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FEDERAL EMPLOYEES RETIREMENT SYSTEM (FERS)

DIVORCE

NEGOTIATING AND AWARDING SURVIVOR BENEFITS

PART ONE

This article seeks to acquaint attorneys with the consequences of incautious negotiation and allocation of Survivor Benefits to a Former Spouse of a Federal Employees Retirement System (FERS) employee incident to divorce. [1]

The analysis in this article relied on the Florida Supreme Court's language found in Boyett (703 So. 2d 451):

[W]e believe that this gives effect to the statutory definition of marital assets in section 61.075(5)(a), Florida Statutes (1993), n3 and to section 61.076(1),

Significantly §61.076(1), provided:

[D]istribution of retirement plans upon dissolution of marriage.—

(1) All vested and nonvested benefits, rights, and funds accrued during the marriage (emphasis mine) in retirement, pension, profit-sharing, annuity, deferred compensation, and insurance plans and programs are marital assets subject to equitable distribution.

Issue:

Based on the above phrase "accrued during the marriage" what is the "appropriate" language that is to be inserted into the Marital Settlement Agreement and COAP that assigns to the Former Spouse FERS death and survivor?

This article seeks to make clear that "appropriate language" is not easily agreed upon. Rather respective counsel will argue for radically different language.

Clarification.

The FERS Former Spouse Survivor Annuity has two forms.

25% of the participant or retiree's monthly pension benefit

50% of the participant or retiree's monthly pension benefit

Explanation.

Assume a Former Spouse's pension award is a monthly pension of $600.00. How does this pension award translate into a survivor annuity award?

Does this mean:

  • Since the monthly pension award is $600.00, the survivor annuity award is also $600.00.
  • I think not. If the survivor annuity award is $600.00 that would be not a 25% or 50% survivor annuity. Rather, it would be a 100% survivor annuity.

The view expressed in this article is that a monthly pension award to a Former Spouse of $600.00 would translate to either:

  • A 25% survivor annuity in the monthly amount of $150.00
  • A 50% survivor annuity in the monthly amount of $300.00

Your real time equivalent should mirror the above outcomes.

The Danger Is.

The artful attorney representing Former Spouse may insert language into the Marital Settlement Agreement that produces a radically different outcome.

  • This Agreement "expressly awards Jane Pacaro a Former Spouse Survivor Annuity"…
  • This Agreement "directs Listajo Pacaro to elect to provide a former spouse survivor annuity"…
  • This Agreement "directs Listajo Pacaro to elect to provide a former spouse survivor annuity"…

The above or similar language will not provide a limited survivor annuity to a Former Spouse. It will provide a Former Spouse with the full Former Spouse Survivor Annuity. [2]

Rather than being determined by Florida divorce law, it is more likely that any Former Spouse Survivor Annuity will be determined by 5 C.F.R. 838.804. The Office of Personnel Management (OPM) will interpret the language of the Court Order Acceptable for Processing (COAP) based on how that language relates to the C.F.R. [3]

Explanation.

Informed drafting consistent with Boyett, will provide the Former Spouse with a Former Spouse Survivor Annuity that is either 50% or 25% of her or his Boyett portion of the participant's retirement benefit as of:

  • Date Action for Dissolution Commenced
  • Date of Divorce

What the informed attorney representing the FERS employee should avoid is language in the Marital Settlement Agreement (as provided above) and ensuing COAP that is interpreted by Office of Personnel Management to award the Former Spouse the Full Former Spouse Survivor Annuity. Instructive of unintended drafting against Federal Benefits is the Perry Decision; 243 F.3d 1337.

The Outcome of Incautious Drafting by the Attorney Representing the Former Spouse is discussed and illustrated below.

FACT PATTERN – Typical FERS Employee [4]

FERS Employee Listajo Pacaro

Spouse of FERS Employee Jane Pacaro

Listajo's Date of Birth 6/1/1971

Date of Marriage 6/1/1996

Date of Hire 6/1/1997

Date Action Commenced 6/1/2014

Valuation Date 6/1/2014

Valuation Date Age 43.00

Life Exp @ VD 37.6

Coverture Fraction (6/1/2014) 100%

Numerator 17

Denominator 17

Salary Used to compute benefit $81,714.72

Monthly Benefit on 6/1/2014 $1,157.63

All Marital

Half to Jane $578.81

FERS Survivor Annuity.

