Lead Opinion
Opinion
We granted review in this cause in order to address an important question relating to the characterization of retirement benefits as community or separate property under a so-called “defined benefit retirement plan,” which specifies payments in advance in accordance with a formula that comprises factors such as final compensation, age, length of service, and a per-service-year multiplier: Does a nonemployee spouse who owns a community property interest in an employee spouse’s retirement benefits under such a plan own a community property interest in the retirement benefits as enhanced? As we shall explain, we conclude that the answer is: Yes.
I
Jack R. Lehman (Husband) was bom on September 3, 1940, and Marietta Lehman (Wife) was bom on November 13, 1941. On June 15, 1959, he was hired by the Pacific Gas and Electric Company (PG&E). On June 11, 1960, the couple married. On May 1, 1962, he began to participate in PG&E’s defined benefit retirement plan, and thereby began to accrue a right to retirement benefits thereunder. On October 29, 1977, the
In March 1993, in order to avoid discharging certain employees, PG&E offered an enhanced retirement program, called the “Voluntary Retirement Incentive” (VRI). It described the VRI program as a “management tool” to “reduc[e] costs” by “bring[ing] our workforce in line with the needs of our changing business” through enhancement of retirement benefits by means of “two special improvements to the retirement benefit formula,” namely, the crediting of three putative years of service and the waiving of the normal actuarial reduction of 18 percent for early retirement, which is designed to account for more projected payments. It stated that the “decision to participate ... is completely voluntary.” For eligibility, it required, among other things, that the employee in question had attained the age of 50, and had accumulated 15 years of service, as of December 31, 1992. Husband met the conditions. He elected to retire early at about 54V3 years of age under the VRI program effective January 1, 1995, with enhanced retirement benefits in the amount of $3,059.30 per month—based on final compensation of $5,360.43 per month, length of service of 35.67 years, including 3 putative years, and a per-service-year multiplier of 1.6 percent. (Without the three-year putative service credit, he would have received enhanced retirement benefits in the amount of $2,802 per month; without the waiver of the normal 18 percent early retirement actuarial reduction, he would have received enhanced retirement benefits in the amount of $2,508.63 per month.) Had he waited to retire early at 55 years of age, without the 3-year putative service credit and without the waiver of the normal 18 percent early retirement actuarial reduction, he would have received retirement benefits in the amount of $2,350.39 per month—based on (presumed) final compensation of $5,360.43 per month, length of service, of 33.42 years, and a per-service-year multiplier of 1.6 percent. Had he waited to retire at 65 years of age, without the 3-year putative service credit and also without any early retirement actuarial reduction (inasmuch as retirement at that age is not early), he would have received retirement benefits in the amount of $3,724.00 per month—based on (presumed) final compensation of $5,360.43 per month, length of service of 43.42 years, and a per-service-year multiplier of 1.6 percent. By electing to retire early at about 54V3 years of age under the VRI program instead of waiting to retire early at 55 years of age, he received enhanced retirement benefits in an amount of $708.91 per month.
After Husband retired, Wife made various motions in the superior court, seeking various orders together with a determination as to characterization that she owned a community property interest in his retirement benefits as enhanced. In response, Husband admitted that she owned such an interest in his retirement benefits, but denied that she owned one in them as enhanced. What was in contest was solely characterization, i.e., whether the enhancement was a community asset in any part, and not apportionment, i.e., to what extent the enhancement, if a community asset at least in some part, belonged to the community and separate estates. Generally following In re Marriage of Gram (1994)
On Husband’s appeal, the Court of Appeal affirmed. Husband claimed that the superior court erred in its determination as to characterization that, by owning a community property interest in his retirement benefits, Wife owned a community property interest in his retirement benefits as enhanced. Reviewing the ultimate question, as it appears, independently, the Court of Appeal concluded that the superior court was correct in its characterization. In this regard, it agreed with Gram. At the same time, it disagreed with the then recent decision in In re Marriage of Frahm (1996)
On Husband’s petition, we granted review. We now affirm.
