So You Need A QILDRO
So You Need A QILDRO

Kevin M. Kane

I. A What?

In Illinois virtually all public sector employees have an interest in one of the defined benefit pension plans governed by the Illinois Pension Code. There are 17 retirement systems established by the various articles of the Illinois Pension Code. The major systems include the Illinois Municipal Retirement Fund [IMRF], the State Employees Retirement System [SERS], the State Universities Retirement System [SURS], and the Teachers Retirement System [TRS]. On the local level, most municipal fire and police departments have their own department plans, which are administered locally but which are governed by the Illinois Pension Code. In a time when many private employers have shifted their employees into defined contribution or 401(k) plans, the public sector pensions are among the best retirement deals going. For many government employees, their pension plan will be their family’s biggest asset.

These public sector pensions are unlike private retirement plans, which are governed by the federal Employee Retirement Income Security Act of 1974[ERISA]. It is ERISA which protects qualified retirement plans from garnishment, assignment or alienation. The only exception to the anti-alienation protection is in response to a Qualified Domestic Relations Order [QDRO] issued by a state court relating to marital property rights, child support, or alimony, which meets the requirements of ERISA and the Internal Revenue Code. Because ERISA does not apply to public sector plans, a QDRO has no effect on a public sector pension plan. Only a QILDRO – a Qualified Illinois Domestic Relations Order - will get your client anything from an Illinois public sector pension plan. To complicate matters further, the state and municipal plan administrators tend to be very picky about those QILDROs.

II. Why Should I Care – I’m Not Going To
Prepare It Anyway?

Many family law attorneys refuse to prepare QILDROs. They don’t understand the complexities and are worried about malpractice.

Many Judgments for Dissolution of Marriage or Marital Settlement Agreements contain a provision that reads something like “the wife is awarded half of the marital portion of the husband’s pension with a QILDRO to be prepared later” or even worse “half the husband’s pension.” That is not adequate. If that is all you put in your MSA, you are likely to have an unhappy client. There are benefits the ex-spouse of the pension participant [the “alternate payee”] may lose just because those benefits were not mentioned in the Judgment. Beyond that, if the Judgment is too vague there may have to be additional litigation to determine the appropriate method of dividing the pension. The wording of the Judgment can make a lot of difference in the benefit received.

In addition, the client should be given some idea of what is going to be involved in preparing a QILDRO. If they are rejoicing in finally being done with the divorce and paying off your bill, they are going to feel misled when they learn they still have significant work to do to implement the Judgment and collect the share of the pension they were awarded or bargained for. It is likely to take substantially more than the “little bit of paperwork” they were anticipating.

Finally, if the client is the alternate payee she [or he] needs to be aware it is important that she takes care of the QILDRO [or QDRO for that matter] right away. If she procrastinates and her former spouse dies, she will probably get nothing.

At a minimum, you owe it to your clients to give them a heads up on what to expect with a QILDRO, to put enough specific language in the Judgment to make sure your client’s interest is preserved and further litigation minimized, and to make sure they understand the importance of getting it done promptly.

III. The Nature of the Beast
A. History

In 1986 the Illinois Supreme Court held that a public sector pension (a firefighter’s) was marital property. However, in 1991the Second District Appellate Court held that the trial court lacked jurisdiction to enter an order directed to the pension plan administrator dividing a firefighter’s pension. It was not until July 1, 1999, that the Illinois Pension Code was amended to require a pension governed by the Pension Code to make payments directly to an alternate payee upon receipt of a new creation, a QILDRO. Even with the amendment, the statute was quite limited. The statute enabling a QILDRO set out a form order which had to be followed to the letter. The form order only provided a blank in which to enter a specified dollar amount per month to be paid to the alternate payee upon the participant’s retirement. The forms also had blanks for payment to the non-employee spouse of a specific dollar amount if the employee received a refund or partial refund of his or her contributions to the pension.

The 1999 amendment to the Illinois Pension Code also provided that if the plan participant accrued benefits prior to 1999, the participant has to sign a “Consent to QILDRO” form to be filed with the plan administrator along with the QILDRO. This was due to concerns about the constitutionality of allowing direct payment to a spouse of accrued benefits that were not previously alienable.

B. Unfair Limitations

Even after the 1999 amendment, alternate payees did not have the ability to share in their ex-spouse’s pensions in the way the ex-spouse of a private sector employee could pursuant to a QDRO. At the risk of oversimplifying, the most common way to divide a defined benefit pension is by a formula whereby the alternate payee receives 50% of the marital portion of the pension, with the marital portion being determined by multiplying the pension amount by a fraction, with the numerator being the time the participant contributed to the pension during the marriage and the denominator being the total time the employee spouse accrued benefits under the pension. This is often referred to in Illinois as the Hunt formula after the leading case. The QILDRO form specified in the 1999 statute was not fair to the alternate payee, because there was no easy provision for the alternate payee to share in increases in the value of the pension due to the participant’s salary increases in the later years of employment. The alternate payee would either have to: 1) state a value in the QILDRO based on a benefit estimate provided by the Plan at the time of the divorce, thereby forfeiting possible later increases in value; 2) wait to enter the QILDRO until the participant retired and the final benefit was known, thereby risking the QILDRO would not get entered and benefits would be lost; or 3) hire an actuary and try to project the future value.

