On April 30, 2019, the Superior Court published a panel decision related to a retirement benefit divided in divorce. This wasn’t just any pension, but one established for a Pennsylvania municipality. As this author learned in organizing a recent seminar for the Doris Jonas Freed American Inn of Court, municipal pensions are a very special and unwieldy animal. The decision in Conway v. Conway v. City of Erie Police Relief & Pension Association demonstrates why.
The facts are easy. The Conway’s married in 1991 and separated in 2007. Husband was a cop in Erie, Pennsylvania. On August 19, 2016 they executed a Property Settlement Agreement by which husband would transfer to wife $30,000 from his Erie Deferred Compensation Plan and “a share of his pension,” via a Qualified Domestic Relations Order (QDRO). The educated reader is stopping here to ask, “what share?” A great question, but not one addressed in this case.
Municipal pensions are not the creatures of state or federal law. State law authorizes them, but the plans are governed by municipal ordinance. Erie’s 2011 pension ordinance expressly allowed for QDRO’s, and that such Orders could grant a former or surviving spouse a share of the employee’s pension.
The parties must have known that something was brewing in Erie’s City Council because they were divorced three days after the Settlement Agreement was signed. But before they could race a QDRO through the courts, Erie passed an amendment to its Pension Ordinance expressly forbidding former spouses from acquiring any interest in a municipal pension.
The QDRO was drafted and submitted to the pension administrator six days after the new Ordinance was passed, seven days after the Decree incorporating the Agreement was entered. The Plan administrator rejected the QDRO because it did not conform to the current Ordinance. Wife appears to have sued to join the Pension Plan as an additional defendant and secure an order compelling it to honor the Agreement formed before the Pension Ordinance was changed. The Erie County Court decided in favor of the Plan noting that the amendment preceded the pension administrator’s receipt of the QDRO.
Wife appealed not to Commonwealth Court but to the Superior Court. In a lengthy footnote, the Superior Court concludes that it is not the Pension Plan’s rights that are involved, but those of the employee. This argument seems attenuated as the assets of the pension plan would seem to be the property of the Plan subject to the claims of its creditors, viz., the employees who are Plan participants. A quick and incomplete search of pension cases decided in recent years seemed to show they were all brought to the Commonwealth Court as municipalities and their plans are creatures of statute.
As if matters were not complicated enough, husband had the misfortune to die a few months after the trial court decision. This foreclosed any power a court might have asserted to modify the equitable distribution based upon impossibility.
Wife argued and the Superior Court ruled that her rights to the pension vested at execution of the Property Settlement Agreement and a subsequent amendment of the plan could not alter those vested rights. The Appellate Court relies upon the law of contract to state that the courts are bound to apply the intent of the parties. It then recites familiar principles of equity and even notes that wife could be without a remedy as husband has died.
Were the pension plan a mere custodian of funds as one might conclude with the deferred compensation plan, (which appears to be a define contribution plan) this argument might glide by easily. However, a defined benefit plan of this kind is a contract between a municipality and a labor force employed by the municipality by which the latter agrees to pay money to the Plan, which agrees to pay annuities in accordance with prevailing municipal law. Therefore, we have a couple of contracts here and we have a municipality, which would seem to have the right to alter or even discontinue a pension benefit. Principles of equity and administrative law do not often work in harmony.
Having said that, husband worked and part of his compensation consisted of deferred retirement benefits paid on his behalf by the municipality to the pension plan. He accrued those rights and he assigned a portion of those rights to his former spouse at a time when the Plan document expressly allowed assignment via QDRO. Arguably, had he accrued marital benefits after the Plan was amended to exclude assignment, those benefits would not be assignable. Nevertheless, this is an issue where some reference should have been made to the collective bargaining agreement with the Erie police.
In the end, the former spouse got her pension and that is the right result. However, this case demonstrates just how unregulated the world of municipal pensions can be. Since passage of the Retirement Equity Act in 1984, private pensions regulated by the U.S. Department of Labor are assignable under 26 U.S.C. 414. But, state and local units of government are not subject to federal regulation in this area. The Commonwealth has adopted statutes that closely mirror federal law in the area of assignability for state employees. Here, however, a municipality of nearly 100,000 residents decided to pass regulations rolling back spousal assignment provisions. A person who marries an Erie cop in September 2016 could stay married to that person for a generation or more and have no entitlement to their spouse’s pension because of the 2016 Amendment.
The author professes to have almost no knowledge of municipal law. However, municipalities are the creature of state government, and as such, it would seem that the state could enact minimum standards for municipal pensions including provisions permitting assignments of pensions consistent with prevailing state law affecting state employees. As we know, retirement benefits form a substantial portion of public employee compensation. They merit more careful protection than the whim of a city ordinance. Because most municipalities in the Commonwealth have very few full-time pension eligible employees, local solicitors are often encouraged to give short shrift to the preparation and review of local pension documents. Courts should not have to apply equitable principles to decide matters of such value and importance.