II
The question before us is one of characterization of retirement benefits as community or separate property under a defined benefit retirement plan, specifically, whether a nonemployee spouse who owns a community property interest in an employee spouse’s retirement benefits under such a plan owns a community property interest in the latter’s retirement benefits as enhanced.
A
Generally, all property acquired by a spouse during marriage before separation is community property. (See Fam. Code, §§760, 771.)
Under the leading case of In re Marriage of Brown (1976)
The right to retirement benefits is a right to “draw[] from [a] stream of income that . . . begins to flow” on retirement, as that stream is then defined. {In re Marriage of Cornejo (1996)
The stream’s volume at retirement may depend on various events or conditions after separation and even after dissolution. (See In re Marriage of Gillmore, supra,
Thus, the stream’s volume at retirement may turn out to be even less than feared, as when the right to retirement benefits fails to vest or mature {In re Marriage of Brown, supra,
That the nonemployee spouse might happen to enjoy an increase, or suffer a decrease, in retirement benefits because of postseparation or even postdissolution events or conditions is justified by the nature of the right to retirement benefits as a right to draw from a stream of income that begins to flow, and is defined, on retirement (see In re Marriage of Cornejo, supra,
Hence, if the right to retirement benefits accrues, in some part, during marriage before separation, it is a community asset and is therefore owned by the community in which the nonemployee spouse as well as the employee spouse owns an interest. (In re Marriage of Brown, supra, 15 Cal.3d at pp. 841-842.)
The employee spouse is “free[] to change or terminate . . . employment, to agree to a modification of the terms of . . . employment (including retirement benefits), or to elect between alternative retirement programs”—in a word, he or she is “free[]” to “define ... the nature of the retirement benefits owned by the community.” (In re Marriage of Brown, supra, 15 Cal.3d at pp. 849-850.)
But regardless how the employee spouse might choose to exercise such freedom, the “nonemployee spouse owns an interest” in what he or she chooses by owning an interest in the community. (In re Marriage of Gill-more, supra, 29 Cal.3d at p. 425.)
It follows that a nonemployee spouse who owns a community property interest in an employee spouse’s retirement benefits owns a community property interest in the latter’s retirement benefits as enhanced. That is because, practically by definition, the right to retirement benefits that accrues, at least in part, during marriage before separation underlies any right to an enhancement. (See Reddall, The Characterization and Apportionment of Early Retirement Enhancements in Pre-Judgment Cases—Again (Summer 1994) 17 Fam. L. News 22, 22-23 (hereafter Reddall).)
The fact that a nonemployee spouse who owns a community property interest in an employee spouse’s retirement benefits owns a community property interest in the latter’s retirement benefits as enhanced does not mean that the enhancement is a community asset in its entirety. But the question what extent such an enhancement belongs to the community and separate estates is one of apportionment and not characterization.
B
At the outset, both the Gram court and the Frahm court recognized that the issue of characterization of property, including the right to retirement benefits and retirement benefits themselves, as the community property of the employee spouse and the nonemployee spouse or the separate property of the employee spouse alone, does not turn on the motive of the employer. In any context, motive is, at best, hard to discern. (See, e.g., Buss v. Superior Court (1997)
Beyond that point, however, the Gram court and the Frahm court diverged in their analytical approaches to resolve the issue of characterization.
