Pulliam v. Pulliam

LEAHY, J. Appellant Jason Pulliam is a law enforcement officer employed by the Maryland Transportation Authority Police Force. During divorce proceedings in the Circuit Court for Harford County, Appellant and his then-wife, Appellee Jill Irene Pulliam, agreed, as reflected in the consent judgment entered, that she would receive one half of the marital share of his Law Enforcement Officers’ Pension System (“LEOPS”) pension. The parties dispute whether, pursuant to the agreement and consent judgment, a voluntary Deferred Retirement Option Program (“DROP”) benefit is part of Husband’s pension plan and properly included in Wife’s eligible domestic relations order (“EDRO”). The circuit court concluded that Husband’s LEOPS pension plan encompassed the DROP benefits and entered the EDRO.

We hold that the parties’ consent judgment was unambiguous and that DROP benefits are part of the LEOPS pension as a matter of law for purposes of the parties’ EDRO. We affirm the judgment of the circuit court. ⁵⁸² BACKGROUND Jason and Jill Pulliam were married on June 4, 2005, and one child was born during their marriage. On June 19, 2010, the parties separated, and ultimately filed for divorce in the Circuit Court for Harford County. 1 At the uncontested divorce hearing held on February 7, 2012, the parties, through their counsel, placed the settlement agreement that they had reached on the record. Of particular relevance to this appeal, the agreement addressed Husband’s membership in the LEOPS, in which he had been enrolled since November 1, 1997 through his employment at the Maryland Transportation Authority.

The parties announced they had agreed that: Each party will retain [his or her] own 401-K retirement savings. Mr. Pulliam has a pension through his employer, a law enforcement pension. He will assign a portion of that to Mrs. Pulliam equal to one half, or 60 months, will be the marital share. She is entitled to one half of that portion of service.

Mrs. Pulliam has, at her option and cost, to opt for survivor benefits at the time Mr. Pulliam retires. Both parties accepted these terms on the record and affirmed their understanding that neither party could “come back and ask for a marital award or for the Court to adjust interest in marital property, or for the Court to take any action regarding property, other than to enforce the terms of this agreement.” On March 23, 2012, the court entered a judgment of absolute divorce. In its order, the court recognized that the parties had reached an agreement “as to all issues arising out of their marriage”; that this agreement had been read into ⁵⁸³ the record; and that the judgment entered contained its terms. The judgment specifically addressed retirement benefits as follows: ORDERED, that each party shall retain as their sole and separate property their respective interest in and to their own 401K Plans; and it is further ORDERED, that the Defendant shall assign to the Plaintiff an interest in the Pension System for Law Enforcement Officers of the State of Maryland, as follows: One half of the Marital Share of his entire pension benefit.

The Marital Share is a fraction, the numerator of which is the number of months of the Participant’s benefit credited service under the Plan during the parties’ marriage, which the parties deem to be 60 months, and the denominator of which is the total number of months of the Participant’s benefit credited service under the Plan. Plaintiff shall have the right, at her option, to request survivor benefits equal to her marital share provided she pays the cost of such benefits, and such benefits are available[.] (Emphasis added). On August 21, 2013, Wife filed a motion requesting that the circuit court enter an EDRO because Husband had refused to sign the order she had prepared, which specifically addressed the DROP benefits as part of Husband’s pension. Accordingly, Husband filed an opposition on September 11, 2013, asserting that the proposed EDRO contained a provision directing that DROP payments were to be included in calculating the marital share, and emphasizing that he was not even eligible to participate in the DROP at the time.