C. 2006 Changes

Effective July 1, 2006, the Illinois Legislature amended the Illinois Pension Code again to broaden what can be done to divide an Illinois public sector employee pension with a QILDRO. The statute still mandates a specific “fill in the blanks” form. A variety of options are now available, however. The QILDRO can now set out a formula for dividing the pension, like that commonly used in a QDRO. And there is also an option for dividing the death benefit, although not any survivor benefit. Thus, although the possibilities for an alternate payee have been expanded, they are still limited and the forms are much more complex than they were previously.

IV. Issues to Consider

A. Formula or Dollar Amount

The alternate payee now has the option when entering the QILDRO of either specifying a monthly dollar amount to be paid to the alternate payee at the time of the participant’s retirement or of stating a formula for dividing the pension. The formula will have to be implemented by a second “QILDRO Calculation Order,” entered after the participant retires, applying the formula to the participant’s benefit once the actual amount is known.

The QILDRO should be entered at or near the time of the Judgment so that the participant does not retire without telling the alternate payee or die without an order that the alternate payee receive a share of any death benefit. If the participant has already retired, the logical choice is to specify the dollar amount in the QILDRO plus a pro-rata share of any cost of living increases.

Unfortunately, the second option of stating a formula involves additional attorney fees to prepare the “QILDRO Calculation Order,” with a distinct possibility of further litigation over the amount of the final benefit that should be plugged into the formula. In addition, a $50 processing fee is required each time an order is submitted to the plan.

Despite the additional complications, it is well worth while for an alternate payee to opt to use a formula instead of setting a dollar amount at the time of the divorce if the participant is not retired. The statewide pension plans will provide a “Benefit Information for Divorce” statement upon the member’s request or in response to a subpoena. Unless the participant is retiring immediately, however, that statement is, at best, an estimate and is likely to be low. The participant’s final monthly pension benefit has no relation to the amount of his or her contributions. Instead, the benefit is calculated according to a statutory formula, which varies from plan to plan, applied to the participant’s final salary as defined by the plan.

As an example, in the Teachers’ Retirement System prior to July 1, 1998, the participant earned a pension by a formula which involved multiplying the participant’s final salary, as defined in the Pension Code, by 1.67% per year for each of their first 10 years of service, 1.9% per year for each of their second 10 years of service, 2.1% for each of the third 10 years, and 2.3% for each year after 30 years up to a maximum of 75% of final salary. Thus, if the Participant receives a salary increase in the later years of employment, the value of the pension throughout the time of contribution increases.

It is not unusual that in a state pension applying a formula to the final pension amount rather than using the estimated benefit at time of divorce will give the alternate payee an additional $500 or more per month for the rest of the participant’s life.

Therefore, the participant has a financial interest in specifying a dollar benefit at the time of the divorce, while the alternate payee has a financial interest in specifying a formula, even though it will mean additional expense.

B. Permissive Service, Upgrades Purchased, and Other Benefit Formula Enhancements

There are a variety of ways that Plan participants may be able to receive an increased monthly benefit. A few examples of options that may become available are:
1. The member may be able to exchange accumulated unused sick leave for up to a year of additional service time in the benefit formula.

2. The member may be able to make additional payments to the system to receive credit for time worked in another system in the benefit formula.

3. The Teachers Retirement System allows members for pay for a “2.2 Upgrade.” By paying an extra amount into the system, the member may convert service prior to July 1, 1998, for which he or she is receiving credit according to the formula described above, to the current formula, which gives credit at 2.2% of final salary for each year of service. This is a very good deal for the member because the cost to purchase the upgrade will be recouped in approximately the first two year of the increased pension benefit.

4. Occasionally, a system may offer an enhanced benefit formula to encourage members to take early retirement.

Members often have strong feelings about whether these enhancements should be shared. I am not going to suggest a right answer for every case. There are some considerations to keep in mind, however. In the Fifth District Appellate Court case of In re Marriage of Ramsey the court held the spouse was entitled to share in the TRS 2.2 Upgrade but was required to pay her husband a pro-rata share of the cost of the upgrade. The upgrade is a good enough investment that it would make sense for the alternate payee to purchase a share of it. Another consideration is that if the alternate payee does not share in the enhancements to the pension, it can be very challenging to back out the value of the enhancement from the final pension payment to come up with the amount to be divided. It is a fruitful field for further litigation when preparing the QILDRO Calculation Order.

C. Death Benefit

The QILDRO law now allows the alternate payee to receive a share of any lump sum death benefit payable upon the member’s death. The lump sum death benefit would be small compared to the probable amount of monthly payments. However, the alternate payee’s monthly benefit does not begin until the member begins receiving payments and ends when either the member or the alternate payee dies. Therefore it is fair that the alternate payee receive something in the event of the member’s death. The QILDRO statute still has no provision for an alternate payee to receive a share of any survivor benefit.