The Gram court disagreed. After invoking a test derived from a series of decisions in the area of severance payments,
In Frahm too, a nonemployee spouse owned a community property interest in an employee spouse’s retirement benefits under a defined benefit retirement plan because the latter had accrued a right thereto during marriage before separation. (See In re Marriage of .Frahm, supra, 45 Cal.App.4th at pp. 537-538, 541-542, 545.) Years after dissolution, in an attempt to avoid discharging certain employees, the employer offered incentives for early retirement, including a “Voluntary Separation Incentive Program”—which was different from PG&E’s VRI program. (See id. at pp. 541-542.) As the record therein reflects, the “Voluntary Separation Incentive Program” involved both a severance payment and also retirement benefits, which were available together either in a lump sum or by monthly installments. (See ibid.) The employee spouse elected to separate himself under the “Voluntary Separation Incentive Program.” (Id. at p. 542.) By doing so, he received, in a lump sum as he had chosen, both a severance payment and also retirement benefits. (Id. at pp. 537-538, 542, 544.)
The Frahm court agreed. After reviewing Gram itself and the “severance payment” decisions on which it relied, it stated that it found little “guidance” therein. (In re Marriage of Frahm, supra,
On their respective facts, Gram and Frahm are each correct in its result as to characterization. Gram concludes that a nonemployee spouse who owns a community property interest in an employee spouse’s retirement benefits owns a community property interest in the latter’s retirement benefits as enhanced. For its part, Frahm concludes that a nonemployee spouse does not own a community property interest in an employee spouse’s severance payment when the latter accrues a right thereto solely after separation.
Apart from their results, however, Frahm is sounder in its reasoning as to characterization because it cleaves closely to Brown, and Gram is weaker because it wanders away in the direction of ad hoc decisionmaking. As we held in Brown, what is determinative is the single concrete fact of time. To the extent—and only to the extent—that an employee spouse accrues a right to property during marriage before separation, the property in question is a community asset.
To recall what we made plain in Brown: The right to retirement benefits “represent[s] a property interest; to the extent that such [a] right[] derive[s] from employment” during marriage before separation, it “comprise[s] a community asset . . . .” (In re Marriage of Brown, supra,
And to recall what we made plain in Brown and its progeny: The right to retirement benefits represents a certain kind of property interest. It is a right to draw from a stream of income that begins to flow, and is defined, on retirement. (See In re Marriage of Cornejo, supra,
In Olivo v. Olivo (1993)
Ill
Turning to the proceeding at bar, we now consider the decision of the Court of Appeal sustaining the superior court’s determination as to characterization that, by owning a community property interest in Husband’s retirement benefits under PG&E’s defined benefit retirement plan, Wife owns a community property interest in his retirement benefits as enhanced by the VRI program.
At the threshold, we believe that the Court of Appeal properly reviewed the superior court’s determination as to characterization, as it apparently did, independently. Inasmuch as the basic “inquiry requires a critical consideration, in a factual context, of legal principles and their underlying values,” the determination in question amounts to the resolution of a mixed question of law and fact that is predominantly one of law. (Crocker National Bank v. City and County of San Francisco (1989)
On the merits, we also believe that the Court of Appeal properly concluded that the superior court’s determination as to characterization was correct.
The superior court did not err insofar as it determined that Wife owns a community property interest in Husband’s retirement benefits. That is undisputed and indisputable. Indeed, Husband admits the point.
Neither did the superior court err insofar as it determined that Wife owns a community property interest in Husband’s retirement benefits as enhanced. As explained, a nonemployee spouse who owns a community property interest in an employee spouse’s retirement benefits owns a community property interest in the latter’s retirement benefits as enhanced. Husband’s right to retirement benefits, which accrued,-in part, during marriage before separation, underlies the right to the enhancement, which is derivative thereof. It bears emphasis that the enhancement is not a separate retirement benefit, still less a benefit separate from the retirement benefits themselves. It is the mere description that we apply to the result that we reach when we subtract the amount of retirement benefits that Husband would have received if he had waited to retire early at 55 years of age from the amount that he did in fact receive by electing to retire early at about 54 Vs years of age under the VRI program. It is no different from an enhancement effected through “additional years of service,” “increase in earnings,” or “increase in age”— which is uncontestedly a community asset (In re Marriage of Adams, supra,
Husband argues against our conclusion as to characterization. He proves unpersuasive.
