Divorce and the Individual Account Program (IAP)

Awards requiring a separate IAP account in an alternate payee’s (AP) or former Registered Domestic Partner’s (RDP) name

Court orders may allow PERS to establish a separate IAP account at the time of divorce.  

The court order or divorce forms must state that the award will be placed in a separate account in the AP’s or former RDP’s name.   

The court order or forms must:  

• Specify a percentage of the member’s account or flat dollar amount to be awarded to the AP/former RDP.
• Provide the date of annulment, separation, divorce, dissolution of registered domestic partnership or property settlement; this will be used as the award date. If an alternate award date should be used, it must be provided and must not be a future date. If no date is provided, PERS will use the date the judge signed the court order as the award date. The AP’s/former RDP’s separate account award will be calculated based on the member’s account balance as of December 31 of the year prior to the award date. If the award date is December 31, the account will be calculated as of that date. If the award date is other than December 31, contributions made in the calendar year containing the award date will not be included in the calculation of the AP’s/RDP’s percentage award.
  AND
• If the member has optional employer contributions, specify if optional employer contributions are to be excluded from the calculation of the AP’s/former RDP’s percentage award.

Establishment of AP’s/former RDP’s IAP account

Here are key things to know about IAP accounts for APs/former RDPs:  

• An AP’s/former RDP’s awarded amount will accrue earnings or losses until benefits are paid.
• Effective January 1, 2018, IAP accounts are invested into funds based on the account holder’s age, referred to as target-date funds (TDF). Effective January 1, 2020, a member can take advantage of Member Choice, which allows them to change the TDF in which their IAP funds are invested.
• An AP’s awarded amount will receive earnings or losses based on the member’s TDF until PERS establishes the AP’s separate IAP account, at which time any future earnings or losses will be based on the AP’s TDF. An AP’s TDF is based on the AP’s age, and APs are not eligible to participate in Member Choice. A former RDP’s awarded amount receives earnings or losses based on the member’s TDF until distribution.
• An AP can elect to receive IAP retirement benefits when the member reaches earliest retirement eligibility regardless of when the member actually retires. However, the AP’s election must be made on or after the effective date of the court order.
• Generally, the earliest retirement eligibility age is 55 for general service members and 50 for police and firefighter members.
• For additional restrictions related to Separate Account awards for a former registered domestic partner, read the “Registered domestic partnerships” section.

IAP distribution elections (retirement options)

Members and APs may select any IAP distribution election option.  

For more information about distribution election options, read the IAP retirement sections in the preretirement guide applicable to the member’s plan type: Tier One/Tier Two or OPSRP.    

Preretirement death

Member dies

Separate Account awards typically do not contain member IAP beneficiary restrictions. Any such restrictions would need to be included in the court order on the Individual Account Program (IAP) Beneficiary Restrictions form.           

Barring restrictions, any IAP beneficiary designation on file prior to the divorce naming the former spouse as beneficiary will treat the former spouse as if they died before the member in the event of the member’s death.   

AP/former RDP dies

Separate Account awards do not contain IAP beneficiary restrictions for the AP/former RDP.  

The AP’s/former RDP’s death benefit will be payable to the AP’s/former RDP’s designated beneficiaries. If a valid designation is not on file with PERS, or the AP’s/former RDP’s beneficiary or beneficiaries die before the AP/former RDP, by law the AP’s/former RDP’s benefit will be payable in the following order: the AP’s/former RDP’s surviving spouse, the AP’s/former RDP’s surviving children, or the AP’s/former RDP’s estate. APs and former RDPs should complete an Alternate Payee IAP Preretirement Beneficiary Designation form.           

Post-retirement death

Member dies

Post-retirement IAP death benefits will be paid in accordance with the distribution election and beneficiary selected by the member at retirement.   

AP dies

Post-retirement IAP death benefits will be paid in accordance with the distribution election and beneficiary selected by the AP at retirement.   

Member withdrawals

If an AP has been awarded an IAP separate account, there are no divorce related restrictions on the member withdrawing the portion of their account not awarded to the AP. The member’s withdrawal will not impact the AP’s IAP separate account.   

If an OPSRP benefit also has been awarded to the AP, the member will likely be restricted from withdrawing their IAP. Details can be found on the Divorce for Oregon Public Service Retirement Plan (OPSRP) members webpage; click on the “Reduction and Deduction awards” topic, and read the “Member withdrawals” section.    

AP withdrawals

If an AP has been awarded an IAP separate account, the AP will have no divorce-related restrictions on withdrawing and can withdraw at any time prior to the member becoming eligible to retire. The AP’s withdrawal will not impact the member’s account.   

Awards requiring a separate IAP account in an alternate payee’s (AP) or former registered domestic partner’s (RDP) name

If a member receiving IAP installments has a remaining IAP account balance, a court order may allow for a separate IAP account to be established at the time of divorce.  

