There are complex federal laws and regulations that govern retirement benefits and health, life and long term care insurance benefits for federal civilian employees and annuitants. This article provides an overview of the benefits available to them and addresses what spouses contemplating divorce should know about these benefits. A unique aspect of the DC-MD-VA area is the substantial number of federal civilian employees—over 280,000 according to recent estimates. According to a January 2014 report by the Government Accountability Office (GAO), an estimated 59,000 employees each year between 2012 and 2017 will be eligible to retire. Retirement is complicated enough but adding divorce to the mix can make it especially challenging.
Federal Retirement Plans
The Civil Service Retirement System (CSRS), the Federal Employees Retirement System (FERS), and the Thrift Savings Plan (TSP) are the major federal retirement plans. They cover employees of executive agencies, Members of Congress, their employees, law enforcement personnel, and a variety of others who work for the federal government.
CSRS covers employees hired prior to January 1, 1984; these employees are not covered under the Social Security System (except for Medicare). FERS covers hires on or after January 1, 1984 and is a three-tiered system, combining a basic defined benefit annuity, a defined contribution plan, the TSP, and coverage under the Social Security System.
The TSP works much like a 401(k) in the private sector. The government makes a contribution to the TSP for all FERS employees and additional contributions on behalf of employees who contribute to their own accounts. FERS participants hired on or after July 31, 2010 will automatically be enrolled in the TSP and will have to opt out if they do not wish to participate. CSRS employees may contribute to the TSP but without a government match.
CSRS employees may retire and start receiving an immediate annuity at age 55 with 30 years of service, at age 60 with 20 years of service, or at age 62 with 5 years of service. FERS employees may retire after reaching a minimum retirement age between 55-57 with 30 years of service, age 60 with 20 years of service, or age 62 with 5 years of service.
For both CSRS and FERS, an employee’s self-only annuity is a percentage of the “high three average” – the average of his or her highest three years of basic pay. CSRS employees receive 1.5 percentage points per year for the first 5 years, 1.75 for the next 5 years, and 2 points for all years over 10. FERS employees generally receive 1 percentage point per year of service. The annual pension amount is the high-three multiplied by the applicable percentage. A CSRS employee with 25 years of service gets 46.25 per cent of his or her high-three; a FERS employee with 25 years of service gets 25 per cent. The FERS annuity is in addition to Social Security benefits.
Phased Retirement under CSRS/FERS
After GAO reported concerns about the large number of federal employees eligible for retirement, which would create a mass exodus of skilled employees, OPM put in place a succession planning tool. Effective November 6, 2014, certain eligible employees may apply for “phased retirement” with consent of their
employing agency. Phased retirement allows an employee to transition into retirement by continuing to work 50 percent time and receive 50 percent of their monthly annuity. Employees eligible for phased retirement must: (1) have been employed full-time for at least 3 years; (2) have attained the minimum retirement age and service, except that employees age 62 with 5 years of service are not eligible; (3) have agency approval. Some employees, such as part-time workers and employees on disability are not eligible.
Phased retirees are considered full-time employees even though working a part-time schedule and will maintain their health and life insurance coverage. If approved by the employing agency, a phased retiree may elect to return to regular employment, or may elect at any time to enter into full retirement status
by submitting an application to Office of Personnel Management (OPM).
Division of CSRS/FERS Pension at Divorce
At divorce a court can award a former spouse a share of an employee-spouse’s CSRS or FERS annuity benefits accrued during marriage. OPM will honor an order so long as it states the former spouse’s
share as a fixed amount, a percentage or a fraction of the annuity, or provides a formula with variables (such as years of service) that are available in OPM records. The court order must tell OPM what to do if
an employee who is not retired applies for a refund of employee contributions — i.e., award a portion to the former spouse or prohibit the employee from receiving the refund. The annuity payments to a former spouse terminate upon the death of the retiree unless he or she elected a survivor annuity.
Survivor and Death Benefits under CSRS and FERS
An employee entitled to an annuity at retirement must separately elect a survivor annuity. An employee who is married at retirement has no choice – the survivor annuity is automatic unless the spouse
consents to waive it. The maximum CSRS survivor annuity is 55 percent of the retiree’s self-only annuity. The FERS survivor annuity is 50 percent of the self-only annuity.
A survivor annuity may be awarded to a former spouse under a court order. However, subject to a few exceptions, OPM may not honor an order awarding a survivor annuity to a former spouse if the
marriage did not last at least 9 months. The survivor annuity of a former spouse terminates upon his/her remarriage prior to age 55, unless the employee and former spouse were married for 30 years or more.
The survivor annuity can be restored if a subsequent marriage ends by death, divorce, or annulment.
