In terms of value, retirement plans tend to be the largest marital asset in a divorce. Whether you are a family law attorney dealing with these issues on a daily basis, or an attorney who knows of (or is related to) a federal employee, here are some important issues to consider if the federal employee you know is going through a divorce. Federal employees include, only in part, employees of the U.S. Postal System, IRS, FBI, Department of Labor, Transportation, FAA, Homeland Security and alike. This article touches on what is at stake with regard to retirement plan assets, how to protect the federal employees’ interest, or that of the former spouse depending upon who you represent, and whether to offset the value or divide the retirement plan by a court order (deferred distribution).
Issues related to federal pensions are many times not addressed adequately in the settlement agreement, and therefore make it difficult to go into much detail in a Court Order Acceptable for Processing (COAP), the federal government’s functional equivalent to a Qualified Domestic Relations Order (QDRO) in the private sector. In a COAP, a slight change in verbiage can mean tends of thousands of dollars in favor of one or the other spouse.
As with any pension plan you either determine it’s value, for purposes of offsetting one-half of the marital value with other assets, or the pension is divided by a court order (COAP). There also tends to be some misunderstanding of what will be provided to a former spouse of a federal employee, pursuant to a court order division, and sometimes terminology and benefit options are confused with what is provided in the private sector. Government pension plans are exempt from ERISA (Employee Retirement Income Security Act of 1974) and therefore benefits which can otherwise be provided in a QDRO, pertaining to private sector pension, will not apply to government pension plans.
Legal or QDRO malpractice also begins with the client’s expectations and when they do not receive what they expect, or what they are told they will receive, you as the attorney or advisor will have a problem difficult to resolve many years later.
There are also three major federal retirement plans most commonly encountered in divorce. They are the Civil Service Retirement System (CSRS), the Civil Service Offset plan, and the Federal Employees Retirement System (FERS). Each are very different in the calculation or payment of the benefit and which of the three a spouse will be participating in will likely be determined by the period of time the federal employee began federal employment. Other federal pensions not mention, but similar to either of the above, are the Judicial Retirement system, for federal judges, the State Department Retirement System, Foreign Service, and United Nations to name a few. CSRS and FERS are the most common and therefore will be the only pension plans referred to in this article. The above retirement annuities are automatic, or in other words, participation is mandatory. A separate and distinct but common plan that is voluntary is the federal Thrift Savings Plan or TSP.
Discovery Tip: If a federal employee makes a claim that they only have a TSP account, undoubtedly they will have a FERS or CSRS pension benefit as well. Again, CSRS/FERS participation is automatic, while TSP is voluntary.
There are generally two types of retirement plans, defined benefit (pension) plans, again designed to pay out a monthly pension benefit, and defined contribution plans (401ks, etc) which are comprised of an account balance whereby the value depends on the underlying marketable securities, e.g. mutual funds. CSRS and FERA are defined benefit plans designed to pay out a monthly pension benefit for life with annual increases.
What is confusing to some is that the federal pension plan does allow for small employee contributions, however employee contributions into a pension plan should not be confused with the value, as the plan is still designed to pay out a monthly pension benefit. This monthly pension benefit, for which the value pf the pension is derived from, most often far exceeds the amount of the employee contributions.
The employee (only) contributions into a federal pension are not even related to the benefit that will actually be paid out and only serves to provide a small death benefit in the event the federal employee dies unmarried or shortly after retirement.
For example, a FERS participant claimed that their $4,000 employee contributions was the present value of their FERS pension, with almost 20 years of service, keeping in mind that the contributions for FERS participants are a great deal less than for CSRS participants. Therefore, $4,000 over 20 years would appear somewhat understated. In actuality, the participant may have accrued a monthly benefit of approximately $1,000 per month after 20 years payable at their age 60, or $12,000 annually, resulting in a lump-sum present value nearly ten (10) times the value of the employee account balance, or approximately $60,000 in present value terms depending upon their current age.
In reality, the government’s portion of the contributions, including funding the annual cost-of-living adjustment (COLA), constitutes the majority of the overall value of the monthly pension benefit. This means that the employee contributions alone fall way short of the actual value, yet sometimes the employee account balance is the only information provided to the attorney.