The court order or divorce forms must state that the award will be placed in a separate account in the AP’s or former RDP’s name.   

The court order or forms must:  

• Specify the percentage of the member’s account that is to be awarded to the AP/former RDP. Flat dollar awards are not acceptable because a member’s account may no longer hold enough funds to pay a set dollar amount by the time the AP’s/former RDP’s separate account is established.
• Provide the date of annulment, separation, divorce, or property settlement. If no date is provided, PERS will use the date that the judge signed the court order as the divorce date.

Establishment of AP’s/former RDP’s IAP account

The AP’s separate account will be established from the member’s account balance as soon as possible after receiving an administrable court order. All funds in the member's account will be subject to the percentage award, so specific contribution types cannot be excluded.  

Effective January 1, 2020, an IAP balance will be invested in the Retirement Installment Fund (RIF) for a member receiving IAP installments.  

An AP’s/former RDP’s awarded percentage will be applied to the member’s account balance as of the date Voya, PERS’ third-party administrator for the IAP, establishes the AP’s/former RDP’s IAP separate account.  

An account established in the AP’s/former RDP’s name will accrue RIF earnings or losses until benefits are paid. However, an AP/former RDP awarded a separate account from a retired member’s IAP is required to take an immediate one-time, lump-sum distribution.  

The distribution application will be provided to the AP/former RDP once the AP’s/former RDP’s IAP account is established.  

For additional restrictions related to Separate Account awards to a former registered domestic partner, read the “Registered domestic partnerships” section.  

Post-retirement death

Member dies

Separate Account awards typically do not contain any beneficiary restrictions. Any restrictions would need to be included in the court order on the Individual Account Program (IAP) Beneficiary Restrictions form. Barring restrictions, any IAP beneficiary designation on file prior to the divorce naming the former spouse as beneficiary will treat the former spouse as if they died before the member in the event of the member’s death.  

AP/former RDP dies

If the AP/former RDP dies before taking their immediate distribution, the AP/former RDP's beneficiary would be required to take an immediate one-time, lump-sum distribution. No IAP beneficiary restrictions are allowed on the AP’s/former RDP’s IAP award.  

If there is no award of the member’s account or benefits, the court order should state that there is no award.    

Here are additional key things to know about situations in which there are no awards:  

• PERS prefers that court orders also incorporate the No Award divorce form.
  
• No Award court orders can contain beneficiary restrictions as provided for on the IAP Beneficiary Restrictions divorce form.
  
• Final court orders received with no mention of PERS or IAP will be interpreted as No Award and no restrictions.
• If a court order is determined to be No Award without restrictions, any IAP beneficiary designation on file prior to the divorce naming the former spouse as beneficiary will treat the former spouse as if they died before the member in the event of the member’s death.

The IAP Beneficiary Restrictions form can be used to provide beneficiary restrictions on No Award or Separate Account awards.
   

If restrictions are not provided on this form, any IAP beneficiary designation on file prior to the divorce naming the former spouse as beneficiary will treat the former spouse as if they died before the member in the event of the member’s death.  

When PERS distributes benefits awarded in a dissolution of registered domestic partnership, PERS is required to report the benefits paid to the former registered domestic partner (RDP) on the member’s 1099-R. The member is responsible for taxes on benefits paid to the former RDP.  

Distribution to the former RDP cannot occur until the member withdraws, retires, or dies. If the member withdraws, the former RDP must immediately withdraw. If the member retires, the former RDP must immediately retire under the one-time, lump-sum payment option. Other installment benefit options are not allowed because the member is responsible for the taxes and the timeline for these types of benefit payments could exceed the member’s lifetime. If the member dies before retiring or withdrawing their IAP, the former RDP must take an immediate, lump-sum distribution either as a withdrawal or as a retirement based on the member’s retirement eligibility at death. If a former RDP with a separate account award dies prior to distribution, the former RDP’s beneficiary’s distribution will be paid in a one-time, lump-sum death benefit when the member takes distribution or dies.  

A former RDP can be awarded an IAP separate account, but the former RDP’s separate account cannot be created until immediately prior to distribution.  

If a former RDP is designated as a beneficiary of the member, any death benefits the former RDP receives are taxable to the benefit recipient.  

Any award type that would be applicable if the court order were a dissolution of marriage is also available for a legal separation.  

It is important to note that legal separations do not terminate marital rights. Any document submitted by the member that requires spousal consent is required to be signed by the member’s spouse from whom the member is legally separated — unless the separation order specifically addresses and exempts the document and the elements within the document from the spousal consent requirement, incorporating PERS' Legal Separation Spousal Consent Waiver form as a labeled and referenced court order exhibit.
 