Husband asserts that Wife does not own a community property interest in his retirement benefits as enhanced. He concedes that, as a general matter, a nonemployee spouse who owns a community property interest in an employee spouse’s retirement benefits owns a community property interest in the latter’s retirement benefits as enhanced. He maintains, however, that a nonemployee spouse does not own a community property interest in the employee spouse’s retirement benefits as enhanced through a postseparation “contract” between the employee spouse and the employer independent of any right to retirement benefits that accrued, in some part, during marriage before separation—whereby, for example, the employer gives the enhancement in consideration for immediate retirement, and the employee spouse immediately retires in consideration for the enhancement. Husband’s retirement benefits, however, were not enhanced by a “contract” of this sort. Any such “contract” was derivative of the right to retirement benefits that
accrued, in some part, during marriage before separation. Contrary to his position—to quote Olivo—the “enhancement” is a “modification of an asset not the creation of a new one.” (Olivo v. Olivo, supra,
Husband then asserts, more radically, that Wife does not own a community property interest in his retirement benefits as enhanced because the enhancement amounts to a severance payment and, as such, is his separate property. The enhancement here, however, was not a severance payment either in name or in nature. It called itself, and was in fact, an increase in retirement benefits. Distinguishable, accordingly, is In re Marriage of Lawson, supra,
Although neither Husband nor Wife claimed in the Court of Appeal, or claims here, that the superior court erred in its determination as to apportionment of Husband’s retirement benefits as enhanced between community and separate property interests through its application of the time rale, we shall address that question because their arguments about characterization may be deemed to reach apportionment by implication.
The superior court must apportion an employee spouse’s retirement benefits between the community property interest of the employee spouse and the nonemployee spouse and any separate property interest of the employee spouse alone. (See, e.g., In re Marriage of Adams, supra, 64 Cal.App.3d at pp. 186-187; In re Marriage of Bergman, supra, 168 Cal.App.3d at pp. 748-751.) It has discretion in the choice of methods. (See, e.g., In re Marriage of Adams, supra, 64 Cal.App.3d at pp. 186-187; see also In re Marriage of Henkle (1987)
Reviewing the matter, as we must, for abuse of discretion (see, e.g., In re Marriage of Adams, supra,
We find unsound Gram’s suggestion that, in applying the time rale to apportion an employee spouse’s retirement benefits as enhanced between community and separate property interests, the superior court must add any putative years credited to the employee spouse’s service to the denominator of the time-rule fraction. (See Reddall, supra, 17 Fam. L. News at pp. 23-24 [criticizing the suggestion of In re Marriage of Gram, supra,
IV
For the reasons stated above, we conclude that we must affirm the judgment of the Court of Appeal.
It is so ordered.
George, C. J., Kennard, J., Werdegar, J., and Brown, J., concurred.
Notes
Contrary to what appears to be the view of our dissenting colleagues, an employee spouse and a nonemployee spouse could not reasonably understand the right to retirement benefits other than as a right to draw from a stream of income that begins to flow on retirement, as that stream is then defined. In the typical case at least, the employee spouse is notified by the employer—and the nonemployee spouse must be deemed to be informed by the employee spouse—that, except as to what is vested, the employer reserves the right to amend or even terminate the underlying defined benefit retirement plan prior to the time of retirement. For example, in materials relating to PG&E’s defined benefit retirement plan under the VRI program, it is stated: “Since future conditions affecting the company cannot be foreseen, the Board of Directors reserves the right to amend or terminate the plan[] at any time. Although any change in [the] plan or the termination of [the] plan will not affect the benefits paid to plan members before the date the plan was changed or ended, such change may result in reduced levels of benefits or benefit coverage, or increased retiree contributions, after the effective date of any such change. [ID However, no amendment of a plan may deprive any person of a vested interest” therein.
