IN RE: the MARRIAGE OF Mary K. and James M. ODDINO. Mary K. ODDINO, Appellant, v. James M. ODDINO, Respondent; Hughes Non–Bargaining Retirement Plan, Claimant and Respondent.
OPINION ON REHEARING
This appeal arises out of a marital dissolution action. Appellant wife, Mary K. Oddino, appeals following a May 8, 1992, order which, inter alia, denied her order to show cause seeking a different calculation of her community share of the retirement benefits of her husband, James M. Oddino. According to the interpretation of respondent, Hughes Non–Bargaining Retirement Plan (hereinafter, the Hughes Plan), which administers husband's retirement plan sponsored by Hughes Aircraft Company, wife's proportionate share (i.e., 36.6231%) of her husband's retirement benefit should be calculated as if husband were eligible to retire at age 65, rather than at age 55, which was husband's earliest retirement age under the Plan by virtue of his years of service and the so-called Rule of 75.1 The terms of the Qualified Domestic Relations Order (hereinafter, QDRO),2 filed on March 24, 1989, which converted wife's benefit under the pension from a lifetime annuity to a benefit payable in 60 monthly installments, provided that payments to wife were to be determined as if husband had retired on April 1, 1988, with payments to commence on April 1, 1988, “or as soon thereafter as practical.” 3 The Hughes Plan interpreted the QDRO by using the age 65 vested retirement benefit which provided wife with monthly payments of $1,563.70; use of the early retirement benefit of Rule of 75 would have provided her with monthly payments of $3,689.60 calculated commencing from April 1, 1988, plus any cost-of-living adjustments. The Hughes Plan ultimately commenced payment of wife's share of the benefits on March 1, 1990.
We hold that the trial court erred in denying the order to show cause. The Rule of 75 early retirement was not a subsidy, the QDRO thus did not improperly require payment greater than the actuarial equivalent of the permissible retirement benefits, and the Rule of 75 benefit was an accrued benefit to which wife was entitled pursuant to the QDRO and ERISA. We also find that the Hughes Plan must pay interest on delayed benefit payments to wife and on the unpaid balance due, but we need not discuss the calculation of such interest, which should be addressed in the first instance by the trial court.
I. Federal and State Law
The crux of the problem in the present case is whether the Rule of 75 early retirement provision constitutes an employer subsidy for early retirement or constitutes an accrued benefit. The significance of this distinction arises because ERISA limits the amount of benefits which may be paid pursuant to a QDRO, where the employee has not actually retired but has attained “the earliest retirement age.” (29 U.S.C. § 1056(d)(3)(E)(i)(I).) ERISA limits the benefits amount by “taking into account only the present value of benefits actually accrued and not taking into account the present value of any employer subsidy for early retirement․” (29 U.S.C. § 1056(d)(3)(E)(i)(II).) If payment to the nonemployee spouse was not based on the present value of benefits actually accrued, but rather was based on an employer subsidy, the domestic relations order could direct payment of benefits in excess of the employee spouse's benefits, thus precluding the order from constituting a valid QDRO. (29 U.S.C. § 1056(d)(3)(D)(ii) (order does not meet definition of QDRO if it requires “plan to provide increased benefits (determined on the basis of actuarial value)”).) Moreover, a domestic relations order cannot be a QDRO if it requires “a plan to provide any type or form of benefit, or an option, not otherwise provided under the plan․” (29 U.S.C. § 1056(d)(3)(D)(i).)
