In the United States there are thirteen different unions that represent railroad workers with a total of over 140,000 members. These railroad workers do not pay social security taxes. Instead, they pay taxes to a separate fund administered by the Railroad Retirement Board, an independent government agency. The Railroad Retirement Board issues annuity payments to railroad workers when they retire in lieu of social security.
In an Illinois divorce, pensions are divisible but social security is not. So, what happens to railroad pensions and benefits after an Illinois divorce?
What Happens To Most Pensions In Illinois
After an Illinois divorce, most pensions get divided as marital property.
“For purposes of distribution of property pursuant to this Section, all pension benefits (including pension benefits under the Illinois Pension Code, defined benefit plans, defined contribution plans and accounts, individual retirement accounts, and non-qualified plans) acquired by or participated in by either spouse after the marriage and before a judgment of dissolution of marriage or legal separation or declaration of invalidity of the marriage are presumed to be marital property.” 750 ILCS 5/503(b)(2)
The entirety of the pension is not divided, however. Only the portion which was earned during the marriage. So, there’s a carve-out for “property acquired before the marriage, except as it relates to retirement plans that may have both marital and non-marital characteristics” 750 ILCS 5/503(b)(6)
Railroad pensions do not follow these rules in an Illinois divorce.
Railroad Benefits And Divorce
Railroad benefits don’t have to follow Illinois law because they are governed by federal law. The United States constitution has a supremacy clause that says all federal laws trump all state laws.
“[T]he laws of the United States…shall be the supreme law of the land; and the judges in every state shall be bound thereby, anything in the Constitution or laws of any State to the contrary notwithstanding.” U.S. Const. art. VI.
The federal statutes lay out the several components to any railroad workers retirement benefits:
“Tier 1” is an approximation of what the railroad employee would have gotten if they had, in fact, paid into social security and received social security benefits.
“Tier 2” is the additional annuity payments the railroad worker would receive based on earnings and years of service.
“Supplemental Annuity” is an additional payment for work beyond 25 years of service.
“Vested dual benefit” is an additional benefit for railroad workers who started work prior to 1975.
“Overall minimum increase” is the increase a railroad annuity gets so that it can match the minimum social security payment the worker would have gotten had they participated in social security.
Tier 1 is NOT DIVISIBLE in a divorce. All the other benefit categories are divisible.
The other benefits are divisible by a divorce court order and the Railroad Retirement Board will forward the money awarded from those other benefits to the former spouse.
“Unless the order expressly provides otherwise, the Board will deduct the amount specified by the order from any annuity paid to the employee, whether the employee has retired based on age or on disability.” 20 CFR § 295.4(b)(4)
The Spouse Of A Railroad Employee Automatically Has Their Own Pension From The Railroad
Division of railroad retirement benefits needs to be tempered by one important fact: the divorce spouse of a railroad employee gets their own annuity under certain circumstances.
“A claimant will be considered to be the divorced spouse of an employee if
(a)His or her marriage to the employee has been terminated by a final divorce; and
(b) He or she is not married (if the claimant remarried after the divorce from the employee, the later marriage has been terminated by death, final divorce, or annulment); and
(c) He or she had been validly married to the employee, as set forth in § 222.11, for a period of 10 years immediately before the date the divorce became final.” 20 CFR § 222.22
So, the divorced spouse will have to be single (not re-married) and have been married for at least 10 years.
The divorced spouse annuity is not that generous. It’s essentially a separate Tier 1 annuity for the divorced spouse only if they are not eligible for a Social Security payment of equal or greater value.
“The tier I of a spouse or divorced spouse annuity is an amount similar to the social security benefit the spouse or divorced spouse would receive based on the employee’s combined railroad and social security earnings.” 20 CFR § 226.30
This is precisely why the railroad employee’s own Tier 1 benefits are not divisible. Each party is receiving Tier 1 benefits in lieu of Social Security, which, itself, is not divisible.
How Do You Know How Much The Railroad Retirement Benefits Will Be?
There is no need to hire an actuary to calculate the value of a railway workers retirement benefits. The Railroad Retirement Board will calculate the amount the employee will receive in retirement and will even estimate the amount which would be eligible for division in a divorce.
This calculation is purely an estimate and not a fixed value. Benefits will not be paid until the employee is eligible for retirement (age 60 with at least 5 years of service).
The employee themselves must request this information as the board will not disclose private information even after receiving a subpoena. “It is the policy of the Board to provide information, data, and records to non-Federal litigants to the same extent and in the same manner that they are available to the general public” 20 CFR § 200.8(b)
How Do Railroad Pensions Get Divided In An Illinois Divorce?