It is conceivable that, in a given case, a nonemployee spouse who owns a community property interest in an employee spouse’s retirement benefits might not own a community property interest in the latter’s retirement benefits as enhanced, as perhaps where the right to the enhancement is not derivative. (See In re Marriage of Adams, supra,
See In re Marriage of Skaden (1977)
Although there is certain language in Frahm that may be read to suggest that the “Voluntary Separation Incentive Program” involved both a severance payment and also enhanced retirement benefits (see In re Marriage of Frahm, supra,
In a misstep, the Frahm court treated Gram as though it too dealt with a severance payment (In re Marriage of Frahm, supra,
The Frahm court asserted that the severance payment therein “resulted solely from” the employer’s “beneficence.” (In re Marriage of Frahm, supra,
Although the law of New York is that of equitable distribution and not community property, it has developed in accord with Brown. (See Majauskas v. Majauskas (1984)
In In re Marriage of Hug (1984)
Dissenting Opinion
I respectfully dissent. A marital community has a contractual entitlement to all benefits earned by a spouse during the marriage under terms and conditions of employment then in effect. In my view, however, a dissolved community has no stake, by contract or otherwise, in any “enhancement” of benefits that was first offered after the marital separation and was not in effect during the marriage. This should particularly be the rule when the enhanced benefits are a new employer “subsidy” provided for the purpose of inducing a voluntary termination of employment, the future earnings and pension rights from which would themselves have been the employee spouse’s separate property.
While this couple was married, the marital community, through the employed husband, contributed its services in return for a contractual right to compensation including (1) the husband’s current salary during that period, and (2) the conditional future right to collect retirement pension benefits, insofar as attributable to work performed during the marriage, under the terms of the company retirement
Years after the marital community ceased to exist, at a time when the employee’s salary and service credits were his alone, the employer, in an effort to eliminate positions, sought to induce his voluntary early retirement by offering him an increase in the reduced monthly pension benefits to which early retirement would otherwise entitle him. The increase was accomplished by granting years of putative future service credit and waiving the actuarial adjustment for early retirement.
The erstwhile community performed not one minute of work under an employment contract that included these “enhanced” benefits, or in expectation thereof. Instead, the community offered its services under the terms and conditions of compensation then in effect, and passed from existence with that understanding. The new benefits, announced long after dissolution of the marriage, sought to encourage and compensate the divorced husband’s early withdrawal from his own employment, the future earnings and pension credits from which would have accrued solely to him.
Certainly the community, though long extinct, is entitled to share pro rata in the pension payments for which the husband became eligible at his retirement under the plan in effect during the mariage. When contributing its time, effort, and skill to the husband’s work during the marriage, the community contracted for, earned, and expected no less. (See, e.g., In re Marriage of Brown (1976)
Yet the majority go further. They reason that once an employee “has accrued a right to retirement benefits, at least in part, during marriage before separation, the retirement benefits themselves are stamped a community asset from then on.” (Maj. opn., ante, at p. 183.) Hence, they conclude, when a pension’s terms change in the employee’s favor after the marriage has ended, as a means of inducing the employee to forgo his own future work earnings and retire early, the ancient community retroactively gains a full proportionate share of the enhancement. The majority refuse even to concede the now-unmarried employee the full benefit of years of future age and service credit attributed to him under the “enhanced” voluntary retirement plan, though by actually working during the same future period, the husband would without doubt have accrued those same years of age and service for his sole account.
I cannot accept such a holding. The majority’s result is at odds with the fundamental premise that community property is limited to that acquired during the marriage (Fam. Code, § 760), while assets earned or accumulated by the marital parties at any time after their separation are their separate property {id., §§ 771, 772).
In support of their views, the majority advance two related premises. First, the majority imply, by contributing labor toward a spouse’s pension, the community makes an “investment” in, and thus earns and acquires a pro rata “property” right to, the “stream of income” for which the employee will finally be eligible, as determined by all intervening events, both good and bad, that precede the employee’s retirement. Second, the majority suggest, the community has earned an interest in any final pension, including post-marital “enhancements” thereof, insofar as it contributed eligibility credit toward the final pension. These theorems, in the extreme form the majority apply them, are supported neither by our prior decisions nor by sound logic.