In assessing whether the Rule of 75 early retirement provision in the present case is an employer subsidy or an accrued benefit the parties herein have addressed conflicting pre-QDRO case law; i.e., cases prior to the amendment of ERISA by the Retirement Equity Act of 1984 (hereinafter, REA; see Pub.L. No. 98–397, 98 Stat. 1426 (Aug. 23, 1984), discussed in In re Marriage of Baker (1988) 204 Cal.App.3d 206, 213–220, 251 Cal.Rptr. 126), which more clearly delineated a spouse's interest in an employee's pension benefits. (See, e.g., American Stores Co. v. Retirement Plan (10th Cir.1991) 928 F.2d 986 (early retirement plan was a subsidy and not an accrued benefit and thus employer could eliminate early retirement subsidies for all plan participants); Amato v. Western Union Intern., Inc. (2d Cir.1985) 773 F.2d 1402, 1413 (holding to the contrary under pre-REA law).) REA resolved the controversy between cases such as American Stores and Amato by providing that early retirement benefits are treated as accrued and may not be reduced or eliminated even if the benefits constitute a retirement-type subsidy. (29 U.S.C. § 1054(g)(2).) REA also, however, set forth QDRO procedures and established a distinction between “benefits actually accrued” and an “employer subsidy for early retirement” (29 U.S.C. § 1056(d)(3)(E)(i)(II)), as previously discussed. ERISA had defined the term “accrued benefit” as meaning in the case of a defined benefit plan, as here, “the individual's accrued benefit determined under the plan ․ expressed in the form of an annual benefit commencing at normal retirement age․” (29 U.S.C. § 1002(23).) Nonetheless, REA provided no definitional guidance as to “employer subsidy for early retirement.”
We note that the court in Amato, supra, 773 F.2d 1402, struggled to find a definition of subsidy and concluded that “the term ‘subsidized early retirement benefit’ is not defined in the I.R.C. [Internal Revenue Code], the Regulations promulgated thereunder, ERISA, the [terms of the] present [pension plan at issue in Amato ], or in the contemporaneous legislative history.” (Id. at p. 1413.) The Hughes Plan acknowledges the following parenthetical definition from REA legislative history on plan amendments: “benefit subsidy (the excess of the value of a benefit over the actuarial equivalent of the normal retirement benefit).” (1984 U.S.Code Cong. & Admin. News, at p. 2574.) Significantly, ERISA defines “normal retirement benefit” as “the greater of the early retirement benefit under the plan, or the benefit under the plan commencing at normal retirement age.” (29 U.S.C. § 1002(22).) As here, where the Rule of 75 benefit is defined from the date of early retirement and not from normal retirement age, a retirement plan's early retirement benefit must be actuarily increased for deferment to normal retirement age before comparing it to the actuarial value of the normal retirement age benefit annuity payments. Then the benefits compared are in comparable forms, and the larger of the two benefits becomes the normal retirement benefit. (See I.R.S. Treas. Regs. 26 C.F.R. § 1.411(a)–7(c)(2)(ii) (1988).)
Accordingly, a benefit subsidy would thus be defined as the excess of the value of a benefit over the actuarial equivalent of whichever is greater between (1) the early retirement benefit under the plan, or (2) the benefit under the plan commencing at normal retirement. An early retirement benefit does not necessarily entail a subsidy, rather than an accrued benefit. Contrary to the contention of the Hughes Plan, a subsidy is therefore not simply the excess of the value of an early retirement benefit over the value of the normal retirement benefit payable at normal retirement.
Nor is there any support for the position of the Hughes Plan in traditional California case and statutory law. It is undisputed that a nonemployee spouse is entitled to receive payments from the employee spouse's interest in the employer's retirement fund prior to retirement if the employee is eligible to retire (In re Marriage of Gillmore (1981) 29 Cal.3d 418, 174 Cal.Rptr. 493, 629 P.2d 1), and that a divorce must not increase the obligations of an employer's retirement plan (29 U.S.C. § 1056(d)(3)(D)(ii) & (E)(i)(II); see also former Civ.Code, § 4800.8, continued without substantive change in Fam.Code, § 2610, subd. (b)). Indeed, “ ‘the employer is entitled to certainty concerning its obligations under its retirement program and must not be required to do more than is required by its contract with the employee spouse․’ ” (In re Marriage of Nice (1991) 230 Cal.App.3d 444, 450, 281 Cal.Rptr. 415.) We thus turn to the Hughes Plan and the particular terms of the contract with the employee spouse.
II. The Hughes Non–Bargaining Retirement Plan
The Hughes Plan asserts on appeal that the Rule of 75 benefit is a subsidy because Hughes subsidizes this early retirement inducement by its contributions to the retirement plan. However, there is no support in the record for the assertion that the Rule of 75 benefit was funded any differently than any other plan benefit; i.e., funded by Hughes' tax deductible contributions during the past years. Nor is there any legal support for the notion that how a benefit is funded determines if it is a subsidy.
