Divorce Retirement Benefits: Federal Employees Retirement System
What is FERS?
Federal Employees Retirement System (FERS), enacted in June 6, 1986 is the current retirement system for employees within the U.S. federal civilian employees. The system consists of three major components: FERS annuity, which is a defined benefit plan; mandatory participation in Social Security; and the Thrift Savings Plan, a defined contribution plan discussed fully below.
FERS in Divorce Proceedings Courts have the power to issue awards to former spouses under FERS. The administration of these plans is done by the Office of Personnel Management (OPA). Unlike a private retirement plan, under these two federal retirement plans, the division of benefits is not done by a QDRO since FERS is exempt from ERISA. A FERS order is called a “Court Order Acceptable for Processing" (COAP). Through these orders, former spouses are able to benefit from these plans by receiving annuity payments and survivor benefits in divorce proceedings.
How to Divide the Retirement Benefits? Even though former spouses can be entitled to FERS benefits through court issued orders, the participant of the plan still has some power over it: The participant maintains complete control of the benefit commencement data and benefit pay-out options whereas the non-participant spouse has no control over the timing of the payment of benefits or the type of the benefit payment. The former spouse cannot start receiving the benefits until the participant himself starts collecting his own benefits. Pursuant to §831.641 of Title 5 of Code of Federal Regulations, the maximum combined total of all current and former spouse annuities based on the service of a participant equals 50% under FERS. Division of the benefits may be done using a percentage, a flat dollar amount or a pro-rata share. Pro-rata share is defined by §838.21 of Title 5 of the Code of Federal Regulations as half of the fraction whose numerator is the number of months of Federal creditable civilian and military service that the employee performed during the marriage and whose denominator is the total number of the months of Federal Civilian and military service performed by the employee. In other words, a prorate share would award the former spouse half of the benefits accrued during the time the participant worked for the government when married to the former spouse. The amount reflected by the share of the former spouse cannot exceed the amount that is payable to the participant after tax and insurance deduced.
Types of Retirement Benefits There are three different types of federal retirement benefits that are within the scope of the COAP: Employee annuities, refunds of employee contributions and survivor annuities. The former spouse has to exercise caution in deciding how to value the pension: If the former spouse chooses the pension to be valued based solely on employee refunds, or divides only the employee contributions, the former spouse would end up receiving no benefit if the participant chooses a monthly benefit as an annuity.
Survivor Annuity There are three different survivor annuity options in FERS: Full FERS Survivor Annuity, which grants 50% of the participant’s pension, Reduced FERS Survivor Annuity, which grants 25% of the participant’s pension and no survivor annuity at all. Generally, annuity payments to the former spouse terminates when the participant dies. In order to receive payments after the death of the participant, either the participant has to elect a survivor annuity or the court has to order one, which can only be done if the marriage lasted longer than nine months. The former spouse will be able to get survivor annuity only if it is along with a portion of the participant’s retirement annuity. The survivor annuity would end if the former spouse remarries before the age of 55, unless the participant and the former spouse were married for 30 years. A participant is able to change the survivor beneficiary after the commencement of benefits, unless the participant is prohibited by doing so through the COAP. The Court will look at the original divorce decree or settlement agreement in order to name the former spouse as the survivor beneficiary. The cost of the survivor annuity is paid from the gross annuity that is the total annuity of the participant including the annuity of the former spouse and thus the former spouse and the participant pay for the cost essentially mutually.
Process to Get a COAP In order to get the FERS pension of a participant, the former spouse of the participant must apply via an application letter to the Office of Personnel Management along with some other documents. If all the documents are in order, OPM will inform the participant that the former spouse applied for benefits that the COAP is in process, the date payment will commence, amount and the formula to be used.