June 12, 2008
NORMA S. ABEL, PLAINTIFF-APPELLANT,
DOUGLAS P. ABEL, DEFENDANT-RESPONDENT.
On appeal from Superior Court of New Jersey, Chancery Division, Family Part, Ocean County, FM-15-930-06.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued December 12, 2007
Before Judges Payne and Sapp-Peterson.
In this post-divorce matter, plaintiff, Norma Abel, appeals from an order of a Family Part judge interpreting a provision of the parties' property settlement agreement (PSA) concerning the equitable distribution of the defined benefit pension plan of defendant, Douglas Abel. The judge held that the PSA unambiguously provided that plaintiff was entitled only to a deferred distribution of an amount equal to one-half of $91,049.76. He denied plaintiff's right to a qualified domestic relations order (QDRO), framed in terms specified in Marx v. Marx, 265 N.J. Super. 418 (Ch. Div. 1993), to reflect a deferred distribution of the pension at time of defendant's retirement that would give plaintiff her equitable share of the coverture fraction*fn1 of the entire pension. Because we find the parties' intent as reflected in the PSA to be ambiguous with respect to the equitable distribution of this defined benefit plan, we remand for a hearing on that issue.
The record establishes that plaintiff and defendant were married on December 28, 1990. On August 31, 2006, the court entered a judgment of divorce incorporating a PSA that read in relevant part:
5.1 Pensions. The parties have the following retirement plans:
1. GPU (First Energy) Defined Benefit Pension valued by Troyan & Associates at $91,049.76 - marital portion
2. First Energy Corp Savings Plan -$212.160.80
* * * Wife shall be entitled to fifty (50%) percent of the marital portion of Husband's GPU Defined Benefit Pension and shall be named a survivor beneficiary. A Qualified Domestic Relations Order shall be prepared to effectuate this distribution by Troyan and the parties shall be equally responsible for the cost of the Qualified Domestic Relations Order.
On February 14, 2007, Troyan proposed a draft QDRO that directed distribution of defendant's pension benefits in accordance with the formula set forth in Marx, supra, 265 N.J. Super. at 428, which provides that the total accrued benefit is to be determined when the non-participant spouse is permitted to move his or her share of the benefit to pay status pursuant to plan requirements. At that point, the plan administrator determines the coverture fraction and multiplies the total accrued benefit by that fraction. The product is then divided in accordance with the percentages set forth in the PSA to establish the parties' equitable shares.
However, on that same date, defendant notified Troyan and plaintiff by letter that he objected to the draft QDRO, arguing that its use of the Marx formula did not conform to the terms of the PSA, which included a calculation of $91,049.76 for the marital portion of defendant's pension benefit. In a letter written after receipt of defendant's objection, Troyan advised the parties that it interpreted the PSA as requiring use of the Marx formula. However, if the parties intended otherwise, it could revise the QDRO to direct distribution of pension benefits based on a calculation of the marital portion of monthly benefit payments as $1,160.42 - the number utilized to derive the $91,049.76 figure appearing in the PSA.*fn2 The revised language set forth by Troyan included the statement: "The Alternate Payee shall be assigned $580.21 [one-half of the monthly benefit] per month of the Participant's benefit."
Following receipt of defendant's letter, on April 13, 2007, plaintiff filed a post-judgment motion for an order requiring defendant to sign the QDRO as initially drafted. At oral argument, plaintiff argued that the $91,049.76 figure was established in case the parties sought to offset defendant's pension against other sums, but they had not done so. Plaintiff argued further that a defined benefit pension could not legally be distributed in the manner that defendant proposed. Defendant, in contrast, argued that the PSA, drafted by plaintiff's attorney, clearly provided for an equal division of the specified sum, and made no reference to a distribution in accordance with the Marx formula. In an opinion that accompanied the judge's May 3, 2007 order, the judge stated:
The Court finds that these parties are essentially asking this Court to interpret the language of the provisions in their PSA regarding the distribution of pensions and retirement accounts. The Court finds, based upon the strict language in the PSA, that the Plaintiff's position is without merit. The Court finds that the Plaintiff argues that the Marx formula should apply as this is a defined benefit plan and Marx provides that employee's benefits in a defined benefit plan can only be determined with a formula to be applied at the time of retirement. However, the Court finds that this case is distinguishable from Marx given the language of the PSA. The Court finds that the PSA specifically provides that the Defendant has a "GPU (First Energy) Defined Benefit Pension valued by Troyan & Associates at $91,049.76 -- marital portion." The Court finds that the parties specifically agreed that this was the value of the pension that would be subject to equitable distribution. Accordingly, the following paragraph in the PSA which states "Wife shall be entitled to fifty (50%) percent of the marital portion of Husband's GPU Defined Benefit Pension and shall be named a survivor beneficiary" controls the issue. In accordance with the PSA, the Plaintiff is entitled to 50% of $91,049.76, the marital portion of the GPU Defined Benefit Pension as agreed upon by the parties. The Court further finds that there is no language in the PSA that provides for any computation using the Marx formula, which is further evidence of the parties' intent.
The judge thus denied plaintiff's motion, without a hearing, as well as defendant's cross-motion for counsel fees. The judge ordered that the parties prepare and execute a QDRO in accordance with his determination. Plaintiff appealed.
We review the contract interpretation issue raised on appeal de novo, according no deference to the findings of the Family Part judge in this regard. Fastenberg v. Prudential Ins. Co. of Am., 309 N.J. Super. 415, 420 (App. Div. 1998).
