CSRS and FERS

1. CSRS and FERS Domestic Relations Orders

  1. Are not QDROs — The proper term to use is: “Court Order Acceptable for Processing Retirement Benefits.” CSRS and FERS are “governmental plans” and exempt from ERISA.

    1. OPM is like the plan administrator. CSRS/FERS and OPM are exempt from joinder.

    2. If you must call an CSRS/FERS order a QDRO you must expressly state that it is not a QDRO and that it is written in conformity with OPM’s regulations

    3. You must mention the regulations in the order.

  2. Benefits payable

    1. Three types of benefits — each separate and independent

      (1) Employee annuities
      (2) Refund of employee contributions
      (3) Survivor annuities [former spouse survivor annuity]

    2. A complete court order requires three separate provisions — one for each type of benefit

  3. Information

    i. Current government employment. The employing agency is the source for employment and pay information

    ii. Prior government employment. Contact OPM

    iii. Retired and former employees. Contact OPM

  4. Discovery

    i. Current employer

    (1) Subpoena or production of documents request with order, signed by a judge, or

    (2) Release signed by the employee

    ii. OPM Subpoena or release to:

    Associate Director for Retirement and Insurance
    U.S. Office of Personnel Management
    P. O. Box 16
    Washington, DC 20044-0016

    iii. Thrift account:

    Office of General Counsel
    Federal Retirement Thrift Investment Board
    805 15th Street NW
    Washington, DC 20005-2207

    iv. Annuity estimates you may want:

    If Employee is considering:
    Employee may want estimates of:
    Waiving military retired pay Annuity with and without credit for the military service
    Making a deposit for post-1956 military service Annuity with and without military service on or after January 1, 1957
    Making a deposit for civilian service Amount of the deposit and your annuity with and without credit for the refunded service
    Making a redeposit for refunded service Annuity the survivor would receive and your annuity with and without the redeposit
    Electing no survivor benefit for spouse, or electing less than all annuity as the survivor base Annuity the survivor would receive and your annuity with and without the full survivor benefit
    Choosing an “alternative annuity” at retirement (if eligible) Annuity with and without “alternative annuity” lump sum payment of retirement contributions

  5. Sources of helpful information

    i. OPM has developed a 133 page document — A Handbook for Attorneys on Court-ordered Retirement and Health Benefits Under the Civil Service Retirement System, Federal Employees Retirement System and Federal Employees Health Benefits Program. The is publication S/N 006-000-01377-5 and can be ordered at a cost of $9.50 from the Superintendent of Documents by fax at 202-512-2250 with payment by Visa or Master Card.

    ii. FMP Bulletin 830-35 — “Final Regulations on Court Orders Affecting Retirement Benefits” — August 12, 1992. Call 202-606-0775

    iii. Government Retirement & Benefits, Inc. Tel: 703-461-9100. This is a private company that conducts seminars on CSRS and FERS for the government. They publish a summary on CSRS and FERS. They are in business to answer questions on CSRS and FERS

    iv. Federal Personnel Guide, annual, new volume available February. $9.95 to Key Communications Group, Inc., P. O. Box 42578, Washington, D. C. 20015-0578 or call 301/656-0450 or fax 301/656-4554.

    v. OPM, San Francisco Regional Office. Tel: 415-974-9662
    OPM, Office of Retirement & Insurance Policy, Washington D.C. Tel: 202-606-0775

    vi. Donald W. Parkyn consults on the drafting of “court orders acceptable for processing retirement benefits.”

2. CSRS and FERS Retirement Benefits

  1. General

    i. CSRS — the “old plan”, FERS — the “new plan” (January 1, 1987), and the CSRS Offset — the possible “nightmare plan”

    ii. CSRS — was designed for the career federal employee who retires after many years of service

    iii. FERS — recognizes that federal workers don’t always work until retirement, and provides retirement that employees can take with them to other jobs (i.e. Social Security)

    iv. CSRS Offset — a modified version of the CSRS plan for employees who are mandatorily covered by Social Security but who remain in CSRS. For the most part, this involves persons rehired into federal service after January 1, 1984 who had a break in service exceeding one year, but who had at least 5 years of civilian service prior to their break in service. Social security will be applicable to and offset from the retirement earned for the post-1983 period. There is potential here to create a family law nightmare if career benefits are apportioned using the “time rule”

  2. CSRS – Civil Service Retirement System

    i. Age and service requirements

    MINIMUM AGE MINIMUM SERVICE (Years) SPECIAL REQUIREMENTS
    62 5 None
    60 20 None
    55 30 None
    any age 25 Separation must be involuntary – without cause
    50 20 Separation must be involuntary – without cause
    any age 5 Must be disabled for useful and efficient service in current position and any other vacant position at the same grade/pay level which employee is qualified

    ii. CSRS annuity formula

    First 5 years 1.5% of salary
    Second 5 years 1.75% of salary
    Service over 10 years 2.00% of salary

