New Jersey Divorce and Family Lawyer Blog
In my last blog post, I provided a brief overview of retirement assets which have been funded individually, such as IRA accounts, and how they are dealt with for equitable distribution purposes.
In this second blog post of the series, I will now provide an overview of employer-sponsored retirement assets and how they are dealt with in divorce.
While some people may accumulate retirement assets in IRA’s, most people accumulate retirement assets through their employment. Such employment-based retirement assets usually come in two forms, to wit (1) a defined benefit plan or (2) a defined contribution plan. Exceedingly less common than in years past, a defined benefit plan is what most people remember as a traditional pension plan. Generally employer-funded, these types of plans generate a monthly “benefit” or payment to an employee upon retirement either for a specified number of years or during his or her lifetime. That monthly benefit is determined based upon a formula considering factors such as earnings, duration of employment, age and life expectancy. Only a dwindling percentage of private employers offer such defined benefit plans at this juncture. These types of “benefit” plans remain the norm for most public or government employees; however, they are generally not considered “qualified” which impacts how they are distributed upon divorce. Most private employers sponsor defined contribution plans, most commonly in the form of 401k accounts. In these types of plans, an employee may voluntarily elect to contribute a certain amount or percentage of his gross income into a dedicated retirement savings/investment account, a portion of which contribution may or may not be “matched” by the employer. The amounts contributed are “pre-tax”, meaning that you do not pay taxes on it during the year of contribution, and that monies accumulated in that account grow tax-free.