Appeal from the Order September 10, 2012 In the Court of Common Pleas of Allegheny County Family Court at No(s): F.D. 95-003781-006
Appeal from the Order September 11, 2012 In the Court of Common Pleas of Allegheny County Family Court at No(s): F.D. 95-003781-006
John G. Virgi ("Husband") and Joann C. Virgi ("Wife") filed cross appeals from the order entered September 10, 2012. We affirm in part, vacate in part, and remand for proceedings consistent with this memorandum.
The trial court set forth the relevant background as follows.
(c) Defined benefit retirement plans.--
Notwithstanding subsections (a), (a.1) and (b):
(1) In the case of the marital portion of a defined benefit retirement plan being distributed by means of a deferred distribution, the defined benefit plan shall be allocated between its marital and non-marital portions solely by use of a coverture fraction. The denominator of the coverture fraction shall be the number of months the employee spouse worked to earn the total benefit and the numerator shall be the number of such months during which the parties were married and not finally separated. The benefit to which the coverture fraction is applied shall include all post separation enhancements except for enhancements arising from post separation monetary contributions made by the employee spouse, including the gain or loss on such contributions.
(2) In the case of the marital portion of a defined benefit retirement plan being distributed by means of an immediate offset, the defined benefit plan shall be allocated between its marital and non-marital portions solely by use of a coverture fraction. The denominator of the coverture fraction shall be the number of months the employee spouse worked to earn the accrued benefit as of a date as close to the time of trial as reasonably possible and the numerator shall be the number of such months during which the parties were married and not finally separated. The benefit to which the coverture fraction is applied shall include all post separation enhancements up to a date as close to the time of trial as reasonably possible except for enhancements arising from post separation monetary contributions made by the employee spouse, including the gain or loss on such contributions.
The effective date of Act 175 was January 29, 2005. Thus, the law had significantly changed between the time the parties' equitable distribution order was final in 2000. Under the new legislation, Husband would receive a monthly benefit of $1, 836. Using pre-Act 175 calculations, Husband would receive a monthly benefit of $499. Lynch prepared a QDRO using Act 175. Wife refused to sign the QDRO, contending that Act 175 did not apply to this case. On January 7, 2011, Husband filed a Petition for Special Relief, Contempt and Imposition of Sanctions seeking compliance with the Lynch QDRO. Other issues in contention were which of five retirement options Wife was required to choose and whether Wife should receive Husband's share of the pension benefit should he predecease her. The matter was referred to Special Master Patricia Miller. The Master held a hearing on August 3, 2011 and issued a Recommendation on August 5, 2011. At the time of the hearing, Wife had not officially retired. She submitted an application for retirement to the school board on June 9, 2011. The Master found that, "although there was no QDRO in effect and thus in a sense the case was 'still pending' on January 29, 2005 when Act 175 went into effect, a final order had been entered on October 20, 2000, well before the enactment of Act 175." (Emphasis in original). She concluded that the QDRO is controlled by pre-Act 175 law. The Lynch QDRO utilized Option 4 [of the retirement payment options]. The Master recommended Option 1 as more equitable. The Master recommended that Husband's share not go to Wife should he predecease her.
Both parties filed exceptions to the Recommendation. The court granted the exceptions in part. By order dated September 10, 2012, the court held that the Master should have applied Act 175 to include post separation enhancements, that Husband's proposed QDRO is not binding on the parties and that Wife is permitted to choose Option 4 as her payment option. Wife timely appealed and Husband filed a cross appeal.
Trial Court Opinion, 12/4/12, 1-4.
The trial court directed both parties to file and serve a Pa.R.A.P. 1925(b) concise statement of errors complained of on appeal. The parties complied and the trial court penned its Pa.R.A.P. 1925(a) decision. The cases have been consolidated and the matter is now ready for this Court's consideration. Wife sets forth the issues as follows.
1. Whether the difference between the value of Wife's post June 30, 2001 retirement calculated at the 2.5% multiplier and the value of the post June 30, 2001 retirement calculated at the 2.0% multiplier is Wife's nonmarital property.