    Salary is the average of the high-three salary and is obtained by averaging the rates of basic pay in effect during any 3 consecutive years of service, with each rate weighted by the time it was in effect. Basic pay is the pay set by law or regulation. It does not include bonuses, overtime pay, military pay, special allowances, cash awards, holiday pay, etc.

    iii. Cost-of-living. CSRS provides full post retirement cost-of-living adjustments (if congress allocates the money!)

    iv. Thrift savings plan. Employees can contribute extra funds into a saving plan

    v. No social security is accrued or payable during CSRS covered employment.

  3. FERS — Federal Employees Retirement System

    FERS has two parts — the basic benefit plan and the thrift savings plan. In addition, there is Social Security

    i. Basic benefit plan

    1. Minimum Retirement Age (MRA) depends on the year of birth and is age 55 for those born before 1948. The MRA grades up to age 57 for those born in and after 1970

    2. Retiring under FERS

      SERVICE BASIC BENEFITS
      At least 5 years Age 62
      At least 10 years MRA, with reduced benefits(1)
      At least 20 years Age 60
      At least 30 years MRA

    3. Termination before retirement age

      (a) Wait and draw benefits at MRA

      (b) Take a refund. Under CSRS, but not under FERS, withdrawn contributions can be put back in if employee returns to government service

    ii. Benefit formula

    (1) 1% of high-three average salary per year of service
    (2)

    iii. Cost-of-living

    (1) Does not begin until age 62

    (2) CPI rate up to 2%. If CPI is over 3% then CPI less 1%

    iv. Thrift Savings Plan

    Government pays 1% into the thrift saving plan and then matches employee contributions up to THE NEXT 3%, and then matches 50% of the next 2% of employee contributions. Government contribution vests after 3 years (in some cases, after 2 years)

  4. Use of Military Service

    For employees who did not take military retirement:

    i. Service prior to December 31, 1956 — full coverage for both eligibility and benefits

    ii. Service after December 31, 1956 — full coverage for eligibility but deposit necessary (7% of military pay plus interest) to use service for benefits

    For employees receiving military retirement – waiver

    It is possible to waive military retirement and use this military service for CSRS benefits. Keep this one in mind as it can create some interesting family law problems and opportunities.

    • Military Reserve and/or National Guard time

      i. Credited as CSRS service
      ii. Receiving military retired pay

    • Military service used to determine military retirement cannot also be used for CSRS benefits, unless

      i. Military retirement is for a service-connected disability incurred in combat or

      ii. Active military service used for Military Reserve or National Guard retirement purposes or service for an initial 4-month Military Reserve or National Guard training purposes.

  5. Survivor Benefits

    1. Introduction

      i. CSRS and FERS both provide survivor benefits, but they differ greatly. However, the eligibility rules for survivor benefits are the same.

      ii. Two kinds of survivor benefits, [Former spouse] survivor annuities and insurable interest survivor annuities. The former spouse annuities may be highly subsidized (worth more than their cost) and thus may be the subject of a conflict between spouses. If this happens, an actuary is needed to assess the value of what is ultimately distributed for community property equalization purposes.

      iii. Death of employee prior to retirement

      1. CSRS:

        An employee’s spouse eligible after employee has 18 months of civilian service. An eligible spouse receives 55% of the employee’s accrued benefit. If a larger benefit would result, the spouse receives the smaller of 55% of 40% of the high-3 salary or 55% of the annuity that would result if employment continued to age 60.

      2. FERS:

        Employee’s spouse eligible after 18 months of civilian service under FERS (look for the law to change on this). If less than 10 years of service, an eligible spouse will receive a lump-sum of $15,000 (which is indexed) plus half a year’s salary (current or 3-year average). In addition, if over 10 years of service, an eligible spouse will receive an annuity of 50% of the employee’s accrued benefit.

      iv.Death after retirement

      1. CSRS

        Eligible spouse will get up to 55% of the self-only employee annuity (before reduction for survivor coverage) that Employee was receiving or a lesser amount elected or ordered when employee retired. The employee annuity is reduced to provide the survivor coverage. The monthly reduction is 2.5% of the first $300 of monthly benefit plus 10% of the amount over $300.