We observed that the constitutional prohibition against impairment of contracts had been held to preclude a public employer from unilaterally withdrawing even nonvested pension rights which have already been earned by the employee’s performance of work. {Brown, supra,
Thus, we reasoned, this interest is a chose in action rather than a mere “expectancy” or hope of future beneficence as to which no enforceable right exists. Insofar as the community contributed its time, labor, and effort toward the accumulation of such contractual rights, we concluded, it must share pro rata in their value. {Brown, supra,
“Brown’s message is very simple. An employment benefit, whether or not vested, is community property to the extent a right to it accrues during marriage.” {In re Marriage of Frahm (1996)
No such accrual occurred here. When the instant community performed its work, there was no contractual right or interest, “vested” or “nonvested,” “mature” or “immature,”
Neither of the majority’s reasons for now deeming postmarital pension “enhancements” to be community property is persuasive. The majority first advance the notion that even if “enhanced” pension benefits were first offered only after the marriage was dissolved, the community nonetheless earned and thus “acquired” rights thereto during the marriage insofar as community efforts account for a portion of the employment (including age and service credit eligibility requirements) which “underlies” the pension as a whole. The premise appears to be that when the community contributes, during any period, its time, effort, and skill to a particular employment, it then and there earns and acquires rights to a pro rata share of any pension the employee spouse ultimately receives, including amounts that stem from postmarital improvements to the pension plan.
For a simple reason, however, I cannot agree. As indicated above, a community provides its time, effort, and skill on the basis of the terms of compensation then in effect. Those terms include the conditional right to a future pension under the existing pension
The majority insist their rule is necessary to treat the community fairly because, having borne the “risk” of intervening contingencies that might reduce or eliminate the ultimate pension amount, the community is entitled to the potential “reward” of beneficial contingencies, including postmarriage improvements to the plan. But this reasoning is flawed, because the “risks” the community faces are not commensurate with the “reward” the majority confers.
When a married employee performs labor and accrues rights under the terms of an existing plan to pay future pension benefits, the community faces, and can assess as it continues to work, the “risk” that the contingencies and conditions set forth in the plan itself will not come to pass in the most advantageous way. As the community works, it well understands by reference to the plan already in existence that the pension amount ultimately due, and the community’s share thereof, may be eliminated or reduced insofar as the employee dies before retirement, retires early, changes jobs, is discharged from employment, or fails to attain the hoped-for level of final compensation. By the same token, the community should reap the “reward” when the pension rules under which the community’s labor was contributed turn out to produce a favorable result.
But an improvement in the plan that occurs only after the marriage has ended is not the mere favorable resolution of a contingency or condition the community assumed when performing its services. Instead, such an
Even if there are circumstances in which a former community might properly participate in postmarital pension changes, this is not such a case. The “enhanced” benefits offered the husband in this case were not part of a companywide retroactive upgrade of the terms and conditions of employment. On the contrary, they were part of a limited program, targeted at a particular category of employees, and based upon specific personnel considerations applicable to that group at the time the program was announced. They were not intended as a reward for an employee’s past work, nor did they reflect the true value of pension credits earned by the employee’s actual service (including community service). On the contrary, they represented a new subsidy by the employer, offered for the sole purpose of inducing the targeted employees including husband, who was now unmarried and working for his sole account, to forgo future employment and the earnings associated therewith.
