Marriage of Benson, In re

• Decision Date: 20 March 1996
• Docket Number: No. 94-1304,94-1304
• Citation: 545 N.W.2d 252
• Parties: In re the MARRIAGE OF Robert L. BENSON and Camy A. Benson. Upon the Petition of Robert L. Benson, Appellant. And Concerning Camy A. Benson, Appellee.
• Court: Iowa Supreme Court

Page 252

545 N.W.2d 252

In re the MARRIAGE OF Robert L. BENSON and Camy A. Benson Upon the Petition of Robert L. Benson, Appellant And Concerning Camy A. Benson, Appellee.

No. 94-1304.

Supreme Court of Iowa.

March 20, 1996.

Stephen B. Jackson and Stephen B. Jackson, Jr., Cedar Rapids, for appellee.

Considered en banc.

HARRIS, Justice.

We granted further review of a court of appeals decision affirming a district court order dissolving the parties' marriage. We did so in order to critique the division of benefits under a pension plan. Because we also agree with the trial court's determination, we affirm.

Robert (born in 1939) and Camy (born in 1943) Benson were married in 1962. They adopted two sons, one of whom was killed in a 1987 traffic accident. Welfare of the other son is not involved.

Beginning in 1962 Robert worked as a union truck driver. Camy was employed as a beautician for a number of years until 1978 when she became manager of an apartment complex.

Camy continued her employment in this capacity until 1991, when she left to work in an antique shop. She viewed this career change as preparation for a postretirement enterprise: Robert had an interest in buying and refurbishing antiques and the goal was for the couple to start an antique business upon Robert's retirement. When it became apparent the marriage was in trouble, Camy quit this job and found a job with another apartment complex. When her old position as apartment manager reopened, she returned to work there.

Although Robert's employment was sporadic at times, over the course of the marriage his income was higher than Camy's. At the time of trial Robert had an annual gross income of $35,772 and Camy's was $21,288. In addition to their annual incomes, each party received other benefits such as health insurance. In particular Robert had almost twenty-five years of credit in a union pension plan. The plan is a noncontributory, defined benefit plan, and was vested at the time of trial. Camy received free rent and utilities at the apartment complex she managed, valued at a minimum of $515 per month.

The district court dissolved the parties' marriage. The court awarded Camy alimony of $500 per month for five years and, of special interest here, also awarded her a portion of Robert's pension plan by establishing a formula to divide his future pension benefits. The remaining marital assets were divided equally.

Robert appealed. The court of appeals affirmed on all counts and refused to award Camy attorney's fees. It is from this decision that Robert sought and was granted further review. Camy again seeks attorney fees for defending the appeal. Our review in this equitable proceeding is de novo. Iowa R.App.P. 4.

I. Robert first claims the district court erred by devising a formula which awards Camy a percentage of the future value of his pension benefits. As we shall explain, courts considering marriage dissolution cases face numerous problems dividing future benefits under pension plans. These problems seem to be increasing both in frequency and difficulty. Some background discussion might be helpful.

A pension plan is "a plan established and maintained by an employer primarily to provide systematically for the payment of [generally ascertainable] benefits to ... employees, or their beneficiaries, over a period of years (usually for life) after retirement." Black's Law Dictionary 1135 (6th ed. 1990). The two broad classifications of pension plans are government-administered plans and private plans. Government plans include the railroad retirement system, the federal old age and survivors insurance system, and federal, state, and local government employee retirement systems. Private plans include those established by industry, nonprofit, educational, and charitable organizations, and those created by individuals who have no employment-related coverage. Private plans may be either "qualified" or "nonqualified" under the internal revenue code, with qualified plans receiving special tax advantages. See generally 26 U.S.C. § 401 (1988); The Employment Retirement Income Security Act (ERISA), 29 U.S.C. §§ 1001-1381 (1985).

To understand the process by which the accumulation of pension benefits may eventually lead to the disbursement of pension payments, it is important to grasp the meaning of three distinct terms: maturity; vesting; and accrual. The word "matured" simply refers to the point in time when benefits commence. Put another way, "matured" describes the status of pension benefits when "all requirements have been met for immediate collection and enjoyment." Cearley v. Cearley, 544 S.W.2d 661, 664 n. 4 (Tex.1976) (emphasis added).

