Understanding the Components of a FERS Divorce
Divorcing a federal employee involves more than a standard pension. The Federal Employees Retirement System (FERS) is often described as a “three-legged stool,” with three distinct components subject to division. Understanding each leg is critical for a fair settlement. These components are the Basic Benefit Plan (the annuity or pension), the Thrift Savings Plan (TSP), and Social Security benefits. While Social Security is not a divisible marital asset, the FERS annuity and TSP are.
The Role of a Court Order Acceptable for Processing (COAP)
A divorce decree alone is insufficient to divide FERS benefits. To legally assign a portion of the FERS annuity or survivor benefits to a former spouse, a specific Court Order Acceptable for Processing (COAP) is required. The COAP provides the Office of Personnel Management (OPM) with clear, unambiguous instructions for how to distribute the benefits. Without a properly drafted COAP, OPM will not act, and the former spouse may not receive their awarded share. OPM will only begin making payments to the former spouse once the federal employee has retired and applied for their benefits.
Calculating the Marital Share of the FERS Annuity
Determining the marital portion of a FERS pension is a central aspect of the divorce process. The marital share is typically defined by a coverture fraction. The formula for this calculation is:
- Numerator: The number of months the employee worked under FERS during the marriage.
- Denominator: The total number of months of creditable federal service at retirement.
This fraction is then used to determine the portion of the final annuity considered marital property. For example, if a couple was married for 15 years (180 months) and the federal employee retires after 30 years (360 months) of service, the marital share is 180/360, or 50%. The former spouse is typically awarded half of this marital share, so in this example, they would receive 25% of the total monthly annuity. The divorce court can specify the payment as a percentage, a fixed dollar amount, or a formula, which OPM will follow.
The Thrift Savings Plan (TSP) and Divorce
The Thrift Savings Plan (TSP) is a defined contribution plan, similar to a private-sector 401(k), and is separate from the FERS annuity. TSP funds are also divisible in a divorce and require a separate court order known as a Retirement Benefits Court Order (RBCO). Unlike the FERS annuity, the former spouse does not need to wait for the federal employee to retire to receive their portion of the TSP. The former spouse can receive their share as a lump-sum payment or a direct transfer into their own retirement account, like an IRA. It is essential to consider the tax implications of dividing TSP funds, particularly when accounting for Roth vs. Traditional TSP balances.
Comparison Table: FERS Annuity vs. TSP in Divorce
| Feature | FERS Annuity (Pension) | Thrift Savings Plan (TSP) |
|---|---|---|
| Account Type | Defined Benefit Plan | Defined Contribution Plan (401(k) style) |
| Governing Order | Court Order Acceptable for Processing (COAP) | Retirement Benefits Court Order (RBCO) |
| Payment Timing | Payments begin only after the federal employee retires. | Funds can be transferred to the former spouse immediately after the divorce is final. |
| Payment Method | Monthly payments from OPM. | Lump sum payment or rollover to another retirement account. |
| Calculation Method | Typically uses a coverture fraction of marital service over total service. | Balance and contributions accrued during the marriage are divided. |
| Tax Implications | Varies; the former spouse's portion is taxable as ordinary income. | Tax-deferred funds are taxed on withdrawal; Roth funds are tax-free on withdrawal. |
Providing Former Spouse Survivor Benefits
A crucial but often overlooked aspect of a FERS divorce is the provision of a former spouse survivor annuity (FSSA). An FSSA ensures that the former spouse continues to receive a portion of the FERS annuity after the federal employee's death. This provision must be explicitly included in the COAP. If a former spouse is awarded the maximum survivor benefit (50% under FERS), it will reduce the monthly annuity payments the employee receives after retirement. If the former spouse remarries before age 55, their eligibility for the FSSA may be terminated, unless they were married to the federal employee for at least 30 years.
Conclusion
Dividing FERS benefits during a divorce is a complex process governed by federal regulations that supersede state laws on many specifics. It requires precise and clear language in legal documents, specifically a Court Order Acceptable for Processing (COAP) for the FERS annuity and an RBCO for the Thrift Savings Plan. Crucial elements to address include the calculation of the marital share, the timing of benefit payments, and the potential award of a former spouse survivor annuity. Because of these complexities and the significant financial implications, it is highly recommended to consult with a family law attorney who is knowledgeable about federal employee benefits. Failure to correctly process these documents can lead to the former spouse losing valuable retirement income and protection.
OPM provides extensive resources on court-ordered benefits for former spouses.
