Securing retirement on PFRS pensions

It relatively common knowledge that policemen and firefighters have what can often times prove to be lucrative pensions. In fact, one of the many factors in choosing to enter the police or fire service, particularly in New Jersey, are the benefits of being able to retire relatively early (depending of course upon age, years of service and the like), and being able to realize what often times amounts to a significant pension benefit upon bona fide retirement. Receipt of such a benefit may enable the retiree to never be forced need to seek gainful employment again, or, may serve as a significant supplement to that retiree’s lifestyle as more and more retirees from police and fire departments are taking on secondary full, or part-time, careers.

As a result of these, and other factors, when a couple is divorcing, the division of PFRS (Police and Firefighter’s Retirement System) often becomes a point of contention. The employee of course never wants to part with their pension benefits, and the spouse who has an equitable interest therein certainly wishes to secure their interest in this retirement vehicle. While in some cases there can be valuation of a pension, and then a buy-down or offset against another marital asset, often times these retirement benefits are merely equalized and divided by way of Qualified Domestic Relations Orders (QDROs). But what happens to securing the recipient spouses equitable interest in this asset? Unlike teacher’s pensions pursuant to the Public Employees Retirement System, (PERS), there are no survivor benefits for PFRS pensions. In other words, if you are a PFRS or a member of the State Police, SPRS (State Police Retirement System) retiree, a divorce/dissolution proceeding automatically precludes your former spouse/partner from ever receiving a survivor’s benefit. Upon the retiree’s death, or the death of the recipient former spouse/partner, all withholdings mandated under a Property Settlement Agreement entered at the time of a divorce, will cease.

So, if you are a spouse receiving an entitlement in a PFRS benefit as part of your equitable distribution schema, what are you to do in an effort to secure this benefit for yourself? While the “easy” answer would appear to be life insurance, which is commonly utilized in dissolution matters to secure support and equitable distribution obligations, respectively, what if your spouse is ineligible for coverage? The PFRS provides group life insurance (GLI) to their members while they are employed, however the coverage ends 31 days after the employee ceases employment by way of retirement, termination of employment or leave of absence without pay, unless that employee has 10 or more years of service as will be discussed below. At that time, there is the option to convert the group life insurance policy to an individual policy with Prudential. Good news, right? Well, while the conversion to a Prudential policy is guaranteed (you cannot be denied coverage for health or other reasons), there is an out-of-pocket cost which may, in extreme circumstances, i.e. pre-existing health conditions, age, et. cetera, prove to be cost prohibitive.

Moreover, even if an employee retires with 10 or more years of service credit (typically the case), the amount of the group life insurance will be substantially reduced at the time of retirement. By way of example, if you had GLI of $96,000 through the PFRS while employed, and that coverage diminishes to $6,000 upon retirement. As such, this reduction is often times grossly insufficient to secure a recipient spouses entitlement. While the employee can purchase up to $90,000 in life insurance coverage under an individual non-group policy pursuant to this above example, the question of cost prohibition certainly comes into play, especially if there are age and health variables. If an employee retires with less than 10 years of service, they are wholly ineligible to receive any type of group life insurance coverage, with the exception of Disability Retirement.

If you are the spouse/partner of an individual who is a member of PFRS, it is imperative that you consult with counsel relative to the development of a security interest in, or offset against various equitable distribution entitlements in an effort to protect as much of the corpus of your entitlement as possible. Insufficient security may lead to the loss of the entitlement at no fault of your soon-to-be former spouse, but rather as a result of the terms and provisions governing the PFRS plan.

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