Contrary to the claim of the Hughes Plan, pursuant to the terms of the retirement plan, and consistent with the previously discussed REA legislative history, a participant's normal retirement benefit is not necessarily the benefit payable on the normal retirement date at age 65. Section 1.37 of the retirement plan defines the normal retirement benefit as “the Benefit payable under Section 4.2.” Section 4.2(c), under the broad heading in Section 4.2 of “Normal Retirement Benefit,” also includes provisions for the early and late retirement versions (Sections 4.8 and 4.10) of the normal retirement benefit. The terms of the retirement plan thus comply with the ERISA requirement that the normal retirement benefit constitute the greater of the early retirement benefit under the plan or the benefit under the plan commencing at normal retirement age (29 U.S.C. § 1002(22)), since the Hughes Plan makes the monthly benefit under any of its normal retirement benefits no less than the greater of three early payouts available 4 pursuant to Section 4.2(c).
The term “normal retirement” benefit thus does not necessarily refer to the “normal retirement age,” and a participant's normal retirement benefit under the Hughes Plan is not always equivalent to the benefit payable at age 65. In the present case, the Rule of 75 is not a subsidy because it is the normal retirement benefit when the criteria of 75 years are met. (Cf. Richardson v. Pension Plan of Bethlehem Steel (9th Cir.1995) 67 F.3d 1462, 1468–1469 (monthly plant shutdown payments due from time of shutdown to commencement of normal retirement age benefit and which continue being paid after retirement age are a retirement-type subsidy).) Accordingly, the Hughes Plan erred in computing wife's benefit as an alternate payee by starting with the benefit that would have been payable at age 65 and then reducing the benefit to its actuarial equivalent.
III. Retirement Benefits Valuation Date and Interest
The Hughes Plan does not dispute the holding in In re Marriage of Crook (1992) 2 Cal.App.4th 1606, 3 Cal.Rptr.2d 905, that “ ‘the appropriate date of valuation of retirement or pension benefits is the date of trial or the date [set for] payment of benefits.’ ” (Id. at p. 1612, 3 Cal.Rptr.2d 905.) Similarly, ERISA acknowledges a retirement plan's liability to the alternate payee as if the participant had retired “on the date on which such payment is to begin under [the QDRO].” (29 U.S.C. § 1056(d)(3)(E)(i)(II).) In the present case, the QDRO required that payments to wife were “to commence as of April 1, 1988, or as soon thereafter as practical.” The Hughes Plan commenced payments to wife on March 1, 1990, based on husband's age at that time, but calculated the payments to her as of the date payments actually commenced. Wife contends that the benefits should have been calculated and paid to her as of April 1, 1988, and that the trial court erred in approving the amount of benefits paid from March 1, 1990.
We acknowledge that the QDRO's projected date for the payment of benefits was April 1, 1988. However, the order apparently envisioned some delay and specifically permitted payment then “or as soon thereafter as practical.” Moreover, the order was not issued and served until April 5, 1989. The order did not specify retroactive payments, though it did provide that payments to wife “are to be determined as if [husband] had retired on April 1, 1988.” ERISA requires that the plan administrator shall “within a reasonable period after receipt” (29 U.S.C. § 1056(d)(3)(G)(i)(II)) of the order determine whether it constitutes a QDRO, and contemplates that an “18–month period” could ensue from the date the first payment would be required under the order until the plan administrator determines the order constitutes a QDRO. (29 U.S.C. § 1056(d)(3)(H)(ii) & (v).) Here, there was an intended first payment date which was not a rigid date, and payments began to wife approximately twelve months after the Hughes Plan received the order. The delay was under the circumstances not unreasonable.
Nonetheless, a retirement plan “shall pay the segregated amounts (including any interest thereon)” (29 U.S.C. § 1056(d)(3)(H)(ii)) during the period in which the QDRO status of a domestic relations order is being determined. As indicated by the declaration of a member of the administrative committee of the Hughes Plan, it does not pay such interest. However, it must pay for the failure to be more prompt by paying interest as required by statute. Such a conclusion is also consistent with the observation in In re Marriage of Gillmore, supra, 29 Cal.3d 418, 424, footnote 4, 174 Cal.Rptr. 493, 629 P.2d 1: “[B]oth the timing of receipt and the control of an asset are important aspects of its value. ‘Postponement, especially late in life, is often the equivalent of complete defeat․’ ” The payment of interest may compensate for delay or discourage its occurrence. The assertion by the Hughes Plan that it paid the equivalent of interest by using husband's actual age at the date benefit payments commenced is unavailing. Interest, not its purported equivalent, is what is called for by the statute.