The election for the survivor annuity is irrevocable and whatever level of survivor benefit was elected at retirement, whether the maximum annuity or a lesser amount, will remain in effect after divorce. If the
employee spouse is still working at the time of divorce, the court may award the former spouse all or a portion of the survivor annuity. Unless a court order provides otherwise, the cost of providing the survivor annuity – about 10 per cent of the self-only annuity – is automatically deducted from the employee’s self-only annuity before any other deductions are made (i.e., health and life insurance
premiums). If parties intend to provide a survivor annuity for the former spouse, it must be expressly stated in their marital settlement agreement. If parties are in litigation, counsel for a non-employee
spouse should ask the court to award it. In either case, a court order must provide for the award of the survivor annuity consistent with federal laws and regulations.
An alternative to the survivor annuity is the “insurable interest annuity.” If an employee is in good health at retirement, he/she may elect a reduced annuity naming a beneficiary with an insurable interest, e.g., a domestic partner. If the employee is married, spousal consent is required to elect an insurable interest annuity. One advantage of this type of annuity is that the survivor benefit does not terminate upon
remarriage before age 55. A disadvantage is federal law has no provision for recognition of a court order awarding this type of annuity. Moreover, the insurable interest annuity can be voided by a later election for a survivor benefit on behalf of a subsequently acquired spouse.
Division of TSP Accounts at Divorce
A court can award a former spouse a share of the marital portion of a federal employee’s TSP account.
Federal Employees Health Benefits Program (FEHB)
Upon divorce a former spouse will lose FEHB coverage under the employee or retiree’s family enrollment. However, the spouse can obtain his or her own health insurance in the FEHB program if he or she: (1) is covered under the employee/retiree’s FEHB health insurance for at least one day during the 18 months prior to divorce; (2) is entitled to receive a portion of the CSRS or FERS retirement annuity or a survivor annuity; (3) applies for FEHB coverage within 60 days after divorce; and (4) does not remarry before age 55. The former spouse is responsible for 100 percent of the premium. If a former spouse is not eligible for FEHB coverage, he/she may elect continuation of coverage but only for three years after the divorce. It is prudent for a former spouse to apply for temporary continuation of coverage so there is no gap in health insurance pending a decision on FEHB coverage as a former spouse.
Some divorcing couples agree to waive their rights to each other’s retirement benefits, but one spouse needs health insurance coverage. In this instance, a court order may award him or her $1.00 per month of the CSRS or FERS annuity and $1.00 per month from the survivor annuity. This award permits the former spouse to keep health insurance until his/her death.
Federal Employees Dental and Vision Insurance Program (FEDVIP)
A former spouse eligible for FEHB coverage is not entitled to continue FEDVIP coverage after divorce. Accordingly, OPM will not honor a court order that purports to award FEDVIP coverage.
Federal Long Term Care Insurance Program (FLTCIP)
A former spouse is not entitled to apply for FLTCIP coverage because he/she is not a qualified relative of an employee or retiree. However, if he/she was enrolled in FLTCIP coverage prior to the divorce, he/she may continue the coverage as long as the premiums are timely paid.
Federal Employees Group Life Insurance (FEGLI)
FEGLI is group term insurance; it does not build up any cash value. Most federal employees are eligible for basic life insurance under the FEGLI program and are automatically enrolled unless they opt out. Under the basic program, the employee pays 2/3 of the premium and the government pays the other 1/3. There are three optional insurance plans available at the employee’s cost provided he/she has the basic coverage.
Courts in DC, Maryland and Virginia do not have authority to order a spouse to provide life insurance for a former spouse after divorce. Nonetheless, it is quite common for parties to agree to maintain life insurance as part of a settlement, especially in cases involving child support, college expenses, or spousal support, and to designate the other as beneficiary. A court order incorporating a settlement agreement which provides for the former spouse to be beneficiary will be honored, even if the individual failed to execute an appropriate designation form, but only if a certified copy of the order is served on the agency before the death of the insured individual, or, if the insured is a retiree, on OPM.
A federal employee/annuitant may irrevocably assign his/her FEGLI coverage to another person, such as a former spouse. Such assignment automatically terminates the employee or annuitant’s right to change the beneficiary; however, the premium payments continue to be deducted from his/her pay or annuity. A court order will not suffice to assign an employee or annuitant’s FEGLI coverage to a former spouse. An assignment is only effective if the insured files the appropriate assignment form.
There are many decisions which need to be made as retirement approaches. Some decisions are irrevocable. Federal law and regulations are complex and they become more so in the event of divorce. Couples thinking about retirement and contemplating a divorce should consult with a domestic relations attorney who understands the unique set of rules, terms and procedures for cases dealing with federal civilian employee benefits.