2. Whether the marital component of Wife's retirement benefit must be based on her final average salary on the date of separation.
3. Whether factors 3, 5, 7, 9, 10 and 11 as set forth in 23 Pa.C.S.A. Section 3502(a), which the trial court determined overwhelmingly favor the Wife and which the Superior Court affirmed, require a finding that Wife should be permitted to elect the Maximum Single Life Annuity for the marital component of her retirement.
4. Whether factors 3, 5, 7, 9, 10 and 11 as set forth in 23 Pa.C.S.A. Section 3502(a), which the trial court determined overwhelmingly favor the Wife and which the Superior Court affirmed, require a finding that if the Husband should predecease the Wife after the commencement of payout status, his share of Wife's retirement benefits should revert to the Wife.
Wife's brief at 4.
Wife's first issue is "a legal question concerning the definition of marital property in the context of defined benefit pensions. Accordingly, the standard of our review is de novo and our scope of review is plenary." Smith v. Smith, 938 A.2d 246, 253 (Pa. 2007).
Wife begins by asserting that because a final equitable distribution order was entered in this case in the year 2000, Act 175 does not apply and that this case is governed by Berrington v. Berrington, 633 A.2d 589 (Pa. 1993), rather than § 3501. In support of that contention, she relies on MacDougal v. MacDougal, 49 A.3d 890 (Pa.Super. 2012). Wife continues that even if § 3501 applies, Berrington remains valid as to determining whether post-separation enhancements are attributable to her efforts and contributions and that the enhancement was the result of her increased financial contributions. Lastly, Wife posits that "the value of [her] post-June 30, 2000 PSERS retirement calculated at the 2.5% multiplier minus the value of her retirement for the same period calculated at the 2.0% multiplier is her separate, nonmarital property." Wife's brief at 12.
In Berrington, the Court held that where there is an increase "in retirement benefits payable to the employee spouse between the date of marital separation and the date the non-participant spouse begins receiving benefits which are not attributable to the efforts or contributions of the participant-spouse, any such increased benefits may be shared by the non-participant spouse based upon his or her proportionate share of the marital estate." Berrington, supra at 594. Although Berrington was later superseded by statute, this aspect of the holding appears to remain valid. See MacDougal, supra.
In MacDougal, the court entered a divorce decree on May 20, 2004, indicating that wife therein would receive fifty percent of husband's marital portion of his military pension. The husband entered retirement pay status in February 2006. The parties and trial court agreed that Berrington controlled, thus, there was no dispute between the parties as to which law should govern. The wife in MacDougal argued that husband was required to factor in his cost of living adjustment (COLA) increases that increased his retirement pay, while husband maintained that any COLA increases from the date of separation were not marital property. The trial court ruled in favor of the husband, and this Court reversed, finding that the COLA increases were not the result of his personal efforts or monetary contributions.
Herein, Husband counters that this case is controlled by Smith, supra and that 23 Pa.C.S. § 3501 applies to all equitable distribution proceedings pending on or after the effective date of § 3501. In Smith, the trial court entered a divorce decree in April of 1998 and in July of that year ordered the parties to implement a QDRO. However, the parties were unable to reach an agreement. In May of 2001, before a QDRO was agreed upon, the legislature enacted changes to the State Employee Retirement Code that affected the SERS multiplier based on an employee's election and payment of regular member contributions. Those changes became effective July 1, 2001.
The husband, a state employee, elected a different status under the State Employee Retirement Code and, prior to his retirement in July 2002, paid seven months of increased contributions for his pension. In May 2003, the wife contended that her husband's act of election and seven month increased contributions to his pension were not attributable to his efforts or contributions. Thus, she asserted that the increase in retirement benefits payable to her husband, as a result of the changed legislation, was marital property. The Pennsylvania Supreme Court applied § 3501. It then noted that the husband's election was a post-separation enhancement changing his multiplier from 2.0% to 2.5% percent, resulting in an increase in his total pension benefits. The Smith Court held that husband's post-separation enhancement for his service after June 30, 2001 was not marital property, but that the "post-separation enhancement of the pre-July 1, 2001 pension should be included in the marital portion of the pension subject to the coverture fraction." Id. at 261.