The word "vest" is a legal concept referring to "an immediate, fixed right of present or future enjoyment." Black's Law Dictionary 1563 (6th ed. 1990). In the context of pensions, a plan is said to be completely "vested" when "an employee (or his or her estate) has rights to all the benefits purchased with the employer's contributions to the plan even if ... the employment relation terminates before the employee retires." Id. (emphasis added). Vesting provisions vary considerably from pension plan to pension plan with respect to the types of benefits which will vest (retirement, death, and/or disability), the point in time at which vesting will occur (immediately vs. deferred), the rate at which payments will vest (a full 100% vs. a graded percentage scale), and the form in which benefits will vest (deferred claims, annuity contracts, etc.). See Steven R. Brown, An Interdisciplinary Analysis of the Division of Pension Benefits in Divorce and Post-judgment Partition Actions: Cures for the Inequities in Berry v. Berry, 39 Baylor L.Rev. 1131, 1146 (1987).

Benefit "accrual" refers to the specific dollar amount credited to or accumulated by an individual plan participant at a given point in time. Id. at 1148. Accrual is not a legal concept, but rather a phrase borrowed from actuarial and accounting principles. Utilizing the two previously defined terms, we can see there are three basic periods within which pension benefits "accrue." At the beginning of employment, after the employee satisfies the pension plan's conditions for participation, the employee's pension interests will be nonvested and unmatured. After the employee participates under the plan for a certain length of time and receives an unconditional ownership interest in a portion of the contributions made by his or her employer, the pension benefits are vested but still unmatured. Finally, when the employee obtains the immediate and present right to begin drawing the pension benefits, generally upon retirement, the employee's interest will be vested and matured. Benefits accrue during each of these three periods in accordance with the plan's accrual schedule. See id. at 1155-56. The rate of the benefit accrual depends upon the type of pension plan.

There are two principal types of private pension plans: defined benefit plans and defined contribution plans. These plans are similar in that both may be funded by contributions made either solely by the employer (noncontributory) or by both the employer and the employee (contributory). They are distinct however in that:

Under a defined benefit plan, the future benefit to be received is specified in advance and "defined" by a benefit formula or benefit schedule. The plan contributions are then made as required to fund the specified benefit. Conversely, under a defined contribution plan, the contributions to the fund are specified and "defined," but there is no predetermined scale of retirement benefits. Instead, the benefit amount received by the retiring employee is determined by the accumulated contributions allocated to that employee at retirement.

Id. at 1137-38. Because Robert's pension plan is a noncontributory, defined benefit plan, we focus on this type of plan.

As mentioned, in a defined benefit plan the future benefit is specified in advance by a formula. Defined benefit plans commonly utilize one or a combination of the following four basic formulas: (1) a flat amount formula, which provides a flat benefit that is unrelated to the employee's earnings or length of service; (2) a flat percentage of earnings formula, which provides a benefit that is related to earnings but unrelated to length of service; (3) a flat amount per year of service formula, which provides a benefit that is related to length of service but unrelated to earnings; and (4) a percentage of earnings per year of service formula, which provides a benefit that is related to the employee's earnings and length of service. Id. at 1141-42. Thus, depending upon the formula, the future benefit payable by a defined benefit plan may contain two variables: (1) years of service; and (2) earnings.

We have considered the effect of pensions in dissolution actions on a number of occasions. Under Iowa law pensions are characterized as marital assets, subject to division in dissolution actions just as any other property. In re Marriage of Branstetter, 508 N.W.2d 638, 640 (Iowa 1993). The valuation and division of pension benefits has nevertheless become the subject of considerable litigation in recent years. The problem may arise in a number of different factual situations. See In re Marriage of Mott, 444 N.W.2d 507, 510-11 (Iowa App.1987) (considering situations where the benefits were (1) vested and matured, (2) vested but unmatured, and (3) unvested and consequently unmatured). We have recognized two general ways for a court to divide and distribute pension benefits.

One method is to determine the present value of the benefits and allocate a share to the pensioner's spouse (the present-value method). Branstetter, 508 N.W.2d at 642 (citing In re Marriage of Bevers, 326 N.W.2d 896, 900 (Iowa 1982)). Although this method has the advantage of immediate distribution, it also has several disadvantages. Valuation of a pension is...