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VALACHOVIC
FEDERAL RETIREMENT BENEFITS
DRAFTING TRAPS

It is instructive to revisit the decision in Valachovic (July 8, 2004, 780 N.Y.S.2d 222) as it relates to the preparation of Domestic Relations Orders against a Federal Employee’s Retirement benefits. The issue discussed in this article is:

When the subject pension is that of a Federal Employee, an attorney representing the employee and following the Valachovic reasoning may craft a Property Settlement Agreement and Domestic Relations Order that receives an unanticipated and adverse interpretation from the federal agency that is responsible for it’s interpretation and implementation. This danger is most likely when a federal employee has additional service credited as a result of pre-marital military service.

In addition to Valachovic this article relied upon:
Consolidated Laws of New York, Article 13, Part B(1)(c),
Office of Personnel Management’s (OPM) Bulletin RI 83-2.
5 C.F.R.838.621(a)

In relevant part Valachovic stated:

...Whether and to what extent a pension benefit is marital or separate property is determined by the time period in which the credit for the pension was earned...

Clearly, Valachovic enunciated the view that service rendered prior to the marriage is not deemed marital service for purposes of Equitable Distribution. The Office of Personnel Management (OPM) does not follow Valachovic. As regards the military service of a retiring federal employee the federal procedures to recognize prior military service and to compute the marital part of same are different from the procedure expressed in Valachovic.

Note:
This article deals with CSRS and FERS employees who were hired on or after October 1, 1982. For information on a CSRS employee hired prior to October 1, 1982 contact Troyan Inc.

For the family practitioner representing a federal employee it is essential to understand the differences between Valachovic and OPM regarding the recognition of an employee’s prior military service.

More specifically, we examine this issue as it relates to Federal Employees who purchase military service (which will be used to increase his or her federal pension benefit) based on military service that was rendered prior to entering Federal Civil Service employment and prior to marriage.

We look to OPM to understand the federal procedures regarding the treatment of prior military service. The relevant part of the above cited OPM Bulletin provides guidance on the federal methodology:

…If you were first employed by the Federal Government under retirement coverage on or after October 1, 1982, you will receive Civil Service Retirement credit for any post-1956 military service at the time of retirement only if you make a deposit for the military service…

However, the OPM will credit this prior military service at the time he or she is employed by the Federal Government. If the individual does not pay for this military service by the time of retirement the credited service is removed from the employee’s record. When an employee with prior military service enters the Federal Civil Service System his or her prior military service is immediately recognized. What OPM then does is adjust the individual’s actual hire date by the amount of military service of the new employee. This adjusted hire date is termed “Adjusted Service Computation Date”. How this is done is indicated in the illustration below. If the employee pays for this service prior to retirement this adjusted date is used for all benefit calculations.

The emphasis of this article is the fact that OPM, absent clear language to the contrary in the Domestic Relations Order applies the instructions found at 5 C.F.R.838.621(a) and restated at OPM Bulletin RI 83-2. Unless, specifically directed OPM will not apply the Valachovic reasoning to your New York Domestic Relations Order. How does this difference impact on your Domestic Relations Order?

Let us show how OPM’s adjustment of an employee’s hire date can impact on your Settlement Agreement and a Domestic Relations Order as it relates to the division of the pension asset. To reflect the economic significance of this adjustment to the employee’s hire date, the following illustration is offered.

Fact Pattern:
Employee: John Smith

Wife: Mary Smith
John’s total military service:
(6/1/1965-6/1/1969) 4 years
Date of Marriage: June 1, 1974
Begins Federal Employment: June 1, 1979
Date of Complaint: June 1, 2006
John’s date of retirement: June 1, 2006
John’s monthly benefit: $4,200.00

Based on the above data what is the Valachovic Coverture Fraction?
Based on the Valachovic Coverture Fraction what is Mary’s monthly benefit?

First note the following:

On June 1, 1988 John bought and paid for four years of military service.
Based on the OPM guidelines and the applicable C.F.R. John’s purchase of four years of military service changed his actual hire date of June 1, 1979 to June 1, 1975. This is known as “adjusted service computation date” and represents credit for purchased military time. Be clear that this “adjusted hire date” results in OPM’s Coverture Fraction as being 100% marital, because the parties were married prior to June 1, 1975.

Valachovic Coverture Fraction: 87.10%
Numerator:
(June 1, 1979-June 1, 2006) 27 years

Denominator:
(June 1, 1975-June 1, 2006) 31 years

OPM Coverture Fraction: 100%

Numerator:
(June 1, 1975-June 1, 2006) 31 years

Denominator:
(June 1, 1975-June 1, 2006) 31 years

Assuming half of the marital part of the pension goes to Mary Smith:

Pursuant to Valachovic, Mary’s monthly benefit: $1,829.03
Pursuant to OPM, Mary’s monthly benefit: $2,100.00

The increase in Mary’s monthly benefit due to OPM’s
Interpretation of “earned” or “acquired”: $270.03

Conclusion:

The prudent attorney representing the federal employee will, prior to negotiation and settlement determine whether the member has any pre-marital military service. Once this is known the attorney representing the titled-spouse must craft language for the Coverture Fraction which will make clear to OPM that an alternate method is to be employed to compute the marital part of the employee’s retirement benefit. That is a Valachovic format. For language to avoid the adverse outcome to the titled-spouse as illustrated above contact Troyaninc.com.