      2. FERS

        Eligible spouse will get 50% of the annuity Employee was receiving. The reduction to provide the survivor coverage is 10% of the annual benefit. Unlike CSRS, a smaller survivor benefit cannot be taken

  6. Court-Ordered Survivor Benefits for Former Spouses

    OPM will honor a court order issued for a marriage dissolved after May 6, 1985, that awards a survivor annuity to former spouse and reduces Employee’s annuity accordingly, if:

    1. Former spouse was married to Employee for at least 9 months, and

    2. Employee has at least 18 months of service subject to retirement deductions, and

    3. Former spouse has not remarried before reaching age 55 — former spouse survivor benefits terminate if the former spouse remarries before age 55 or dies

    4. If order issued after retirement, the first court order dividing the marital property of the retiree and former spouse. (Order after bifurcation O.K.’d)

    5. If Employee is divorced from a spouse to whom he/she< Employee was married at retirement, OPM will honor terms of a court order/divorce decree to the extent that the Employee’s annuity was reduced for survivor benefits at the time of the Employee’s retirement. However, this election must be made within two years of the divorce and the reduction percentage cannot exceed the one elected at retirement.

    6. A court order awarding a former spouse survivor annuity under CSRS is not a court order acceptable for processing unless the marriage terminated on or after May 7, 1985.

    7. In the case of a retiree who retired under CSRS before May 7, 1985, a court order awarding a former spouse survivor annuity under CSRS is not a court order acceptable for processing unless the retiree was receiving a reduced annuity to provide a survivor annuity to benefit that spouse on May 7, 1985. §838.802 (b) Note: This regulation may be subject to challenge. A challenge was mounted to invalidate a regulation that held that post bifurcation orders were “modifications” of judgments and thus could not award former spouse annuities. Newman v. Love (1992, CA FC) 962 F2d 1008.

  7. Rights of Current Spouse

    1. Current spouse takes what’s left of the survivor annuity after a court order Acceptable for Processing Retirement Benefits. Current spouse will receive a survivor annuity no greater than the difference between the court-ordered annuity and 55% of Employee’s annuity.

    2. Is it clear who can elect? Election of maximum survivor benefits for current spouse will allow current spouses to pick up former spouse’s previous portion of the survivor annuity in case former spouse loses entitlement due to remarriage before age 55, death, or under terms of the court order. Therefore, unless you provide insurable interest annuity as below, provide survivor benefits for current spouse at retirement even when court order has awarded survivor annuity to former spouse

  8. Insurable Interest Annuity

    Any employee (regardless of marital statues) who is not retiring for disability and who can prove good health may elect an insurable interest annuity for any person having an insurable interest in his/her life. If that person is his/her current spouse, both must wave the regular survivor annuity. The current spouse cannot receive both a survivor annuity and an insurable interest annuity. If the current spouse gets an insurable interest annuity because a former spouse is awarded the survivor annuity, the insurable interest annuity for the current spouse can be converted into a survivor annuity if application is made within 2 years after the former spouse loses entitlement.

    1. The employee may elect an insurable interest annuity for current spouse, if:

      i. Employee can prove good health
      ii. Employee and current spouse jointly waive regular survivor annuity (annuity will be reduced)

    2. Within two years of former spouse losing entitlement to insurable interest annuity, who may request reduction or substitution in Employee’s annuity to provide insurable interest annuity be converted to the less costly regular spouse annuity.

    3. Insurable interest annuity is available to any person with insurable interest including the former spouse.

  9. Definitions

    1. Self-only annuity

      Annuity unmodified by an reductions or offsets.

    2. Gross annuity

      The amount of monthly annuity payable after reducing the self-only annuity to provide survivor annuity benefits, if any, but before any other deduction. (The use of “gross” for less than the entire unmodified benefit illustrates why one must read regulations before attempt order drafting.)

    3. Net annuity

      The amount of monthly annuity payable after deducting from the gross annuity and amounts owed by the retiree to the United States, deductions for health benefits, deductions for life insurance, deduction for Medicare premiums, Federal income tax (restrictions), properly withheld for State income tax purposes.

    4. Employee annuity

      All of the above.

    5. Former spouse

      Spouse of an individual who performed at least 18 months of civilian service . . . an employee or Employee, if spouse was married to this individual for at least 9 months. 5 USC 8331 (23); see also 8401(12).

    6. Court

      Any court of any State, the District of Columbia, the Commonwealth of Puerto Rico, Guam, the Northern Mariana Islands, or the Virgin Islands, and any Indian Court. 5 USC 8401(7) See the regulations for further definitions.

  10. Where to Find the Law About Annuities

    5 USC 8339, 8341, 8342, 8345, 8401, 8424, 8435, 8445, 8467, 8351

  11. A Parting Note

    Play it safe. Do not bifurcate unless an order is in place providing the non employee with survivor annuity coverage. Get actuarial help in order to make sure that your division is equal.

    1. Benefits reduced 5% for each year under MRA
    2. Exception: If 62 or older with at least 20 years of service the percentage is 1.1% per years of service rather than 1.0%