On January 17, 2014, the court issued an order and accompanying memorandum opinion granting Wife’s motion and entering her proposed EDRO. In its opinion, the court framed the issue as “whether a particular retirement asset known as a DROP was or should be included in the Defendant’s retirement assets.” To resolve this issue, the Court relied on Dennis v. Fire & Police Employees’ Retirement System, 390 Md. 639 , 890 A.2d 737 (2006), which the court found to “completely address[]” the issue. The court adopted the Court of Appeals’s conclusion in ⁵⁸⁴ Dennis, id. at 656, 890 A.2d 737 , that the DROP payments were to be considered retirement assets within the meaning of the EDRO. 2 The court noted that in the case under consider ⁵⁸⁵ ation, “the intention of the court in incorporating the agreement of the parties was that all retirement assets be divided pursuant to the formula set by the parties.” The signed and filed EDRO provided, inter alia, that the “Alternate Payee’s [Wife’s] share of the Participant’s [Husband’s] allowance, including any DROP payment not otherwise restricted under the terms of the Participant’s plan, shall be an amount that shall be computed by multiplying Participant’s Basic Allowance by Fifty Percent (50%) multiplied by the ‘marital share fraction.’ ” 3 “The ‘marital share fraction’ is the following fraction: the numerator is 60 months and the denominator is the total number of months of Participant’s service credit in the [State Retirement and Pension System of Maryland].” In the event of Husband’s untimely death, the EDRO also established (1) that Wife would receive a marital share of any pre-retirement death benefit so long as Husband was not survived by a spouse or minor child and wife, in fact, survives Husband; (2) that if Husband is married at the time of retirement, his surviving spouse would receive any post-retirement survivor benefits, and if Husband was not remarried, he could not elect any optional form of post-retirement survivor benefits; and (3) that if Husband is not survived by a spouse, minor child, or otherwise restricted by his plan, Wife would receive the marital share of Husband’s DROP in the event of Husband’s death before his participation in the DROP has concluded. Husband filed a timely appeal ⁵⁸⁶ on February 4, 2014.

Additional facts will be discussed below as relevant to our resolution of the issues. DISCUSSION Appellant raises one question, which we have rephrased for review: Did the circuit court err when it ordered that Appellant’s future potential DROP benefits should be included as part of his retirement assets to be distributed to Appellee under an EDRO pursuant to the agreement of the parties? This question, raising issues concerning both the interpretation of the parties’ consent judgment and a question of law regarding the DROP, are subject to de novo review by this Court. See Dennis, supra, 390 Md. at 656 , 890 A.2d 737 ; Schisler v. State, 394 Md. 519, 535 , 907 A.2d 175 (2006) (“[W]here an order involves an interpretation and application of Maryland constitutional, statutory or case law, our Court must determine whether the trial court’s conclusions are ‘legally correct’ under a de novo standard of review.”).

A. Interpretation of the Consent Judgment Generally, a court granting “a divorce has authority to determine which property is marital property, to assess its value, to order the transfer of ownership of certain categories of property, and to grant a monetary award to adjust ‘the equities and rights of the parties.’ ” Robinette v. Hunsecker, 439 Md. 243, 245-46 , 96 A.3d 94 (2014) (citing Maryland Code, Family Law Article (“FL”) §§ 8-201 to -205 and Conteh v. Conteh, 392 Md. 436, 437 , 897 A.2d 810 (2006)). “Among the property rights that may be allocated as part of such a proceeding is a spouse’s interest in a retirement plan earned during the course of the marriage.” Id. at 246, 96 A.3d 94 (citing Deering v. Deering, 292 Md. 115 , 437 A.2d 883 (1981)). The court has the statutory authority to transfer ownership of an interest in pension and retirement benefits deemed to be marital property. Md. Code (1984, 2012 Rep. Vol.), FL § 8- ⁵⁸⁷ 205(a)(2)®. “[I]n lieu of these judicial determinations, a divorcing couple may enter into an agreement for the allocation of their property, including retirement plan benefits.” Robi-nette, 439 Md. at 246 , 96 A.3d 94 (citing FL § 8-101).

In the instant case, the parties proceeded via the latter route by reaching a settlement agreement. At the February 7, 2012, hearing, the parties placed this agreement on the record, providing that “Mr. Pulliam has a pension through his employer, a law enforcement pension. He will assign a portion of that to Mrs. Pulliam equal to one half, or 60 months, will be the marital share. She is entitled to one half of that portion of service.” The Judgment of Absolute Divorce entered on March 23, 2012 incorporated this agreement and provided that Appellee would receive “[o]ne half of the Marital Share of his entire pension benefit.” 4 The pension benefit was specifically identified as the “Pension System for Law Enforcement Officers of the State of Maryland.” The instant dispute arose because the parties debate the meaning of “pension”; namely, whether the pension includes DROP benefits or whether Appellee was required to specifically negotiate for them.

In Maryland, consent judgments entered into by the parties and endorsed by a court “have attributes of both contracts and judicial decrees.” Dennis, supra, 390 Md. at 655 , 890 A.2d 737 (citing Chernick v. Chernick, 327 Md. 470, 478 , 610 A.2d 770 (1992)). To interpret provisions in a consent judgment, we apply the ordinary principles of contract construction. Id. at 656, 890 A.2d 737 . To this end, we apply the objective theory of contract interpretation, wherein “the clear and unambiguous language of an agreement will not give way to what the parties thought the agreement meant or was intended to mean.” Atl.