As the majority disclose, the program, announced in March 1993, was labeled a “Voluntary Retirement Incentive.” (Italics added.) It was offered only to employees who, as of December 31, 1992, were 50 or older with at least 15 years of credited service, and who, as of February 17, 1993, worked in specified departments of the company. Those eligible were promised “valuable financial incentives” (italics added), “available only if you elect to retire through the program” (italics added), which would “make retirement an even more attractive option.” The informational brochure described the program as a “management tool” to “reduc[e] costs” by “bring[ing] our workforce in line with the needs of our changing business.” “This VRI,” the brochure explained, “is developed to suit the needs of a particular situation!,,] ... is targeted to areas where reduction [in the workforce] is most needed[,] and strikes a balance between the stated objectives of cost reduction and fair treatment for our employees.” As already recounted (see fn. 5, ante), the proffered “incentives” included, for the first time, the
Manifestly, the increased monthly retirement benefit offered in return for participation in the VRI program was intended as consideration for the employee’s postmarital agreement to retire early, and as a partial replacement of the future compensation, both in monthly salary and in continuing accrual of pension rights, that the employee would thereby give up. Pension rights under the VRI option stemmed from a separate contract between the employee and the employer, offered and accepted after the marriage ended for reasons unrelated to the former community’s efforts. This contract was intended to govern future, not past, relations between employer and employee. It was subsidized anew by the employer rather than reflecting the value of credits previously accumulated. Accordingly, it was independent of any community interest.
In concluding otherwise, the majority merely restate the same unpersuasive theories discussed above. The dispositive point, the majority insist, is that the early retirement inducement was provided through the pension, a form of benefit that “derive[s]” from past employment and depends in part on effort, years of chronological age, and service longevity contributed by the community. By earning rights in the pension itself, the majority conclude, the community thus also earned and acquired a right in any terms under which the pension was ultimately payable, even terms first offered after the marriage ended in order to induce the employee to retire early.
As I have already demonstrated, however, the majority’s expansive notion of community pension rights does not comport with the contract and community property principles set forth in Brown. Moreover, for reasons the majority themselves suggest, the community or separate nature of a post-marital early
Finally, the majority’s holding will be a negative influence on the overall disposition of dissolution proceedings. Wherever possible, the parties to a marital dissolution should be encouraged to divide their property promptly and get on with their lives. (See, e.g., Phillipson v. Board of Administration (1970)
For all these reasons, I conclude that the instant community is entitled to share pro rata, by application of the “time rule,” in the $2,350.39 monthly benefit the husband would receive for early retirement at age 55 under the previously existing pension plan, but has no interest in the additional $708.91 monthly amount attributable to the VRI “enhancement.” I would therefore reverse the judgment of the Court of Appeal. I would remand the cause to that court with directions to order further trial court proceedings consistent with the views expressed in this opinion.
Chin, J., concurred.
As Brown explained, in discussions of community property interests in pensions, a pension right is deemed “mature” when a present right to payment of benefits has arisen, as on eligibility for retirement. {Brown, supra,
Taken out of context, Brown’s assertions that pension rights “derive” from, or are “attributable to” employment, and that pension benefits are a form of “deferred compensation," may have contributed to subsequent misunderstanding in the Courts of Appeal about a former community’s rights in employment benefits offered to or received by the employee after the marriage has ended. Since Brown was decided, a number of lower court decisions, addressing a wide range of situations, have assumed that employment-related benefits are community property to the extent they are “attributable” to prior community effort or appear intended as “deferred compensation” for past work rather than compensation for loss of future earnings, even though the payment or benefit was not part of the terms and conditions of employment when the community contributed its labor. (See, e.g., In re Marriage of Gram (1994)
In Gillmore, we observed that a nonemployee spouse who elects to “cash out” of the employee’s pension at the time of dissolution thereby forfeits the right to share in the “increased [future] value” of the pension benefits. However, we made clear that any such “increased value” was that which “ ‘might accrue due to increased age, longer service and a higher salary.’ ” (Gillmore, supra,
In establishing the general principle that an employee cannot manipulate his pension rights to the prejudice of the former community, our decisions have suggested that the employee can agree to a postmarital “modification” of the pension terms so long as the former community’s interest in the pension is not thereby defeated or substantially impaired. (E.g., Gillmore, supra,
Thus, it seems clear that if the wife in this case had elected at the time of dissolution to receive the present value of her pension rights as a lump sum, no value could have been assigned to the possibility of future beneficial changes in the terms of the pension plan. (See fn. 3, ante.)
