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Divorce and Frozen Pensions

Over the past decade, economic circumstances have played a major role in pension plans being frozen at a large number of corporations. Many traditional defined-benefit plans provide a monthly annuity payment to employees at retirement.

A freeze on a pension plan means that the plan does not make any further additions to the employee's benefit. The traditional formula for determining benefits is based upon salary and years of service. The benefits grows larger with the numbers of years employed and with increases in salary. When a pension plan is frozen, the benefit ceases to grow and is locked in at the amount when the "freeze" occurs. A frozen pension plan will still pay benefits; it's just that there won't be as much to pay out since it was frozen.

many people earn their largest amounts of income just prior to retirement. Those who are closest to retirement will see the largest portions of expected additional benefits denied them due to the pension being frozen. Younger employees may have time to recoup their losses; older employees might not.

If a divorce comes into play, a spouse cannot box out the other spouse from a portion of the pension just because the pension is frozen. A frozen pension can be divided using a Qualified Domestic Relations Order (QDRO), just an unfrozen pension would be.

It is probably a good idea for a couple considering divorce to check on the status of any pension plans that either spouse participates in prior to filing for divorce. However, there is no guarantee that a pension plan won't freeze at some point after the divorce is final.

Some divorce settlements calculate pension benefits accrued up till the time of divorce, and split them between the ex-spouses when annuity payments begin. Other agreements consider the accrued amount of a pension at retirement age of the participating spouse and use a formula based on that amount and number of years of marriage, among other factors


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