Disability Retirement

The primary cases involving disability retirement are Stenquist I [1978], Webb [1979], Samuels [1979], and Justice [1984]. Costo [1984] and Mastropaolo [1982] are derivative cases bearing on the disposition of military disability pensions.

A. Disability Cases

1. Stenquist I

Stenquist I [1978] held that the portion of a disability pension attributable to employment longevity during the marriage is community property. Stenquist I [1978] is based on the concept that the community interest in the disability benefit is determined by applying to the disability benefit the ratio of the alternative longevity benefit to the disability benefit. In Stenquist I [1978] the disability benefit and the alternative longevity benefit had the same starting date. An extension of Stenquist I [1978] is proposed that would have this ratio pick up at the time the alternative longevity retirement benefit would begin. This proposed extension is consistent with Saslow [1985]. While Justice [1984] is an attempt to extend the logic of Stenquist I [1978], it does not allow the community to participate in cost-of- living improvements after retirement. The community interest developed by Justice [1984] is less than the community interest that would exist if employment had terminated on the date of disability and the community interest were based on the deferred retirement benefit.

2. Webb

Webb [1979] held that the community interest in the disability pension is the ratio of the number of years worked during the marriage to the potential years of work until the time of eligibility for longevity retirement if the disability had not occurred. On first reading, Webb [1979] seems to be based on a concept that disability benefits are a replacement for wages until the age at which longevity retirement benefits would begin. However, the community interest period in Webb [1979] terminates at either the date of disability or the date of marriage separation, whichever is earlier, rather than the date of marriage separation (a more logical assumption if the disability benefit is a replacement for wages until the age at which longevity retirement would take place). On the other hand, if Webb [1979] is viewed as reflecting, in the community interest, the cost-of-living increases granted to retirees between disability and service retirement, Webb [1979] approaches consistency with the proposed extension of Stenquist I [1978].

3. Samuels

In Samuels [1979] the court ruled that the community is entitled to the full disability pension as soon as the employee is eligible for deferred retirement. Samuels [1979] is based on the concept that the community has a full interest in the deferred longevity retirement benefit. This idea may be the result of some confusion between the requirement for vesting and for the benefits themselves. The proposed extension of Stenquist I [1978] would produce the same results as Samuels [1979] if Samuels [1979] is modified to correct this confusion, and if the result is further adjusted by the ratio of community service to total service.

4. Levy

However, Levy v. Office of Personnel Management [1990] held that where the employee spouse elects to receive disability benefits in lieu of a right to longevity retirement benefits, only the net amount thus received over and above what would have been received as longevity retirement benefits constitutes compensation for personal anguish and loss of earning capacity and is, thus, the employee spouse’s separate property.

5. Justice

Justice [1984] held that the initial portion of a disability pension due to longevity service during the marriage is community property. The community does not participate in cost-of-living increases

6. Saslow

Saslow [1985] held that disability benefits should be treated as community property insofar as they are intended to provide retirement income.

7. Mastropaolo

Mastropaolo [1982] applied Stenquist I [1978] to determine the community interest in benefits resulting from a military disability retirement.

8. Costo

Costo [1984] however, held that military disability benefits granted after retirement which require waiver of longevity benefits are not community property.

9. Pace

Pace [1982] held the court should examine the particular retirement plans to determine when the predominant purpose of the plan becomes retirement support instead of assuming the changeover to be the minimum possible retirement age.

10. Cavnar

Cavnar [1976] held that the employee spouse can not defeat the community interest by electing to receive a disability pension when the longevity pension is forfeited.

11. Bergman

Bergman [1977] held that disability payments are separate property until the employee spouse would be eligible for longevity retirement.

12. Mason

Mason [1979] held that disability retirement is presumptively separate property, the burden is on the party claiming a community interst to show that payments have a longevity component.

13. Mueller

Mueller [1977] held that the amount received in lieu of longevity retirement benefits remains community property.

14. Briltz

Briltz [1983]. Disability retirement was held to be community property if less than alternative longevity retirement. Also held that the court must consider tax consequences of selecting disability over longevity retirement.

15. Higinbotham

Higinbotham [1988] held that tax savings from disabiity retirement are separate property.

B. Hypothetical Example

    1. Data

    Age at Hire
    		 30
    Age at Marriage
    		 33
    Age at Disability
    		 43
    Age at Marriage Separation
    		 45
    Age at Trial
    		 46
    Earliest Age for Longevity Retirement
    		 50
    Service Years to Disability Retirement
    		 13
    Service Years while Married
    		 10
    Service Years at Longevity Retirement
    		 20
    Married Service + Years of Disability Service to Retirement
    		 33
    Monthly Salary Just Before Retirement
    		 $2,500

    2. The Disability Retirement Benefit:

    50% of salary just before retirement plus 3% per year increases after retirement for cost-of-living.

    3. The Longevity Retirement Benefit:

    2% of salary just before retirement per year of service plus 3% per year increases after retirement for cost-of-living.