Option 1. 50% of Jane's Retirement Annuity

Option 2. 25% of Jane's Retirement Annuity

Outcome for Jane Pacaro.

50% Former Spouse Survivor Annuity $289.41

($578.41 * 50% = $289.41)

25% Former Spouse Survivor Annuity $144.70

($578.41 * 25% = $144.70)

Caveat:

Either of the above two outcomes are consistent with Boyett. The allocation given above should be the outcome provided the attorney representing the Federal Employee used "appropriate limiting language" to award a Former Spouse a Survivor Benefit. Failure to insert language of limitation leads to the adverse outcomes illustrated below.

What IF!

  • What if the attorney representing the FERS employee was not familiar with survivor benefits provided by FERS.
  • What if the attorney representing the FERS employee accepted language in the Marital Settlement Agreement that was interpreted by Office of Personnel Management as it applied the Code of Federal Regulations?
  • What IF such insertion into the COAP resulted in an unanticipated expanded Former Spouse Survivor Annuity?

CAUTION!.

A FERS participant's ill prepared attorney permitting insertion of an expansive FSSA into the COAP facilitates a substantial increase in the FSSA paid to the Former Spouse.

Clarification.

The actual survivor annuity payable to a Former Spouse is only determinable at:

  • Death, Prior to Retirement (but with more than ten years of FERS service)
  • At Retirement [5]

Caution.

Again! The experienced practitioner representing the FERS employee will only permit a FSSA insertion into the Marital Settlement Agreement and COAP that is clearly understood and agreed to be consistent with Boyett and the C.F.R. She or he may elect to negotiate an expanded FSSA, however, such award is not to be a gratuitous grant to the Former Spouse.

BAD EXPERIENCE ILLUSTRATED!

To facilitate attorney perception of the operation of the FERS FSSA, two additional fact patterns are offered. We examine two scenarios that illustrate the impact of flawed drafting by the attorney representing Former Spouse. This incautious practitioner has caused her or his client to sustain an adverse financial impact as a result of COAP language that facilitated an expanded Former Spouse Survivor Annuity.

LISTAJO DIES FOUR YEARS AFTER THE DIVORCE

Statistical Background:

Years of Service at 6/1/2018 21

Monthly Accrued Benefit $1,702.67 [6]

Full Monthly FSSA at retirement $851.34

25% FSSA at retirement $425.67

Percent of Increase in FSSA from Date of Divorce Values

% of Increase for 50% FSSA 194.17%

% of Increase for 25% FSSA 194.17%

LISTAJO DIES ONE YEAR AFTER RETIREMENT

Statistical Background:

Monthly Retirement Benefit $3,566.10 [7]

Full Monthly FSSA at retirement $1,783.05

25% FSSA at retirement $891.53

Percent of Increase in FSSA from Date of Divorce Values

% of Increase for 50% FSSA 516.11%

% of Increase for 25% FSSA 516.11%

The chart below indicates the Former Spouse Survivor Annuity paid based on:

"Proper Drafting"

"Inappropriate Drafting" 4 Years later

"Inappropriate Drafting" after retirement

FSSA FSSA FSSA

Proper Drafting Death Death

At All Times 4 Years Later Retired

25% $144.70 $851.34 $1,783.05

50% $289.41 $425.67 $891.53

% of Increase 194.17% 516.11%



[1] A FERS participant is a Federal Employee whose Service Computation Date (SCD) is after December 31, 1983.

[2] 5 C.F.R. 838.804.

[3] A COAP is the federal equivalent of a QDRO.

[4] The average pay of a federal employee in 2012 was $81,704.00 (CATO INSTITUTE, August 2013).

[5] The FSSA will be increased for post death COLA enhancements over the lifetime of the surviving spouse.

[6] Based on a 2% salary scale and a Final Average Pay of $88,450.64.

[7] Based on an annual salary progression of 2%.