IV. Assertion of Preemption
Following our grant of a petition for rehearing in the present case, the Secretary of the United States Department of Labor (hereinafter, the Secretary) filed an amicus curiae brief in support of the Hughes Plan. The Secretary urged for the first time on appeal that the provisions of the California Family Code which permit an employee benefit plan to be joined as a party in a dissolution proceeding (see, e.g., Fam.Code, §§ 2060, subd. (a), 2063, subd. (a), 2065, 2071–2074) are preempted by ERISA. Apart from the lack of merit in such a contention (In re Marriage of Baker, supra, 204 Cal.App.3d at p. 218, 251 Cal.Rptr. 126; In re Marriage of Olivarez (1986) 188 Cal.App.3d 336, 342, 232 Cal.Rptr. 794; see In re Marriage of Levingston (1993) 12 Cal.App.4th 1303, 1306, 16 Cal.Rptr.2d 100), the claim is improperly before us. An appellate court will generally consider only issues properly raised by the appealing parties, not completely new contentions urged for the first time by amici curiae, who would otherwise exert unwarranted last-minute control over the issues decided on appeal. (Knetsch v. United States (1960) 364 U.S. 361, 370, 81 S.Ct. 132, 137, 5 L.Ed.2d 128; Eggert v. Pacific States S. & L. Co. (1943) 57 Cal.App.2d 239, 251, 136 P.2d 822.) Wife's request for sanctions against the Secretary is denied.
The order under review (which included the award of attorney fees and costs) is reversed and vacated, with directions to order that the Hughes Plan pay to wife 36.6231 percent of the Rule of 75 early retirement benefit, plus appropriate interest on the delayed and unpaid balances. Wife is entitled to costs on appeal.
1. The Rule of 75 (i.e., Section 4.8(c) of the retirement plan) provides that an employee who has attained age 55, and for whom the sum of his attained age and years of continuous service equals or exceeds 75, is entitled to the same full, unreduced normal retirement benefit as if the employee had separated from service at the age of 65. The administrative committee of the Hughes Plan views the Rule of 75 early retirement as a “subsidy” to participants who retire prior to the normal retirement age of 65.
2. A QDRO is a state court domestic relations order which qualifies under federal law to allow a private pension plan, pursuant to the Employee Retirement Income Security Act (hereinafter, ERISA; see 29 U.S.C. § 1001 et seq.), to be divided so that a nonemployee spouse may be awarded an appropriate share of such a plan, thus rendering ERISA's alienation and assignment prohibitions inapplicable for the benefit of the nonemployee spouse. (See 29 U.S.C. § 1056(d)(3).)
3. Husband was then eligible for early retirement but had not at that time retired, though we have been advised by counsel for the Hughes Plan that husband has since retired on October 1, 1994, with benefits under the Rule of 75. ERISA, of course, permits a nonemployee spouse to share in retirement benefits pursuant to a QDRO, even prior to retirement by the employee spouse. ERISA specifically provides that a domestic relations order is not precluded from constituting a valid QDRO and does not improperly require a retirement plan to provide a benefit not otherwise provided by the terms of the plan “solely because such order requires that payment of benefits be made to an alternate payee [¶] as if the participant had retired on the date on which such payment is to begin under such order․” (29 U.S.C. § 1056(d)(3)(E)(i)(II).) The operative language, “as if the participant had retired” (ibid.), presumes that the employee spouse has reached the age of eligibility to receive retirement benefits under the terms of the retirement plan at issue (see Dickerson v. Dickerson (E.D.Tenn.1992) 803 F.Supp. 127, 133–134), which is the situation in the present case.
4. One payout would be in the form of an early retirement benefit with the Rule of 75 satisfied and paying the accrued benefit, a second payout would be without the Rule of 75 and paying a reduced vested retirement benefit, and a third payout would be the vested retirement benefit itself.
BOREN, Presiding Justice.
FUKUTO and BRANDLIN, JJ.,* concur.