D. Refund or Lump Sum Retirement Benefit

The participant may receive a lump sum payment from the pension plan in two circumstances short of dying. First, if a participant terminates covered employment, he or she may choose to take a refund of his or her contributions to the plan and forgo the right to pension payments. This would rarely make financial sense because the participant’s contribution covers only a fraction of the cost of the pension. Second, a portion of the participant’s contribution goes to cover the cost of a surviving spouse annuity. If the participant does not have a surviving spouse when he or she retires, that portion of the contribution will be refunded to the participant in a lump sum payment. Since both the refund and lump sum retirement benefit will be at least partially attributable to contributions during the marriage, it is equitable that a pro-rata share be paid to the alternate payee in the QILDRO.

E. Consent

If the pension plan member participated in the Plan prior to July 1, 1999, the Pension Code specifies that they have to sign a “Consent to QILDRO” form to be submitted to the Plan with the QILDRO. The Second District Appellate Court held in In re Marriage of Menken that the trial court exceeded its authority in ordering the husband to execute the Consent to QILDRO form. This is not a panacea for the reluctant participant, however. The court can still require the participant to make direct payments to the alternate payee. Because the Plan will then be paying the entire pension to the participant, the entire payment will all be reported as taxable income to the participant instead of part to the participant and part to the alternate payee. To carry the matter a step further, in a recent case in which the participant refused to sign the consent and moved to England where he was beyond the court’s contempt powers, the First District Appellate Court authorized an injunctive order directed to the pension fund requiring the fund to send the entire pension payment to the alternate payee’s attorney as trustee. In re the Marriage of Winter. The bottom line is that the participant can make the case more difficult by refusing to sign the consent, but will not change the ultimate result.

V. Sample Language for Judgment

The following is an example of language to include in the Judgment if you are representing the non-employee spouse to help protect his or her rights as alternate payee.

The Husband is a Participant in the [Plan name] Pension Plan. Effective as of the date of entry of the Judgment for Dissolution of Marriage, the Wife is assigned a portion of the Husband's retirement benefit in an amount equal to 50% of the Marital Portion of the Husband=s retirement benefit under the plan. The Marital Portion shall be determined by multiplying the gross amount of the retirement benefit calculated as of the date the Husband=s benefit commences by a fraction, the numerator of which is the number of months of the Husband=s credited service in the Plan earned during the marriage and the denominator of which is the total number of months of the Husband=s credited service in the Plan, including any permissive service. The Wife shall receive a pro-rata share of any postretirement cost-of-living adjustments or other economic improvements to the Husband=s benefits on or after the date of his retirement. The Wife shall be entitled to a pro rata share of any employer-provided early retirement subsidy or early retirement supplement, a pro-rata share of any death benefit, a pro-rata share of any lump sum retirement benefit, and a pro-rata share of any refund that becomes payable to the Husband. A QILDRO shall be prepared in accordance with the terms of this paragraph. The Husband shall execute a Consent to QILDRO as required to implement the QILDRO. The Court shall retain jurisdiction to amend the provisions contained herein to establish or maintain the qualified status of the QILDRO and to effectuate the original intent of the parties. The Husband shall not take any action, affirmative or otherwise, that can circumvent the terms and provisions of this agreement or that could diminish the rights of the Wife set forth herein.

1. Published in LCBA Docket, December, 2010, and presented at the LCBA Family Law Seminar, February 14, 2009.
2. 40 ILCS Act 5. Several of the Articles relate only to cities or counties with over 500,000 inhabitants.
3. 40 ILCS 5/7-101 et seq.
4. 40 ILCS 5/14-101 et seq.
5. 40 ILCS 5/15-101 et seq.
6. 40 ILCS 5/16-101 et seq.
7. Federal government pensions are also exempt from ERISA and not divisible by a QDRO. Federal pensions can be divided by a “Court Order Acceptable for Processing” under regulations promulgated by the Office of Personnel Management. 5 C.F.R. Part 838.
8. In re Marriage of Hackett, 113 Ill. 2d 186, 497 N.E.2d 1152 (1986).
9. In re Marriage of Hannon, 207 Ill. App. 3d 329, 565 N.E. 2d 1016 (2d Dist. 1991).
10. 40 ILCE 5/1-119
11. In re Marriage of Hunt, 78 Ill. App. 3d 653, 397 N.E.2d (1st Dist. 1979).
12. 792 N.E.2d 337 (5th Dist. 2003).
13. The survivor benefit is a monthly payment to a surviving spouse or dependent after the death of the member.
14. 334 Ill. App. 3d 531, 778 N.E.2d 281 (2nd Dist. 2002).
15. 2008 WL 5003364 (1st Dist. 2008).


Shulman, Gary A., Qualified Domestic Relations Order Handbook, Third Edition, Wolters Kluwer (2008 Supp.)

Wells, Elizabeth M., Allocating Retirement Plans in Marital Dissolutions: An Overview of Retirement Plans and the 2006 Amendments to the Law Dividing Illinois Public Retirement System Benefits, 2007 Illinois Family Law Reporter 102.