Retirement Plan Joinder - When is it needed?

In California and the Courts in Santa Clara County and all Counties in The State of California there are may rules that apply before you can terminate marital status. One of the most confusing is the requirement to join retirement plans. Pursuant to Family Code 2337, which states in part:

"(a) In a proceeding for dissolution of marriage, the court, upon noticed motion, may sever and grant an early and separate trial on the issue of the dissolution of the status of the marriage apart from other issues.

(c) The court may impose upon a party any of the following conditions on granting a severance of the issue of the dissolution of the status of the marriage, and in case of that party's death, an order of any of the following conditions continues to be binding upon that party's estate:

(5) Until judgment has been entered on all remaining issues and has become final, the party shall indemnify and hold the other party harmless from any adverse consequences to the other party if the bifurcation results in the loss of the other party's rights with respect to any retirement, survivor, or deferred compensation benefits under any plan, fund, or arrangement, or to any elections or options associated therewith, to the extent that the other party would have been entitled to those benefits or elections as the spouse or surviving spouse of the party.

(8) In order to preserve the ability of the party to defer the distribution of the Individual Retirement Account or annuity (IRA) established under Section 408 or 408A of the Internal Revenue Code of 1986, as amended, (IRC) upon the death of the other party, the court may require that one-half, or all upon a showing of good cause, of the community interest in any IRA, by or for the benefit of the party, be assigned and transferred to the other party pursuant to Section 408(d)(6) of the Internal Revenue Code. This paragraph does not limit the power granted pursuant to subdivision (g).

(9) Upon a showing that circumstances exist that would place a substantial burden of enforcement upon either party's community property rights or would eliminate the ability of the surviving party to enforce his or her community property rights if the other party died before the division and distribution or compliance with any court-ordered payment of any community property interest therein, including, but not limited to, a situation in which preemption under federal law applies to an asset of a party, or purchase by a bona fide purchaser has occurred, the court may order a specific security interest designed to reduce or eliminate the likelihood that a postmortem enforcement proceeding would be ineffective or unduly burdensome to the surviving party. For this purpose, those orders may include, but are not limited to, any of the following:

(B) An order to provide a security interest by Qualified Domestic Relations Order from that party's share of a retirement plan or plans.

(d) Prior to, or simultaneously with, entry of judgment granting dissolution of the status of the marriage, all of the following shall occur:

(1) The party's retirement or pension plan shall be joined as a party to the proceeding for dissolution, unless joinder is precluded or made unnecessary by Title 1 of the federal Employee Retirement Income Security Act of 1974 (29 U.S.C. Sec. 1001 et seq.), as amended (ERISA), or any other applicable law.

(2) To preserve the claims of each spouse in all retirement plan benefits upon entry of judgment granting a dissolution of the status of the marriage, the court shall enter one of the following in connection with the judgment for each retirement plan in which either party is a participant:

(A) An order pursuant to Section 2610 disposing of each party's interest in retirement plan benefits, including survivor and death benefits.

(B) An interim order preserving the nonemployee party's right to retirement plan benefits, including survivor and death benefits, pending entry of judgment on all remaining issues.

What this all means is that joinder of both private and public employee benefit plans are mandatory before marital status can be terminated. Even still there are certain plans where it is not necessary to join the plan.

It is necessary to join any State Teachers Retirement System (STRS), and any Public Employees Retirement Plan (PERS). This is true also for the California Public Employee's Retirement Systen (CalPERS), California State Teachers' Retirement System (CalSTRS) and the University of California Retirement System (UCRS) must be joined. This includes both qualified plans and non-qualified plans. These would be plans under IRS Code 457(b) or (f) deferral plans or IRS Code 403(b) Tax Sheltered Annunties (TSA). Basically all governmental plans of a State County, public school, University or any public agency. These all must be joined before marital status can occur in The State of California.

Any Employee Retirement Income Security Act (ERISA) plan, which is established under Federal Law, a court order dividing the plan is enforceable so long as the order satisfies the federal Qualified Domestic Relations Order (QDRO) requirements. However, joinder is not required for any of these plans. Additional plans which are under a Federal government plan include all military retirements, Civil Service Retirement System (CSRS), Federal Employees Reirement System (FERS) and the Foreign Service Pension System (FSPS). Each of the plans have their own wording requirements and they must be complied with to have an enforceable order dividing them. The court order is not a QDRO and these plans do not have to be joined. They are created under Federal laws and are not subject to California's Joinder Requirements.

Additionally, plans covering only business owners and spouses or employees of a church, qualified or unqualified must be joined. These are IRS Code 401K plans, defined benefit pension plans, profit sharing plans, money purchase or target benefit pension plans, Keogh and Tax Sheltered Annuity (TSA), all must be joined if they are for a business owner, their spouses or employees of a church.

Additional plans which are not required to be joined are:

  • Federally Funded Plans
    • IRS 401K plans, defined benefits pension plans, profit sharing plans, money purchase or target benefit pensions plans, employee stock ownership plan (ESOP) or Tax Sheltered Annunities (non-governmental employees). These are controlled under ERISA.
  • Unfunded nonqualified plans
    • must be for an employee forking in the private industry or tax exempt employer
    • These are Supplemental executive retirement plans, IRS Code 457(f) deferral plan, stock appreciation right (SAR) or phantom stock plan, or a severance plan. These are controlled by ERISA.
  • Individual Retirement Accounts or annuity
    • IRA or Roth IRA
    • These are not true retirement plans. They may be divided by court order or by judgment

Anything else not listed above must be joined.