Contracting & Material Co. v. Ulico ⁵⁸⁸ Cas. Co., 380 Md. 285, 301 , 844 A.2d 460 (2004) (citations omitted). In applying the objective theory: A court ... must first determine from the language of the agreement itself what a reasonable person in the position of the parties would have meant at the time it was effectuated. In addition, when the language of the contract is plain and unambiguous there is no room for construction, and a court must presume that the parties meant what they expressed.

In these circumstances, the true test of what is meant is not what the parties to the contract intended it to mean, but what a reasonable person in the position of the parties would have thought it meant. Gen. Motors Acceptance Corp. v. Daniels, 303 Md. 254, 261 , 492 A.2d 1306 (1985). A “contract is ambiguous if it is subject to more than one interpretation when read by a reasonably prudent person.” Sy-Lene of Washington, Inc. v. Starwood Urban Retail II, LLC, 376 Md. 157, 167 , 829 A.2d 540 (2003).

But it is not ambiguous “merely because the parties thereto cannot agree as to its proper interpretation.” Fultz v. Shaffer, 111 Md.App. 278, 299 , 681 A.2d 568 (1996). As noted, “[ujnder Maryland law, the interpretation of a contract, including the question of whether the language of a contract is ambiguous, is a question of law subject to de novo review.” Dennis, supra, 390 Md. at 656 , 890 A.2d 737 (citing Towson v. Conte, 384 Md. 68, 78 , 862 A.2d 941 (2004)). We cannot ascertain any ambiguity in the portion of the consent judgment under contention in this case. A reasonable person in the parties’ position would read the language to mean exactly what it says: “that the Defendant [Appellant] shall assign to the Plaintiff [Appellee] an interest in the Pension System for Law Enforcement Officers of the State of Maryland, as follows: One half of the Marital Share of his entire pension benefit.” A reasonable person would also intend the word “pension” to encompass whatever benefits are included in that pension — the Pension System for Law Enforcement Officers — under applicable law.

Appellant argues that Appellee could not have intended to include DROP benefits in their settlement agreement, because at that time, he ⁵⁸⁹ was not participating in nor was he eligible for the DROP. That the parties disagree as to what was intended or what is legally included in that pension does not make the language ambiguous; instead, the issue becomes whether the DROP benefits are included in the Law Enforcement Officers’ Pension System Retirement Plan as a matter of law. B. The DROP Title 26 of the Maryland Code (1993, 2009 Repl. Vol. & 2013 Supp.), State Personnel & Pensions Article 5 governs the LEOPS. 6 The traditional path to retirement for an LEOPS member who has either 25 years of eligibility service or is at least 50 years old is to terminate his or her employment, at which time the member would begin receiving his or her “normal service retirement allowance.” § 26-401(a).

The normal service retirement allowance “equals the number of years of the member’s creditable service [ 7 ] multiplied by 2% of the member’s average final compensation[,]” so long as that amount does not exceed 60% of the member’s final average compensation. 8 § 26-401(b)(l)-(2). ⁵⁹⁰ There is, however, an alternative route to retirement: a member may choose to participate, if eligible, in the voluntary Deferred Retirement Option Program, a program established in 2000. A member “is eligible to participate in the DROP if the member has at least 25 and less than 30 years of creditable service.” § 26-401.1(c)(2). The member may elect to participate in the program for the lesser of five years; the difference between 30 years of service and the member’s creditable service upon election to participate; or a term selected by the member. § 26-401.1(d)(2). In other words, a member may participate in the DROP for a maximum of five years.

When the member’s participation in the DROP commences, the Board of Trustees of the Retirement and Pension System (“the Board”) must begin to: (i) deposit the DROP member’s normal service retirement allowance [as calculated under § 26-401(b) ] in the DROP for the DROP member’s benefit; (ii) adjust the DROP member’s normal service retirement allowance each fiscal year [pursuant to the cost-of-living adjustments] as provided in §§ 29-401, 29-402, 29-406, and 29-408 of this article;[ 9 ] and (iii) accrue interest on the amounts calculated under sub-paragraphs (i) and (ii) of this paragraph for the DROP member into the DROP at the rate of: 1. 6% a year, compounded monthly if the individual is a DROP member on or before June 30, 2011; or 2. 4% a year, compounded annually, if the individual becomes a DROP member on or after July 1, 2011. § 26-401.1(h)(2) (emphasis added). The Board does not have to establish individual DROP accounts for each participating member. § 26-401.1(h)(6). During the period in which a ⁵⁹¹ member participates in the DROP, the member “may not receive creditable service or eligibility service.” § 26-401.1(h)(3). Indeed, a DROP participant is considered “a retiree of the Law Enforcement Officers’ Pension System.” § 26 — 101.1(f)(2).

