Teacher Pension, House Affordability, and Survivor Risk
Marriage of 17 years. Sam, 54, is a public school teacher with a defined-benefit pension based on highest average salary of $78,000 and 28 years of service. He can retire at 60 with an estimated $52,000 a year; a 100% joint-and-survivor election would reduce that to $45,000. Riley, 51, earns $92,000 as a nurse and has a 403(b) worth $210,000. The marital home has $420,000 equity and a $2,250 monthly mortgage with 18 years remaining; Riley wants to keep it for their 10-year-old twins. Sam proposes Riley keep the house and her 403(b), while he keeps the pension, with no maintenance. Riley's take-home pay is $5,400 a month; housing costs including taxes and insurance would be $2,900 a month. The pension has no survivor benefit for Riley unless elected. The marriage began 6 years after Sam started teaching.
1. Calculate the marital share of Sam's pension and explain how the premarital service affects division.
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The marital share depends on the service period, not just the number of marriage years. If Sam retires with 28 total years and 17 marital years, the coverture fraction is 17/28 = 60.7%. Applied to a $52,000 annual benefit, the marital portion is about $31,600 a year; applied to the $45,000 joint-and-survivor benefit, about $27,300. If Sam instead works six more years and retires with 34 years, the fraction falls to 17/34 = 50%, and the marital portion is about $26,000 of $52,000. The CDFA must use the actual service credit at retirement, not the current 28 years, or the premarital six years will be overstated as marital.
Premarital service is Sam's separate property. The marital fraction should exclude it, but the analysis should also check whether the plan uses a high-3 salary that includes marital years. If the pension has a survivor annuity, the value of the survivor protection is part of the marital asset and should not be ignored. A QDRO should state whether Riley receives a separate interest or a shared payment, how COLA applies, and what happens if Sam dies before or after retirement.
2. Assess whether Riley can afford to keep the house without maintenance and what trade-offs the CDFA should model.
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Riley's take-home pay is $5,400. A $2,900 housing cost is 54% of net pay, before utilities, maintenance, the roof, child costs, and insurance. Lenders often use a 28%-36% housing ratio; even if Riley can qualify with child support, the budget is thin. Keeping the house without maintenance is likely not sustainable.
The CDFA should build three scenarios:
- Sell the house. Add $420,000 equity minus selling costs and the roof; invest the net proceeds; compare rent at $2,300-$2,700.
- Keep the house with maintenance. Sam pays a defined monthly amount; Riley uses child support and her income; test whether the mortgage is affordable after taxes and insurance.
- Keep the house with a larger pension share. Riley receives a survivor annuity and a larger portion of the marital pension, but that does not solve the pre-60 cash gap because Sam's pension is not payable yet.
Because Sam's pension starts at 60 and Riley is 51, the near-term gap must be closed with maintenance, not pension income. The CDFA should also test Sam's ability to pay after his own housing and taxes.
3. What pension election and QDRO language should the CDFA recommend?
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The QDRO should not simply say 'half the pension.' It should specify:
- Separate-interest vs. shared-interest. A separate interest gives Riley her own annuity based on her share; a shared interest pays her only when Sam is paid and usually ends at his death unless a survivor annuity is elected.
- Survivor annuity. If Riley is to receive a survivor benefit, the order must require Sam to elect a joint-and-survivor annuity and must state the survivor percentage. Sam's proposed $52,000 single-life benefit is not comparable to the $45,000 joint-and-survivor benefit.
- COLA and early retirement subsidy. If Sam retires early or takes a subsidized benefit, the order should say whether Riley shares the subsidy and how cost-of-living adjustments apply.
- Death before retirement. The order should require Sam to keep Riley as surviving spouse for the marital portion or to provide life insurance.
- Disability. If Sam becomes disabled, the order should state how disability benefits are treated.
The CDFA should obtain the plan's model QDRO and benefit statement, then compare the present value of the shared-interest and separate-interest options. The goal is to avoid a settlement that looks equal on paper but leaves Riley with no survivor income.