An example would be if a member with a legal separation order submits an IAP Preretirement Beneficiary Designation form. If the member wanted to name a beneficiary other than their spouse whom they are separated from, the member’s spouse would be required to sign in front of a notary that they consent to the beneficiary selected by the member — unless the separation order specifically states that the member may submit an IAP Preretirement Beneficiary Designation form and that spousal consent is not required for the member’s beneficiary selection.  

A court order containing an award of IAP benefits will not be administered until the Alternate Payee Information Verification form is completed by the alternate payee (AP) or former RDP and received by PERS, accompanied by a copy of a document verifying the AP’s or former RDP’s correct Social Security number. The purpose of the form and Social Security documentation is to verify the AP’s or former RDP’s mailing address, date of birth, and Social Security number.  

To expedite court order processing, PERS encourages APs or former RDPs to be proactive in submitting this form to PERS.  

If the verification form is not on file, PERS will mail the form to the AP’s or former RDP’s presumed address. If the AP or former RDP address provided in the court order is no longer valid, the parties should contact PERS and provide the correct AP or former RDP address.  

If the AP or former RDP is a Tier One, Tier Two, or Oregon Public Service Retirement Plan (OPSRP) member in their own right, the Alternate Payee Information Verification form requirement is waived.  

The Employee Pension Stability Account (EPSA) was created by the Oregon Legislature to assist in the funding of pension retirement and death benefits. EPSA is funded by redirecting a portion of the 6% employee contributions that would otherwise go into the member’s IAP account.  

The EPSA should not be addressed in court orders. EPSA cannot be independently awarded nor excluded from an award. Addressing EPSA in a court order could result in conflicts leading to an unadministrable court order.  

If an alternate payee (AP) or former Registered Domestic Partner (RDP) was awarded a percentage of the member’s IAP account and the member had an EPSA balance on the award date, the AP/former RDP will receive a proportional share of the EPSA distributions if any EPSA funds ever become payable.  

Conditions under which EPSA becomes payable are:  

• The member withdraws.
• The member retires, and there is an excess of funds in their EPSA account.
• The member dies before retirement, and the EPSA isn’t applicable to death pension benefits.
• The member dies before retirement, applicable EPSA is applied to death pension benefits, and there is an excess of EPSA remaining.

An EPSA excess is any amount remaining after a member’s EPSA has been applied by the PERS Board to pay the costs of the member’s pension or to pay other retirement benefits to the member or the member’s beneficiary that accrue on or after July 1, 2020. In the event of an account withdrawal or when no eligible benefit exists against which to apply the EPSA, the entire account is considered an EPSA excess.  

When EPSA becomes payable, PERS will use a calculation to determine the AP’s/former RDP’s share of the EPSA balance. A married account balance and the IAP percentage awarded in the court order are factors used in the calculation to determine the AP’s/former RDP’s share of the EPSA balance. This calculation ensures the AP/former RDP receives earnings and losses on their proportionate share of the EPSA excess.  

Important: APs and former RDPs who received an IAP percentage award dated on or after December 31, 2020, should maintain a current address on file with PERS. An EPSA excess might take years to become payable, and PERS will need to contact the AP/former RDP when it does.  

IAP funds for nonretired members are invested in target-date funds (TDF), based on the member’s age, unless the member opts to change the fund as part of Member Choice. IAP funds for nonretired APs are invested in TDFs based on the AP’s age, once funds have been transferred to the AP’s separate account. APs are not eligible to participate in Member Choice and therefore cannot change their fund.  

TDFs should not be addressed in court orders. A court order cannot direct a member or AP’s funds to be allocated to a specific TDF. Addressing TDFs in a court order could result in conflicts leading to an unadministrable court order.  

Retired members and APs receiving installments will have their remaining IAP funds invested in the IAP’s Retirement Installment Fund.  

A member who has a portion of their 6% IAP contributions redirected to their Employee Pension Stability Account (EPSA) has the option to make additional after-tax contributions to their IAP account within certain limits. Read more about these voluntary contributions in our frequently asked questions document.  

Here are key things to know about voluntary contributions:  

• They are not subject to redirection to the member’s EPSA.
• They become part of the member’s IAP account. Any award of IAP will be proportionally applied to the voluntary contributions in the member’s account.
• They should not be addressed in court orders. Voluntary contributions cannot be independently awarded nor excluded from an award. Addressing voluntary contributions in a court order could result in conflicts leading to an unadministrable court order.
• Alternate payees cannot make their own voluntary contributions.

Member cost and post-tax dollars

Any after-tax contribution is referred to as “member cost” and is reported as employee contributions on 1099-R tax forms.  

Member cost is allocated between the member and the alternate payee based on the award proportionate to either the account balance or the benefit awarded to each.