Again, if you represent the non-federal employee, and the otherside provides documentation as to the “amount” of the “employee” contributions, it is not wise to accept this as the value. This is true of many municipal pension plans similar in plan design as the federal pensions. Employee contributions of twenty or thirty thousand dollars into some of the municipal pension plans will not fund, or provide for, $3,000 per month for the rest of someone’s life (with cost-of-living-increases).
If there are not sufficient assets to allocate to the former spouse, in lieu of dividing the pension benefit, it is only logical to divide the pension by a court order (COAP) wherein each party shares in the benefit at retirement. Dividing the benefit opens the door, however, to a whole host of issues not yet addressed and not often contemplated by the parties, the attorneys, or even the courts.
Practice Pointer (II): The Office of Personnel Management (OPM) who administers the plan will NOT calculate accrued benefits as of certain date, which is almost always needed in a divorce for valuation purposes. Finessing of the language is all that is necessary if the monthly CSRS/FERS is to be divided by a COAP.
Caution: If the FERS or CSRS pension is divided by a court order, if the non-employee spouse is awarded “one-half of the employee contributions” and the participant elects to receive a monthly pension benefit instead of a refund of contributions, the non-participant spouse would receive nothing upon the participant’s retirement, because the order awards contributions and not a portion of the annuity (monthly pension benefit).
With regard to using a court order to have the pension benefits paid to a former spouse of the U.S. federal employee, a few issues are worth pointing out. The FERS and CSRS plans do not accept the same terms and conditions as QDROs. QDROs apply to private industry retirement plans, although some government plans accept the term or title “qualified domestic relations order”. The court order still cannot provide the same type of benefits as a QDRO, except for the Thrift Savings Plan.
If dividing the accrued pension benefit by a court order, remember that the plan is designed to pay a monthly pension benefit, therefore the order should be drafted with emphasis placed on the monthly amount to be paid. Although the FERS and CSRS plan allows for a refund of employee contributions, this is rare since doing so would forfeit all of the employer or government’s paid benefits. You may consider stating that the employee is not to elect a refund of employee contributions. Also keep in mind that if the employee dies all benefit payments will stop unless the non-employee spouse is also awarded survivor benefits, or a portion of the survivor annuity based on their share.
Other considerations when dividing the CSRS or FERS by a COAP, is whether the former spouse’s share is to revert to the federal employee spouse, should the former spouse predecease the federal employee, or paid to the former spouse’s estate. The former spouse’s can also be paid to the children of the marriage so long as the federal employee spouse is alive. Keep in mind that the difference between CSRS and FERS is the fact that CSRS predates Social Security and therefore CSRS members receive a portion in lieu of Social Security. In fact the difference in the contribution rate, between CSRS and FERS, is 6.2% coincidentally what individuals pay into Social Security. Because Social Security is not a marital asset consideration should be given to the CSRS member to discount their CSRS annuity by a Social Security element. For more on this issue, visit www.vecon.com.
Tim Voit is the author of Federal Retirement Plans in Divorce – Strategies and Issues, available through www.vecon.com, and Retirement Benefits & QDROs in Divorce, a CCH publication. Mr. Voit is also the author of several articles on pensions in divorce. For the rest of the article on Federal Pensions, visit www.vecon.com
Anonymous says
I was married to a federal WG employee for two years. I never signed to forego his pension. He worked for the federal government for over 30 years. I remarried. He did not remarry. He is now deceased. I am just now becoming aware of His death. Am I able to collect from His pension?
Mikki says
I think you have to have been married ten years to collect on a pension.
Barbara says
My ex spouse is now retired and I was awarded 1/2 of the pension times 3 over the amount of years respondent accumulated towards the retirement. All paper work has been sent in to OPM . My question is how long does OPM take to process this request, approve or disapprove application, and either start payments or notify me of the outcome? No one seems to have an answer for this.