Even if I agreed that postmarital pension “enhancements” should inure to the former community’s benefit insofar as the community contributed years of age and service bearing on the employee’s entitlements, I would dispute the majority’s application of that principle to the facts before us. Besides allowing retirement up to nine months before the usual minimum retirement age of fifty-five, the instant employer’s “Voluntary Retirement Incentive” (VRI) plan “enhanced” the employee’s pension in two ways: first, by adding three years of putative or “fictive” service credit, and second, by waiving the actuarial reduction for retirement at an early age. The majority accord the community a full pro rata share of both “enhancements” by direct application of the “time rule”; under their formula, the community’s years of service credit are divided by the husband’s total actual years of service credit to determine the community’s percentage share of the total “enhanced” monthly pension amount. (Community years of service (17.39) divided by husband’s actual total years of service (32.67) equals .5323 or 53.23 percent.) However, neither of the “enhancers” in the VRI plan operates or depends, by its terms, upon years of age or service credit previously contributed by the community. Instead, the “fictive” additional years of service credit serve as a replacement for credits the husband, but for the early retirement, would have earned for his own account in the future. (See Gram, supra, 25 Cal.App.4th 859, 867 [concluding that “fictive” years of service credit in postmarital early retirement plan must be added to husband’s actual years of credit before “time rule” is applied].) The actuarial waiver also seems simply a means of redressing a disadvantage caused by the early retirement itself, and is the equivalent of adding “fictive” years of employee age which were not contributed by the community. (Cf. Gram, supra, at p. 861.) No persuasive reason appears why “enhancing” features of this kind should simply be allocated pro rata to the community.
The majority imply that the community may indeed face the “risk” of disadvantageous changes in a pension plan which occur after dissolution of the marriage. But that “risk” is sharply limited by the principles of vested contractual rights. In essence, these provide that pension rights already earned cannot be eliminated or materially impaired, either by the employer unilaterally (see, e.g., Betts v. Board of Administration (1978)
The majority also propose that by supplying labor under the terms of a pension plan which expressly permits future modification of nonvested rights, as such plans typically do, a community thereby understands it is acquiring an interest in whatever increased “stream” of retirement income such future modifications may produce. (Maj. opn., ante, p. 178, fn. 1.) The premise is unpersuasive. By reserving the freedom to modify the pension’s terms in the future, except as to vested rights, the employer merely warns that it can, and may, reduce or eliminate retirement benefits attributable to work thereafter performed, or as to which no contractual right has otherwise yet arisen. Such a warning does not give the community a right to share retroactively in beneficial pension changes that occur only after the community has dissolved. Moreover, the increased benefits at issue in this case did not stem from a routine pension “modification” the community might have anticipated at the time it contributed its time, effort, and skill. Instead, they arose from a later special arrangement between the employer and particular employees, outside the usual pension program, as a means to induce and compensate early retirements desired by the employer. (See discussion, post.)
Even when incorporated into an existing pension plan, such an “enhancement” is necessarily a new “subsidy,” just as a lump-sum “severance payment" would be, to the extent it exceeds the present value of pension credits accumulated and funded under the existing plan. We recently acknowledged this principle in another context. In In re Marriage of Oddino (1997)
The issues and policies under consideration in Oddino are not directly dispositive here. However, Oddino’% analysis supports the principle that pension amounts not actually earned by employment, but offered after the employee’s marriage has ended as a subsidy for early retirement, are a matter between the employee and employer alone, and are not “attributable” to community effort so as to transmute them into community property. Indeed, the “fictive” service and age credits provided by the instant VRI plan closely resemble the “subsidized” pension enhancements at issue in Oddino.