Pension Equalization Plan Agreement

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Pension Equalization Plan Agreement

A pension equalization plan is a standard plan which most companies have. This plan entitles the surviving spouse to the pension entitlement of the actual pensioner. In order to avail of this plan, the spouse needs to fall under the `eligible spouse’ criteria, as mentioned in the plan. This agreement typically deals with the technicalities of the pension entitlement and the eligibility/ineligibility of the surviving spouse. Sometimes, separation from employment could also trigger this plan.

What is the Pension Equalization Plan Agreement?

A pension equalization plan Agreement or a pension benefits equalization plan seeks to divide the benefits of pension among spouses justly. It is of great purport to both the pensioner and his family. Typically, the spouse’s name should be mentioned as the nominee so that the benefits can continue to be paid to the spouse in the absence of the actual pensioner. The interest of such plans, the long-term benefits, and other such advantages should be kept in mind prior to opting for the same. Typically, such plans are used in the event of divorce or separation or death of the pensioner’s spouse. Before one sets out to draft this contract, one has to inter alia keep the following information at hand: pension policies as applicable to the actual pensioner, marital status of the pensioner, the process used for calculation of the pension entitlement, and the human resource policies of the company concerned.

Purpose of the Pension Equalization Plan Agreement

Divorce and separation result not only in social and mental distress but also in financial distress in certain cases. Fighting over material assets at such a time becomes time-consuming and mentally and emotionally exhausting. Having a proper pension equalization plan in place which mandates that half of the pension of the actual pensioner would go to his/her spouse makes matters easier in such cases. Similarly, in the event of the death of the pensioner, having a pre-mandated percentage of pension go to the surviving spouse is of great financial help. Having a proper framework and a standard contract drawn out at the expense of the employer is of great assistance to the employees.

Key Terms of the Pension Equalization Plan Agreement

The following key terms must be included:

  • Value of the pension: It is of utmost importance to have a process in place to calculate the pension amount due to the actual pensioner. The start date of the payment of such pension should also be mentioned in the plan.
  • Eligible spouse: Certain criteria should be mentioned in order to determine who is an eligible spouse under this plan. For instance, sometimes same-sex spouses or partners may not be recognized under this plan.
  • Purpose of the plan: The plan may provide for equalization of pension benefits upon the occurrence of death of the pensioner or separation from service.
  • Requirements for the benefits: This clause should cover any statutory requirements that may need to be covered under the plan.
  • Form and distribution of payment: The form in which such pension would be paid (cash/non-cash) and the distribution method should be clearly stated in the plan.
  • Timing of payment: The timing of payment should also be included in the agreement.
  • Lump-sum or monthly payment: A clause highlighting the way in which the pension benefits would be disbursed needs to be included. The pension benefits may be paid as a lump-sum, one-time payment, or maybe paid monthly.
  • Forfeiture:  This clause outlines on the basis of what conduct would an employee forfeit his/her benefits under the plan. Certain conduct may be classified as prohibited conduct, and an employee is engaging the same will be compelled to forfeit his/her benefit equalization plan.
  • Dispute Resolution: A proper dispute resolution mechanism (either by way of litigation or arbitration) should be provided in the agreement.
  • Termination: The events which would trigger the termination of the plan should also be clearly outlined in the agreement. Some of them may include the death of the surviving spouse, remarriage of the surviving spouse, etc.

How to Draft the Pension Equalization Plan Agreement?

The following points need to be kept in mind while drafting pension equalization plan agreement:

  • The definition or interpretation clause should be drafted with the utmost attention. Definitions such as `eligible spouse,’ eligible employee’ etc. should be drafted only after referring to the applicable laws and the company policies.
  • If a statutory method is provided for calculation of pension, then the same may be included in the agreement for calculation purposes. In the absence of the same, company policies may be referred to.
  • It is always advisable to check the tax implications of paying out the pension in lump-sum or on a monthly basis.
  • The vesting of the plan should be drafted carefully — the events which would trigger the vesting need to be properly defined.
  • The forfeiture clause should be in accordance with the applicable law. It is advised to make it as broad as possible if you are drafting this agreement as an employer.
  • The dispute resolution clause should preferably put arbitration as a preferred method.

Benefits of a Pension Equalization Plan Agreement

The benefits of a pension equalization plan agreement are:

  • It creates a clear framework for the division of pension entitlements among spouses.
  • It is of immense importance to the surviving spouse in the event of the death of a pensioner as it provides financial security.
  • As it is mandated under law, it cannot be evaded.
  • It makes a just division (50%) of the pension entitlement among spouses.

The pension equalization plan can be framed once for every company, and standard clauses may be built in to apply to all employees. It is a fair distribution of income and is required for the surviving spouse’s financial security. The dispute resolution clause of this contract can help evade any issues which may arise out of a breach.

Sample Pension Equalization Plan Agreement

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Pension Equalization Plan Agreement

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