Family law practitioners in the DC metro area know one thing that some others don’t: federal employee divorces are complicated. Almost 2 million civilians are currently employed by the federal government. Similarly, there are more than 2 million federal retirees and even more participants when you count surviving spouses and ex-spouses.
No matter where you practice, you have a strong likelihood of coming across a federal employee, retiree, or a federal employee’s spouse who is getting a divorce. The less often you deal with federal employees, the more difficult it is to familiarize yourself with the issues. You need to know what makes these cases different so that you don’t leave valuable benefits on the table.
Federal Employee Pensions: There Is No One-Size-Fits-All
First, know that there are a number of pensions available to civilian federal employees. Many employees that you may encounter are not even aware that they have a pension entitlement, and this is even more common with former federal employees. Most current federal employees participate in the Federal Employee Retirement System or FERS. Other employees may participate in the Civil Service Retirement System (CSRS) but you may also encounter various other pensions as well. Each of these pensions has very distinct aspects to it. Several pensions have default rules for the spouse’s entitlement, meaning no retirement court order is necessary to divide them. Various pensions have restrictions against the former spouse’s remarriage, such that if they remarry before age 55 certain benefits are lost. Employees that participate in certain pensions don’t pay into social security during their federal employment.
There is no one-size-fits-all for federal pensions because they are all so different from one another. You need to fully investigate to be sure you understand the pension you are dealing with. Don’t assume that one pension has much in common with another that you have dealt with before.
Second, there are various extra payments that can come along with federal pensions. They all must be identified so you can be sure they’re divided in the event that division is possible. For example, CSRS may have “voluntary contribution” accounts that provide a separate income stream. All the pensions provide for cost of living adjustments (in different amounts of course). All provide for the employee to take a refund of contributions in a lump sum unless prohibited by court order. Foreign Service pensions may have extra payments due to post-retirement assignments. Federal Reserve employees have various lump-sum options in lieu, or partly in lieu of an annuity. FERS employees may be entitled to a Supplemental Annuity if they retire before they are able to take social security. Or, a federal employee may be receiving employment income and retirement income as a “Phased-In” retiree.
Federal Pensions Are Not Subject to ERISA
This means that there is no way for the spouse to start collecting their share of the pension before the employee. There is no “separate interest” available and you cannot submit a “QDRO”. The Office of Personnel Management administers FERS and CSRS and as a rule of thumb you should not refer to your retirement benefit court order as a “QDRO” for a federal pension, or it will be rejected by the plan administrator. Speaking of being rejected, with the exception of the Federal Reserve, the federal government does not pre-approve retirement benefit court orders, and there is a current backlog of review and processing for many, many months. So, it behooves you to hire an expert in federal employee retirement to correctly draft your Court Order Acceptable for Processing the first time.
Health Insurance and Life Insurance for Federal Employees
Is health insurance an issue in your case? A former spouse can maintain an entitlement to the employee’s health insurance benefits under certain circumstances. Most importantly, the spouse must have an entitlement to the employee benefit and the survivor benefit. The insurance premium must be paid in full by the spouse, but they will have the benefit of the group rates and over 200 plans to choose from. This is a really valuable option and I frequently come across many cases where the attorney was not aware of how to preserve this entitlement and a spouse ended up with no health insurance, which could have been easily avoided.
How about life insurance? Federal employees participate in FEGLI (Federal Employee Group Life Insurance). These policies can cover the employee at a rate of 1x their yearly salary, or multiples thereof. It can also cover their spouse or children. There is no cash value associated with these policies, but the policy ownership can be assigned by form or court order. First, you need to know it can be assigned, and second, you need to know how to do it right.
Other Federal Benefits
You may already be thinking you should have gone into federal employment! But beyond what I have already mentioned, Federal employees have all kinds of other benefits available to them as well. They have Thrift Savings Plans (the government’s version of a 401(k)), student loan forgiveness, Flex Savings Accounts, Long Term Care Insurance, and many more.
If you don’t know what your client is entitled to, or how to divide it, then you should consider consulting an expert.
You’ve now seen how complicated this can all be. While most of these issues are complicated and nuanced, I will leave you with a brief checklist for your future reference. My book Representing Federal Employees and Their Spouses in Divorce: A Practical Guide (ABA Publishing, 2021) contains detailed and additional checklists and resources. Remember: this list is not exhaustive as all of the pensions are different! But when dividing the employee pension, remember to minimally address the following:
- The type of pension.
- How much is the former spouse receiving of the employee’s annuity? State a formula, a percentage or a dollar amount. State what annuity this share is being applied to. Be sure to use the correct terminology, which is defined by the Code of Federal Regulations.
- If you want the entitlement to be paid by the government directly, so state.
- Do you want to divide the survivor benefit? Be explicit.
- If yes to above, who pays the cost?
- Is the employee allowed to take a refund of contributions?
- Are you dividing COLAs?
- What happens if the former spouse dies first? Where does their share go?
- Are the pension “extras” being divided?
The bottom line is that if you don’t know what your client is entitled to, or how to divide it, then you should consider consulting an expert.
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