Buying back retirement credit

Buying back retirement credit
Whalen v Whalen, Rockland County Supreme Court, [Not published in the Official Reports]

Buying back or purchasing retirement system service credit when possible is usually viewed as a good decision on the part of system member as it will generally increase the member’s ultimate retirement allowance. But such action may generate unanticipated legal consequences, as demonstrated by the Whalen case.

Whalen v Whalen is a divorce action. One of the elements considered by the court in connection with the distribution of the “marital assets” was the value of any retirement benefits due the husband flowing from his membership in the New York State Teachers’ Retirement System [TRS].

According to the decision, the husband withdrew from TRS when he left New York State to teach in Connecticut. He then returned to teaching in New York and rejoined TRS.

Also a factor in the court’s analysis was a prenuptial agreement, a post nuptial agreement and a joint will, none of which referred to “pension benefits.”

The husband had “cashed in” his membership in TRS [Education Law Section 503(3)] when he left the state. He subsequently repurchased his prior member service credit when he rejoined the system by paying the required contributions [Section 509, Education Law]. Thus, said the wife, her former husband’s TRS retirement benefits were “marital property” and therefore subject to distribution; her former husband argued that his retirement benefits were “separate property” under a prenuptial agreement.

Whalen's former wife prevailed.

According to the decision by Justice Miller, “the pension credits earned by [husband] ... had [he] not cashed them in, would undoubtedly have been his separate property. Once cashed in, however, the pension credits were, at best, a potential but dormant asset, of no value until the [husband] fulfilled certain statutory requirement. The assets reacquired a value during the marriage, when [the husband] fulfilled his obligations with respect to employment and repaid his contributions with marital funds. ... To the extent that the [husband’s] pension acquired an enhanced value during the marriage, that enhance value is marital property.”

Also a factor in the action was the husband’s retirement benefit from the State of Connecticut’s Teachers’ Retirement System, which also involved a “cash-out” and his subsequent rejoining that system.

The court said that a determination of the value of marital assets resulting from such membership must await a trial, at which time “the parties must offer sufficient evidence of the value of the [Connecticut] pension on the date of the commencement of this action and the difference, if any, in the value of the pension which resulted from the payments made during the marriage to repurchase past [Connecticut] credits.”