Rich says
In response to your above question, I am the ex spouse of a current federal employee. I submitted all the proper paperwork to obtain obtain the court order for my annuity payment upon my ex spouses retirement. Believe it or not it took them 3 years to reply that they needed more information which was a copy of my divorce property settlement. I sent that and it took them one more year to send me the court order and it is now complete. I tried dozens of times calling them leaving voicemails and I had a specific person’s name but she never returned any calls or emails. I even thought of going to DC to confront them but fortunately for me we are both still working so it had not been an issue. We will be retiring shortly and I hope my ex spouse retires soon and does not continue to work past 66. But I have no control over that. I just wanted to let you know that it takes years but eventually they will respond
Anonymous says
I also just received notice that the benefit paid to my former spouse has been updated to reflect the inclusion of my FERS annuity supplement in the new calculation. What the heck?…is this a new law? Does this supersede your divorce decree?….how is that possible since all the calculations were made on known values? What happens when the supplement ends at 62 and you go into normal social security?…..I’m angry.
Anonymous says
Cheaper to keep her dude! Miserable marriage or broke pic one
Anonymous says
Nah….. I ended up winning in my MSPB hearings….
Anonymous says
Divorce was final in 96. I am to retire Fers in 2 years. Only have the decree that states retirement was valued at 25k as of divorce. No waiver on any retirement. This is all it says..is this a COAP? I would assume it isn’t.. I know OPM will not determine a new high 3 from 86-96, will they just use the value in the decree? I read they could use the final high 3 which the ex is not entitled too..it was final in 96…??
Cheri says
I was married to a BLM employee for 12 years and have 4 young children with him. Our divorce was final last April. I had an attorney who told me he understood what the process was and what I was entitled to. After I had paid the retainer, he admitted to not knowing anything about the process at all. The divorce was finalized, but I am not even sure it was done correctly to entitle me to the correct benefits. after it was finalized, he would not proceed forward with getting me the benefits from OPM and whoever else. I am in Utah and finding it near impossible to find an additional attorney to even help me with the paperwork and the process of getting the benefits entitled to me in the divorce. Please HELP. I don’t know where to turn for help. I am trying to educate myself but finding it very difficult. Any help would be much appreciated.
Stephanie Billon says
Bad news: you only have 60 days from the date divorce was granted to get your Court Order paperwork in. In my case, I have had to put divorce “on hold” (STAY motion) because my attorney quit. I don’t think she knew what she was doing, any more than yours did. You need help – I have found two attorneys in the Washington DC area who can do the necessary paperwork, but its not cheap. Try Maureen Glackin in Maryland at 301-383-1525 or Kim Berry in Virginia at 703-668-0070. You need to be assisted with Federal Spouse Rights. I live in Delaware and have YET to find an attorney familiar (much less EXPERIENCED) in my state with federal spouse rights. Best wishes to you!
Anonymous says
….I am a Federal Employee (USPS) for 34 years, planning to retire in 8 mos……I was researching QDRO forms, when I stumbed upon this article…nowl Im a bit confused. I thought I had to go thru QDRO, but now Im reading about COAP for Federal employees regarding portion of pension going to ex spouse…which is it? Please help if you can….thanks!!
Jane Tanga says
Hi, My Federal employee husband and I want to do a clean split as we are fairly evenly matched. So I want to waive my interest in his Federal pension etc. I don’t see any reason why we can’t do that but he says it isn’t allowed. Can one spouse waive thier interest in a federal pension in a divorce settlement?
karen thatcher says
I am currently receiving my monthly QDRO share of ex’s federal CSRS pension.My question is when I start collecting my Social Security benefits (I have never worked for government or state and Iam holding off until Iam 70) will I be affected by the windfall or GPO rules of social security ?
Eva Marie Hiller says
Question: My sister was married for 12 years to a Federal employee and was divorced 37 years ago. She did not remarry after the divorce. Wording in the divorce stated that her husband the counter defendant “has been guilty of such cruel and inhuman treatment unto counter plaintiff as to render his further cohabitation with her as unsafe and improper.” There is no mention of her former husband’s pension in the divorce decree. Is my sister entitled to part of his pension? Does she need a court order? How does she obtain a court order?