In leveling his argument, Husband rejects Wife's claim that the post-separation enhancements are the result of her own efforts. Instead, he submits that, as in Smith, Wife's enhancements are not based on her actions but based on the statutorily-created increase in the multiplier. Accordingly, he maintains that the increase in her monthly pension, minus Wife's out-of-pocket post-amendment payments, constituted marital property. Husband further distinguishes MacDougal on the basis that neither the Court nor the parties therein disputed that § 3501 did not apply. He reasons that, "[t]his Court's acceptance, for purposes of the MacDougal appeal only, of stipulation by counsel for their own undisclosed reasons, certainly constitutes neither binding precedent nor persuasive reason to find that the [t]rial [c]ourt erred in this case." Appellant's brief at 22. We agree that § 3501 applies and that Smith controls.
Here, just as in Smith, a final equitable distribution order was entered before the 2004 amendment to Act 175, but the parties had not agreed on a QDRO. Thus, § 3501 applied. Further, Husband has not asserted that he is entitled to Wife's post-amendment increased contributions, which is consistent with the favorable discussion in the comment to § 3501 of Gordon v. Gordon, 681 A.2d 732 (Pa. 1996). To the extent the parties have construed the trial court's order as requiring that a 2.5% multiplier be used for the entire retirement benefit, we agree with Wife that the difference between her post-June 30, 2001 pension calculated at the 2.5% multiplier versus the amount it would be calculated at the 2.0% multiplier is non-marital property. Specifically, the Smith Court held that the employee spouse's non-marital property was the "difference between the value of the post-June 30, 2001 pension calculated at the 2.5% multiplier and the value of the pension for the same period calculated at the 2.0% multiplier, an increase attributable to the 1.5% additional payroll deduction that began post-separation." Smith, supra at 261.
Husband attempts to distinguish this aspect of Smith by asserting that, in Smith, the trial court established the value of the pension and that its distribution order provided a specific percentage of that pension value; whereas in this case the court entered an order providing that "whatever is in the pension account at the moment of time when the pension goes into pay status is what is divided between the parties." Husband's brief at 19. However, the order specified that Husband was to get 40% of the marital portion of the pension at the time it entered pay status; therefore, the determination as to what portion of the pension constitutes marital property remains. Accordingly, Husband's attempt to distinguish Smith on this ground is unpersuasive.
Simply put, we find that the trial court correctly determined that Smith and § 3501 govern this matter, but it did not precisely delineate that the 2.5% multiplier does not apply across the board to Wife's pension. As noted, the difference between the post-Act 9 pension at 2.5% and the amount at 2.0% is Wife's non-marital property. Therefore, we vacate the order insofar as it can be read to require a calculation of marital property based solely on the 2.5% multiplier and direct that Wife's marital portion of the property be determined consistent with Smith.
Wife's second issue, that the marital component of Wife's retirement benefit must be based on her final average salary on the date of separation, fails because § 3501 applies. Wife's position is that Berrington's holding, that retirement benefits awarded to a non-participant spouse are based on the participating spouse's salary on separation, is controlling. As noted in the comment to § 3501, this aspect of Berrington has been superseded by § 3501(c). Since we have previously held that § 3501 applies, Wife's issue necessarily does not entitle her to relief. Thus, the marital component of Wife's retirement benefit must be based on her final average salary on the date of distribution and not separation.
Next, Wife contends that she should be permitted to elect the Maximum Single Life Annuity for the marital component of her retirement.The trial court specified that Wife could elect either Option 1 or Option 4 as her payment option. The court acknowledged that Husband had earlier prepared a proposed QDRO allowing Wife to choose any payment option, but found that it was inequitable to allow Wife to elect the maximum single life annuity since that election would leave nothing to Husband if she should predecease him. In its 1925(a) opinion, the trial court highlighted that the PSERS representative testified that Option 1 or Option 4 were the most appropriate options.
Wife maintains that Husband will receive the identical monthly payment under the annuity option or Option 1 or Option 4. The difference between the payment plans is that Wife receives the greatest monthly payment under ...