QILDRO’s Under the Illinois Municipal Retirement Fund – Settlement Agreements Might Not Mean What They Say

Throughout Illinois, thousands of municipal employees have pension benefits through the Illinois Municipal Retirement Fund (abbreviated as “IMRF”).  To the extent those pension benefits are earned while the employee is married, those pension benefits can be divided in a divorce case by way of a special court order known as a Qualified Illinois Domestic Relations Order (abbreviated as “QILDRO”).  A QILDRO is separate from a judgment for dissolution of marriage or a marital settlement agreement, which specifies the rights of each of the parties.  Rather, it is an order directing the IMRF to split the pension benefits in accordance with very specific instructions.

The Illinois Pension Code contains very specific instructions as to what information a QILDRO must contain in order for the IMRF to comply with the court’s order to divide pension benefits.  In fact, the Illinois Pension Code even includes a sample fill-in-the-blanks form containing pre-printed language and boxes to check.  The IMRF uses the form as specified in the pension code.

Because a QILDRO is a fill-in-the-blanks form, it does not allow many options for the parties to customize the way they divide pension benefits in a divorce case.  Thus, it is possible for there to be a conflict between the terms of a judgment for dissolution of marriage and the terms of the QILDRO that the IMRF must process.  In the event of such a conflict, which terms would control?

That is the question that was recently put to the Second District Illinois Appellate Court in the case of Marriage of Wehr.  In that case, the husband had worked for the Chicago suburb of Lisle, and had accrued a few years’ worth of IMRF pension benefits prior to the parties’ marriage.  After the wedding, he continued to work there for a few more years, and continued to accrue pension benefits while he did.  Then, he left that job and ceased accruing IMRF pension benefits while working other jobs for the next 10 years.  Finally, he returned to the same job he originally had with the Village of Lisle, and resumed the accrual of IMRF pension benefits until he retired.

Thereafter, the parties got divorced and negotiated a settlement agreement.  The settlement agreement, which was attached to the court’s judgment for dissolution of marriage, awarded the wife (the “alternate payee”) a percentage of the husband’s (the “plan participant’s) benefits, according as follows:

“This order assigns to the Alternate Payee an amount equal to the actuarial equivalent of 50% of the marital portion of the Participant’s accrued benefit under the plan as of the Participant’s Benefit Commencement Date, or the Alternate Payee’s Benefit Commencement Date, if earlier. The marital portion shall be determined by multiplying the Participant’s accrued benefit as of the date of entry of the Judgment of Dissolution of Marriage in this case by a fraction (less than 1.0) the numerator of which is the number of months married while a plan participant (October 13, 2000 to the date of entry of Judgment for Dissolution of Marriage) and the denominator of which is the total number of months of service accredited to the Participant.” (emphasis added)

The fill-in-the-blanks QILDRO form used by the IMRF contained different terms.  It provided that the Alternate Payee’s share of the pension benefits was equal to 50% of the number of months of service that the husband (the “member”) accumulated during the marriage, divided by the total number of months of service the member accumulated in total.  Because there was a 10-year period in which the parties were married but the husband was not accumulating service credit, the terms of the marital settlement agreement and the QILDRO form order were in conflict.

Naturally, each party had their own opinion as to which document should control.  Following the terms of the marital settlement agreement would provide the wife with a larger slice of the husband’s pension.    Following the terms of the QILDRO form, on the other hand, would result in a more favorable financial outcome for the husband.

On appeal, there were several good arguments for why the terms of the marital settlement agreement should control.  First and foremost, the Section 119(n) of Illinois Pension Code itself states that the purpose of a QILDRO is to conform to the parties’ marital settlement agreement, not the other way around. Additionally, the rules of contract construction in Illinois state that the primary objective is to effectuate the intent of the parties, and when the terms of the agreement are unambiguous, the intent of the parties is determined solely from the language of the agreement. In re Marriage of Hall.

In this case, the marital settlement agreement defined the wife’s share as a percentage of the number of months while married, not the number of months of service credit earned while married. The agreement even spelled out the relevant dates to make counting the months easier.  Also, the term “plan participant” is used in the settlement agreement, but not the QILDRO.  The wife argued that the husband never stopped being a “plan participant” in the IMRF, because he maintained his benefits during the 10 years he was working for non-IMRF employers, and never cashed out.

Ultimately, the Second District Appellate Court held that the terms of the fill-in-the-blanks QILDRO form, not the marital settlement agreement, actually reflected the agreement of the parties.  What is noteworthy, however, is the contorted nature of the Court’s reasoning. Rather than analyzing the language of the settlement agreement itself, the Court stated:

“We note that the formula used in the [settlement agreement] was essentially the ‘Hunt formula.’ Under that formula, the amount of the pension interest included as marital property is the present value of the  interest multiplied by a fraction whose numerator is the number of years (or months) of marriage ‘during which benefits were being accumulated,’ and whose denominator is the total number of    years (or months) during which benefits were accumulated before the dissolution. (Emphasis added.) In re Marriage of Hunt [citation omitted]. The Hunt formula is codified in the model QILDRO form supplied in section 1-119(n) of the Code [citation omitted]. In re Marriage of Culp [citation omitted]. The model directs that the calculation be made using ‘the number of months of *** service that the member accumulated in  the Retirement System from the date of marriage *** to the date of divorce.’ [citation omitted]. The QILDRO entered here not only specifically incorporated section  1-119 but reproduced the foregoing language verbatim. The phrase “months of *** service” refers to months that Paul earned service credits and contributed to the fund.”

In other words, the Appellate Court found that even though the parties’ settlement agreement said one thing, it really meant another.

In response to the wife’s point that the settlement agreement spelled out the months to be counted, the Appellate Court stated:

“the parenthetical insertion of the dates of the marriage does not unambiguously show  an intent to depart from the calculation specified in section 1-119(n) of the Code and the QILDRO. The dates can just as easily be viewed as a simple reference for ascertaining which months of service occurred during the marriage and which did not.”

In other words, the Appellate Court can come up with all sorts of fanciful ways of making meaningful words superfluous when those words conflict with the standard form QILDRO for IMRF pensions.

A more cynical way of interpreting the Appellate Court’s decision is to consider the fact that there are literally thousands of divorced municipal employees in the state, each of whom have QILDRO’s that have been entered by divorce courts and submitted to the IMRF for processing.  If each and every one of those QILDRO’s had to be analyzed case-by-case against the language of individual, custom-drafted divorce settlement agreements, the IMRF’s attorneys would have an enormous amount of work to do.  That work would likely cost the pension fund, the participating municipalities, and the state of Illinois oodles of money.  Moreover, in the event conflicts were discovered and cases had to be reopened, the Appellate Court itself would have more work to do.  By taking the position that, in the event of a conflict of terms between a settlement agreement and a QILDRO form, the QILDRO form wins, the Appellate Court solved a potentially messy problem, legal precedent be damned.

Every settlement negotiation involves give and take and presents some opportunities to be creative.  The lesson here may very well be to not get too creative when dividing pension benefits.  For more information regarding the division of IMRF pension benefits in a divorce, please contact us.

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