Tag Archives: time-rule method

Using the Time-Rule Formula in STRS Orders to Divide Benefits

Time-Rule FormulaIn California, retirement benefits are part of the community property of marriage and partnership and may be affected by dissolution of marriage, divorce, legal separation or termination of domestic partnership. These actions can require the allocation of retirement benefits between the parties. For California public school teachers, the CalSTRS system will implement any agreed division so long as it is reflected in a domestic relations order, known as a STRS Order.  The STRS Order must be incorporated in to any divorce decree or separation order by the presiding judge of such judicial proceeding. Before submitting the STRS Order to the court, the order should be approved by CalSTRS.

 

One method for dividing the benefits is the time-rule method.  This method can apply to retirement and disability benefits. It is regularly used in divorce cases and separations to calculate the portion of the member’s Defined Benefit and Defined Benefit supplement that the nonmember spouse will eventually receive.  The formula takes the amount of time one earns service benefits during the course of the marriage as a member in the system and divides it by the total amount of service time. For someone who works as a teacher for a total of 20 years but only 10 of those years while married, this obviously reflects a community percentage of 50%. In a community property state, the property of a marriage is to be shared equally. Accordingly, in this example, the non-member spouse or partner would be entitled to 25% (0.50 x 0.50) of the member’s benefits.

 

This 0.25 share owed the non-employee spouse or partner must then be applied to the resulting monthly benefit to be paid out upon retirement. That benefit may include a longevity bonus as well as the regular benefit, provided the member worked beyond a certain duration of time. In any event, the 25% (or 0.25) is multiplied by this total monthly benefit to determine what is paid to the non-member eventually.

 

Some members also receive a Defined Benefit Supplement.  This supplement can also be included in the calculation, but the contributions and interest awarded to the nonmember spouse will be removed from the member account.  (Such account segregations can only be done before a member receives a retirement or disability benefit.) However, if the Defined Benefit supplement is the only type of benefit being distributed, then a different formula, known as the segregation method must be utilized to ascertain the amount to be paid by the ex-spouse or partner.

 

The Wilson Law Firm, a Professional Corporation, at 1120 Iron Point Rd Suite 100, Folsom, CA 95630 represents parties involved in domestic relations disputes.  Call The Wilson Law Firm, a Professional Corporation at the firm’s office at: 916-608-8891 to set up an appointment to speak with Attorney Dennis Wilson or visit its website at http://wilsonlawfirmca.com /.

Critical Elements of STRS Orders Using Time-Rule Method

STRS OrdersCalifornia’s public school teachers accrue retirement benefits in accounts which are administered by the CalSTRS system. LikeCalPERS, CalSTRS has a procedure for  dividing funds or future benefits with ex-spouses or former partners in connection with a divorce, legal separation, or some other domestic relatons plan for the future.  The member and non-membermust agree to the terms and conditions of a STRS order STRS orders must be approved by both CalSTRS and the court.  If the parties do not agree, then the court will impose its own order.

One of the four methods by which benefits can be distributed is the time-rule formula. Retired individuals must use this formula, and active members may employ it. Under the time-rule formula, a non-member spouse would receive a portion of the member’s monthly benefit, said percentage determined using the service credit earned during the period of the marriage. A second method is the segregation method, i.e., creating a new account for the non-member. In addition to the two primary methods of division (time rule and segregation of accounts), the court order may state that when a member receives a benefit, the nonmember spouse will get a predetermined percentage or flat dollar amount.

A STRS order must address the following issues:

  1. Types of benefits (retirement, refund, disability and/or  lump-sum death benefits)
  2. Payment by separate warrant; i.e., whether CalSTRS pays the non-member directly or the member must pay out of his or her funds
  3. Contingency where member dies before nonmember spouse
  4. Court-ordered election of an option (different percentages can be prescribed)
  5. Contingency where non-member spouse dies before member
  6. When lump-sum death benefit is to be paid out

Teachers facing the need to plan for such distributions should retain legal counsel with knowledge in preparing STRS orders and experience in securing their approval, so that the order will effectuate the intent of the parties involved.

The Wilson Law Firm, a Professional Corporation, at 1120 Iron Point Rd Suite 100, Folsom, CA 95630 represents parties involved in domestic relations disputes.  Call The Wilson Law Firm, a Professional Corporation at the firm’s office at: 916-608-8891 to set up an appointment to speak with Attorney Dennis Wilson or visit its website at http://wilsonlawfirmca.com /.