IRC so long as it does not attempt to subject the DRO to those provisions.
II. DRO Provisions
The DRO may provide for a flat dollar amount or flat percentage to be paid to the Alternate Payee from the Participant’s monthly retirement allowance. Alternatively, the DRO may provide for a calculation based on the marital interest formula used in the case of Majauskas v. Majauskas, 61 NY2d 481, 474 NYS 2d 699 (1984). The marital interest formula is as follows:
Percent (%) X years of service credit accrued during marriage
total service credit at time of retirement
Please refer to the Sample DRO for the necessary language to describe the formula in the DRO.
When using the marital interest formula or a flat percentage, the DRO may indicate whether the Alternate Payee’s share is to be based on the Participant’s maximum retirement allowance, or based on the reduced retirement allowance taking into account the Participant’s option selection. If the DRO is silent, NYCERS will calculate the Alternate Payee’s share based on the actual retirement allowance after any reduction.
Once the Participant has retired, NYCERS will commence payments to the Alternate Payee in the first available payroll period after the DRO has been processed. However, the Alternate Payee will receive a payment of arrears retroactive to the date the Court Ordered DRO was received by NYCERS. If the Alternate Payee is entitled to arrears retroactive to an earlier date, it must be explicitly stated in the DRO.
Cost of Living Adjustment (COLA)
Unless explicitly excluded in the DRO, the Alternate Payee will receive a proportionate share of the Participant’s COLA (unless the DRO provides for a flat dollar amount).
The Alternate Payee’s share will be reduced by any outstanding loans at the time of the Participant’s retirement unless stated otherwise in the DRO.
Variable Supplement Fund (VSF)
If the Alternate Payee is entitled to a portion of the Participant’s VSF, this must be explicitly stated in the DRO.
Death benefits are not considered part of the pension benefit and must be separately provided for in the parties’ Judgment of Divorce and Stipulation of Settlement. There are three types of death benefits that an Alternate Payee may be entitled to in a DRO.
- Pre-Retirement Death Benefit - This is a lump sum death benefit payable if a member dies in service.
- Post-Retirement Death Benefit - This is a lump sum death benefit payable to certain members who die after retirement.
- Option Selection - A retirement option provides a beneficiary or Alternate Payee with a continuing benefit after the death of the Participant. The Participant may be required, pursuant to a DRO, to designate the Alternate Payee as the beneficiary for a particular option. The DRO must state the specific option that the Participant is required to select. NYCERS’ brochures regarding options available to the Participant based on Tier will help you determine which option should be selected. Pursuant to New York Retirement and Social Security Law § 610(f), the option may not be changed once the retirement benefit is finalized. Therefore, NYCERS will reject a DRO that provides for option selection if the Participant’s retirement benefit has already been finalized. However, if, prior to finalization, NYCERS receives a valid draft DRO which provides for option selection, or a Judgment of Divorce or Stipulation of Settlement that provides for option selection, NYCERS will hold finalization of the retirement benefit pending receipt of a Court Ordered DRO.
- If the Alternate Payee is to be designated as a beneficiary for an option, the Alternate Payee’s marriage and birth certificates must be submitted for processing of this benefit.
Unless the DRO specifically excludes disability retirement benefits from equitable distribution, NYCERS will divide the benefit as directed in the DRO without any distinction.
The DRO must specifically state if the Alternate Payee is entitled to a share of any refunds of contributions.
Alternate Payee Predeceases Participant
An Alternate Payee may not assign benefits or designate their own beneficiaries in the event that they predecease the Participant. If an Alternate Payee predeceases the Participant, the DRO is void and the pension benefit reverts to the Participant. If the DRO required that the Alternate Payee be designated for a continuing benefit, and the Participant’s benefit is finalized, the Participant may not elect a different option or designate a different beneficiary. The Participant may elect a new option or a new beneficiary if the Participant is not yet retired (or is retired but their benefit is not yet finalized) and the Alternate Payee predeceases the Participant.
If an Alternate Payee is entitled to the entirety of a Participant’s pension pursuant to a DRO, NYCERS will deduct the required amount from the Alternate Payee’s share to allow the Participant to continue their health insurance coverage. It should be explicitly stated in the DRO whether NYCERS should deduct the required amount for health insurance coverage, or if the Participant has waived the health insurance coverage and a deduction is not required.
Withholding for Taxes
Unless the DRO specifically states that the Alternate Payee’s portion of the retirement benefit is to be calculated “after withholding for taxes,” NYCERS will calculate the AP’s share prior to withholding for taxes.
Orders Outside of New York State
Orders received from outside the State of New York must be registered in New York State. In lieu of registration, NYCERS will accept an executed Consent to New York Jurisdiction and Release.