A defined-benefit pension plan is funded entirely by employer contributions. The employee's benefit is calculated at the time of retirement based on factors that may include the employee's age at retirement, his final salary, the number of years of employment, mortality, future rates of interest, and the form in which the annuity is paid. A defined benefit plan is an aggregate fund held for all employees. No individual employee accounts exist. Because of its nature, establishment of the value of an employee's share prior to retirement can only be based upon estimates, taking into account stated assumptions. Marx, supra, 265 N.J. Super. at 421. In contrast, a defined contribution plan is funded by employee contributions, placed in individual accounts. The employee's benefits are based solely upon the employee's contributions to the plan, plus gain or loss on those contributions. Ibid.
We have previously noted that, in the absence of an agreement between the parties to the contrary, a court generally effects equitable distribution of a participant spouse's interest in a defined-benefit pension plan through: "(1) a present-value offset distribution; (2) a deferred distribution; [or] (3) a partial deferred-distribution award." Claffey v. Claffey, 360 N.J. Super. 240, 255 (App. Div. 2003). The first method requires the establishment of the "hypothetical value [of the marital portion of the pension] as of the date of the divorce complaint." Id. at 256. It depends on "the assumption that the pensioner spouse terminated his or her participation in the pension plan as of the date of filing of the complaint for divorce, and further assumptions of the final average salary of the pensioner, the date at which the pensioner will retire, and various assumed interest rates, mortality tables, cost-of-living adjustments and other factors to determine the present value of annuities for the type of plan being valued." Id. at 255. The non-participant spouse then receives the stated value as an offset against the interest of the participant spouse in another asset; often, the marital residence. Id. at 256. The non-participant spouse does not actually receive any portion of the defined-benefit pension plan. "Converting the pension interest to present-value dollars is done for the express purpose of present-value distribution, not a deferred distribution of present-value dollars." Ibid. (quoting Risoldi v. Risoldi, 320 N.J. Super. 524, 540 (App. Div.), certif. denied, 161 N.J. 335 (1999)). We have held that the present-value offset distribution method is only appropriate when there are sufficient other marital assets against which to offset the non-pensioner's equitable distribution interest in the pension, or sufficient income available to facilitate a reasonable buy-out of the non-pensioner spouse's interest. Whitfield v. Whitfield, 222 N.J. Super. [36,] 50 [(App. Div. 1987)]. Where there are insufficient assets or income to do so, the deferred-distribution method must be employed. [Risoldi, supra, 320 N.J. Super. at 539.]
The second method does not require the use of hypothetical calculations, because the non-participant spouse shares in the pension benefit itself as calculated at the time of the employed spouse's retirement, or when the non-employed spouse is permitted to move her share of the benefit to pay status, receiving an allocated percentage of the coverture fraction of the entire pension benefit, rather than an offset. The third method is a hybrid of the first two. Any deferred method of payment requires preparation of a QDRO, issued pursuant to state law, as an exception to the anti-alienation provisions of ERISA, so that an individual other than the plan participant may receive benefit payments under the plan. Id. at 532.
As the Family Part judge recognized, a party may waive his or her right to equitable distribution of any portion of any marital asset for purposes of settlement. Schlemm v. Schlemm, 31 N.J. 557, 581 (1960); Glass v. Glass, 366 N.J. Super. 357, 374-75 (App. Div. 2004), certif. denied, 180 N.J. 354 (2004). However, in the present case, it is unclear whether such waiver took place. The language of the PSA, which provides the sole evidence utilized by the Family Part judge and available to us, does not mention Marx, as the Family Part judge recognized. However, the contractual language is not inconsistent with an intention to use the Marx formula, and indeed suggests its use by its reference to plaintiff's survivorship rights -- rights that would be absent if the parties intended a present offset rather than either a full future benefit payment or a capped future benefit payment. Moreover, a review of the agreement as a whole supports the argument that an equal division of the coverture fraction of defendant's entire defined benefit pension was intended, since all other assets subject to distribution pursuant to the PSA are divided equally, including other pensions, and no trade-off appears for the acceptance of a diminished share of this particular pension.
However, an argument can certainly be made that the specific present or future value for a defined benefit pension plan need not be included in a PSA providing for deferred distribution of that pension, and that the inclusion of such a figure here renders the PSA subject to an interpretation supportive of defendant's position.*fn3 Nonetheless, we are uncertain how a resolution legally could be fashioned that would permit benefits to be paid to plaintiff up to a defined limit and, after cessation of those benefits upon reaching that limit, still grant plaintiff a right of survivorship, unlimited in nature. Indeed, even if legally feasible, such a result appears not only unworkable, but totally inconsistent with the presently-expressed intent of either party. Alternatively, as Troyan suggested, a monthly benefit of $580.21 (one-half of the figure used to derive the $91,049.76 total) could be incorporated into a QDRO permitting un-capped payments of that sum and a right of survivorship. However, defendant has not advocated that approach either before the Family Part judge or before us.
We recognize that a contract cannot be deemed to be ambiguous unless at least two alternative interpretations of its terms are reasonable. M.J. Paquet, Inc. v. N.J. Dep't of Transp., 171 N.J. 378, 396 (2002). Because the present record is inadequate to make that determination, and is likewise inadequate to permit us to ascertain the true intent of the parties, we remand the matter for a fact-finding hearing on the issues raised. We place the burden of proof upon defendant as the party seeking partial immunity from distribution. Pacifico v. Pacifico, 190 N.J. 258, 269 (2007); Landwehr v. Landwehr, 111 N.J. 491, 504 (1988); Painter v. Painter, 65 N.J. 196, 214 (1974).
Remanded for further proceedings in accordance with this opinion. We do not retain jurisdiction.