At the conclusion of the DROP period, the Board must “pay to the DROP member or, if the DROP member has died, the designated beneficiary of the DROP member[ 10 ] the amount accrued in the DROP for the DROP member ..., reduced by any withholding taxes remitted to the Internal Revenue Service or other taxing authority, in a lump sum[,]” unless the DROP member directs the Board to transfer all or a portion of the DROP sum to a custodian of an eligible retirement plan. § 26-401.l(i)(l), (3). The amount of benefits available to the DROP member depends on a spectrum of factors: the amount of monthly retirement benefit deposited; the length of the member’s participation in DROP; the amount and number of the cost-of-living adjustments applied to the account annually; and the amount of accumulated interest. The Board “shall commence and continue payment of the normal retirement allowance” to the member “as of the first day of the month following termination of a DROP member’s participation in the DROP.” § 26-401.1(j) (emphasis added). A DROP member must terminate employment at the conclusion of the DROP period.

Based on the foregoing provisions, we ascertain several features of the DROP statute that, together, are key to our analysis. First, a member is officially considered a “retiree” once he or she elects to participate in the DROP. § 26-401.1(f)(2). Second, the DROP benefit equals the member’s normal service retirement allowance, calculated based on the number of service years and final compensation at the time the member begins to participate in the DROP. § 26- ⁵⁹² 401.1(h)(2). The payment is deposited into an account during the member’s participation in the DROP, accruing interest.

Once the member’s participation in the DROP ends, the statute instructs the Board to “continue” paying the same normal retirement allowance (with cost of living adjustments) directly to the member, rather than into the DROP account. § 26-401.l(j). Stated another way, from the time a member commences participation in the DROP to the time he or she terminates his or her employment and thereafter, the Board will be continuously paying the same retirement service allowance; those payments are first deposited into a DROP account and then are given to the member directly. Thus, sections 26 — 401.1(j) and (h)(2), when read together, reflect another way to begin receiving pension benefits via the DROP, not a new type of benefit. We reject Appellant’s contention that the placement of the DROP payments into a separate account is material; this is an administrative function.

Third, by electing to participate in the DROP, the member stops accruing creditable service to be used for computing the pension payment. § 26-401.1(h)(3). Based on the statutory calculation of the basic allowance, which uses years of service and average final compensation as variables, the more years of service a member has, the higher his or her basic allowance will be. Conversely, all other things being equal, the fewer years of service a member has, the lower his or her basic allowance will be. By participating in the DROP, which halts the accrual of years of service, Appellant would therefore be lowering the number of years to be used for computing his basic allowance and, therefore, would be reducing his monthly basic allowance payments that he would receive — and Appellee would share in — upon termination of his employment.

This “freeze” precludes a member from getting the double benefit of starting to accumulate retirement benefits when still working and receiving his or her usual paycheck while simultaneously increasing the pension benefits upon termination of his or her employment by continuing to collect creditable service. Indeed, a member’s choice to participate in the ⁵⁹³ DROP and to receive the lump sum is made instead of receiving a higher monthly pension payment in the future, thereby impacting the entirety of the member’s employment. Cf. Balt.

Cnty. v. Thiergartner, 442 Md. 518, 537 , 113 A.3d 627 , 2015 WL 1774182 (2015) (stating, in the context of Baltimore County’s DROP system, that “[t]he lump sum is thus a benefit payment that relates to the entirety of the employee’s retirement and not simply to the particular date on which it happens to be paid”). In addition, that the money in the DROP account accumulates interest during the member’s participation in the program does not render the underlying principal to be a separate benefit; instead, it may incentivize members to participate. Together these features lead us to the conclusion that DROP benefits are part of the overall pension for purposes of the parties’ EDRO. The regulations promulgated by the State Retirement and Pension System to specifically address domestic relations orders support this conclusion.

Pursuant to COMAR 12.01.03.03(B)(2), an EDRO must “createL ] or recognize[ ] the right of the alternate payee to receive all or a portion of the participant’s plan benefit if, when, and as paid by the Board of Trustees.” A “plan benefit,” unless otherwise stated in an EDRO, means “an amount payable by the Board of Trustees to a participant,” such as an allowance. COMAR 22.01.03.02(B)(10)(a)(i). An allowance includes “a lump sum payment of the amount accrued in the Deferred Retirement Option Program on termination of the participation.” CO-MAR