The divisible portion of the railroad retirement benefits will be divided equitably. There is no automatic 50/50 division in Illinois. An Illinois court will consider the whole of the parties assets, income and contributions in determining the division of all marital assets, including the pension.
But, because a railroad pension is based on the life expectancy of two people, it’s terribly hard to arrive at a present day value. For this reason, railroad retirement benefits (the divisible and marital portion) will almost always be split 50/50 independent of any other asset division.
How Long Will A Former Spouse Receive a Railroad Pension?
The benefits from a railroad retirement are an annuity. Annuities regularly pay out until the recipient dies.
For most pensions, when the actual pension beneficiary dies, all the benefits cease to the beneficiary and their former spouse. Not for railroad pensions. The former spouse will get their portion of the annuity until their own death (unless the final divorce decree says otherwise).
“If the employee dies on or after August 17, 2007, a former spouse who is receiving a portion of the employee’s annuity pursuant to a court decree or property settlement compliant with this part may continue to receive a portion of the employee’s tier II benefit component unless the court decree or property settlement requires such payment to terminate upon the death of the employee.” 20 CFR § 295.5(f)(4)
What Must An Illinois Divorce Order Look Like In Regards To Railroad Retirement Benefits.
The division of any railroad benefit must be laid out with particularity in the final Marital Settlement Agreement.
“The court decree or property settlement must provide that the spouse or former spouse is awarded payments from railroad retirement annuities payable to the railroad employee.” 20 CFR § 295.3(a)(1)
The Railroad Retirement Board provides us with sample language for any order which I have included below.
“1. The purpose of this order is to divide [EMPLOYEE’S NAME] non-tier I benefits under the Railroad Retirement Act as part of a final distribution of property between the parties. The parties in this action were divorced by order of this court entered [DATE].
2. The court finds in accord with the law of this state that [EMPLOYEE’S NAME] non-tier I benefits under the Railroad Retirement Act are marital/community property between the parties and may be allocated by order of this court. The Railroad Retirement Act prohibits any allocation of [EMPLOYEE’S NAME] tier I benefits. The U.S. Railroad Retirement Board administers the Railroad Retirement Act.
3. a. The name and address of the employee are:
b. The name and address of the spouse/former spouse are:
4. It is therefore ordered that
[SPOUSE’S NAME] is awarded, and the Railroad Retirement Board is directed to pay, an interest in the portion of [EMPLOYEE’S NAME] benefits under the Railroad Retirement Act (45 U.S.C. §§ 231-231v) which may be divided as provided by section 14 of that Act
(45 U.S.C. § 231m). [SPOUSE’S NAME] share shall be computed by multiplying the divisible portion of [EMPLOYEE’S NAME] monthly benefit by a fraction, the numerator of which is the number of months [EMPLOYEE’S NAME] worked for a railroad employer during the period of the marriage [MONTH/YEAR] through [MONTH/YEAR], and the denominator of which shall be [EMPLOYEE’S NAME] total number of months employed by a railroad employer at retirement, and then dividing the product by two.
(If A Percentage Award)
[SPOUSE’S NAME] is awarded, and the Railroad Retirement Board is directed to pay, an interest in the portion of [EMPLOYEE’S NAME] benefits under the Railroad Retirement Act (45 U.S.C. §§ 231-231v) which may be divided as provided by section 14 of that Act
(45 U.S.C. § 231m). [SPOUSE’S NAME] share shall be computed as an amount equal to [PERCENTAGE] of [EMPLOYEE’S NAME] monthly divisible benefits.
(If A Fixed Dollar Award)
[SPOUSE’S NAME] is awarded, and the Railroad Retirement Board is directed to pay, an interest in the portion of [EMPLOYEE’S NAME] benefits under the Railroad Retirement Act (45 U.S.C. §§ 231-231v) which may be divided as provided by section 14 of that Act (45 U.S.C.
§ 231m). [SPOUSE’S NAME] share shall be computed as an amount equal to [DOLLAR AMOUNT] of [EMPLOYEE’S NAME] monthly divisible benefits.
5. A court-certified copy of this order shall be served upon the General Counsel, U.S. Railroad Retirement Board, 844 North Rush Street, Chicago, Illinois 60611-2092.
6. So ordered this ___________ of _____________ 20___.”
If you’re a railroad employee or your spouse is, you need to be intimately familiar with these benefits as you approach a final division of assets. Contact my Chicago, Illinois family law firm to schedule a free, no-obligation consultation with an experienced Chicago divorce attorney.