    4. Application

    Disability Formula Applied at Date of Disability Retirement:

    50% of Salary = 50% x $2,500 = $1,250

    Disability Formula Applied at Age 50:

    50% x $2,500 x retired cost-of-living factor = $1,537, where the cost-of-living factor for the seven years between disability (age 43) and longevity retirement (age 40) is 3% per year.

    Longevity Formula Applied at Date of Disability Retirement (Age 43) Benefit Payment Deferred to Age 50:

    .02 x 13 x Salary = 26% of Salary = 26% x $2,500 = $650,

    Longevity Formula Applied at Age 50, using Service to Date of Disability Retirement (Age 43):

    0.02 x 13 x $2,500 x cost-of-living factor = $799, where the cost- of-living factor for the seven years between the disability (age 43) and longevity retirement (age 40) is 3% per year.

    Longevity Formula Applied at Age 50, using Service to Age 50 (the Date of Longevity Retirement):

    0.02 x 20 x $2,500 x cost-of-living factor = $1,230, where the cost-of-living factor for the seven years between disability (age 43) and longevity retirement (age 40) is 3% per year.

    5. Analysis Under Stenquist I

    The apportionment between longevity and pure disability is: 26% longevity benefit over 50% disability benefit or 52%. The longevity benefit represents 52% of the disability benefit. In Stenquist I [1978] both the disability retirement benefit and the longevity retirement benefit were available for immediate commencement of payment. The proposed extension to Stenquist I [1978] would be to apply the 52% factor to the disability payments starting at age 50 (when longevity benefits are first payable) in order to split off the portion of the disability benefit that is based on service longevity. The additional apportionment of the longevity retirement benefit between community and separate property should be based on the ratio of years of service while married (10 years) to years of service to the earlier of the date of marriage separation or the date of disability (13 years).

    Thus, the community interest is 10/13 = 76.92% of the longevity portion of the benefits or 10/13 x 52% = 40% of the total disability benefit.

    6. Analysis Under Webb

    If one assumes the concept of Webb [1979] is that the disability retirement benefit is a replacement for wages until the longevity retirement age is reached, then the application of the Webb [1979] formula would produce a total longevity benefit, assuming salary increases of 7% per year, starting at age 50 of:

    .02 x 20 years x $2,500 x salary factor = $1,606 starting at age 50

    In this example, the total longevity benefit payable at age 50 is greater than the total benefit payable for disability at age 50 ($1,606 compared with $1,537). This results in a paradox: the community interest exceeds the value of the entire disability benefit. Furthermore, under the concept of wage continuation, the proper apportionment between separate and community property interests would be calculated by the ratio of married service (up to the latter of the date of marriage separation or disability retirement) to total potential service up to longevity retirement. This is not the apportionment described in Webb [1979]. The apportionment described in Webb [1979] is married service to the earlier of marriage separation or disability retirement to total potential service to longevity retirement. Thus, it seems that Webb [1979] must be based on a concept other than that of disability retirement as a replacement for wages until the longevity retirement age is reached.

    In the retirement plan in Webb [1979] case, the post-retirement cost-of-living increases were tied to the salary increases for active members of the same rank that the retired member held at the time of retirement. If the language in Webb [1979], linking the longevity benefit to the current salary of the rank the member held before disability retirement, is interpreted as linking the longevity retirement benefit to the scheme of granting cost-of-living increases between disability retirement and longevity retirement, the result developed will usually be the same as that developed by the proposed extension of the Stenquist I [1978] formula (the exception being cases where the benefit factor per year of service is not constant). Apportionment between longevity and pure disability: longevity benefit is $1,230/$1,537 = 80% of disability benefit, starting at age 50. Apportionment of longevity benefit between community and separate property interests: community interest is 80% x 10 years of married service over 20 years of service projected to longevity retirement age = 40% of total disability benefit.

    7. Analysis Under Justice

    Justice [1984] is an attempt to extend Stenquist I [1978] to a more general situation. However, Justice [1984] does not allow the community to participate in cost-of-living improvements either before or after the date of longevity retirement. For plans with post-retirement cost-of-living increases, Justice [1984] develops a community interest that is less than the amount that would be developed if employment terminated on the date of disability retirement, a paradox.

    8. Analysis Under Samuels

    Based on a confused understanding that since the benefits are payable (disability v longevity) are of like value (i.e., no excess) and are fully attributable to the requisite five years’ employment (and contributions made) during coverture, the total sums received by John after reaching 62 years of age comprise divisible community assets which, under the circumstances reflected, require no proportionate allocation, the court awarded the community a 100% interest in the benefits paid after age 62. The disability benefit in this case was based on a service period of 30 years from a date of hire in February 1941 to a date of disability retirement in February 1971, when John was age 50. The formula for disability retirement in this case was the same as the formula for longevity retirement. Under the plan involved in this case, an employee must have at least five years of civilian service to qualify for either a disability or longevity benefit. The actual benefit is calculated on total service. Had this fact been understood, a proportionate allocation of total service between community and separate property interests would have been made.