In the previous post, we provided a basic overview of both the Civil Service Retirement System (“CSRS”) and the Federal Employees Retirement System (“FERS”). The post addressed the CSRS and FERS eligibility requirements, benefit formulas, annuity types, and the requirements for completing a court order acceptable for processing (“COAP”) to apportion the employee’s benefits. This installment will expand on aspects of CSRS and FERS by tackling disability, death and survivorship, and some more of the plans’ default positions.
Disability
Federal employees who are covered under CSRS and FERS may become eligible to receive a disability annuity. Therefore, a former spouse may be awarded a portion of an employee’s annuity that would have been based on the employee’s actual service once the employee reaches a certain age. The basic eligibility requirements to receive a disability annuity both retirement systems require the employee to:
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Become disabled for the useful and efficient service for their current position, while employed in a covered position;
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have a disability that is expected to last longer than one year;
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apply for disability before or within one year of separating from service;
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have the employing agency certify that it is unable to accommodate the employee’s condition and it has considered the employee for other vacant positions; and
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undergo periodic medical examinations at the employee’s expense.
5 C.F.R. § 844.103; 5 C.F.R. § 831.1203. In addition, for FERS, the employee must have completed at least 18 months of creditable service and must apply for social security disability benefits (“SSD”). 5 C.F.R. § 844.103. In contrast, CSRS participants must have completed at least five years of creditable service (remember, there is no social security for CSRS employees) 5 C.F.R. § 831.1203(a)(1).
Computation of Disability Annuities under CSRS
Employees covered under CSRS will receive an annuity that is the greater of either the general annuity formula or the guaranteed minimum disability annuity. The general formula for calculating a CSRS annuity consists of a retirement multiplier x high-3 average salary x years of creditable service. The retirement multiplier adjusts based on an employee’s years of service as follows:
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first five years of service: 1.5% x high-3 average salary, plus
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second five years of service: 1.75% x high-3 average salary, plus
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all years of service over ten: 2% x high-3 average salary
The guaranteed minimum annuity is the lesser of 40% of the employee's high-3 average salary or the regular annuity obtained after increasing the employee’s service by the time between their disability retirement and reaching age 60. The total disability annuity amount will not exceed 80% of the employee’s average salary, regardless of whether the general or guaranteed minimum formula is used.
The disability annuity under CSRS will be reduced to account for any survivor benefits, unpaid or refunded service, and CSRS offsets.
Computation of Disability Annuities under FERS
Disability annuities under FERS are calculated similarly to the regular annuity. If the disabled employee is age 62 and has either less than twenty years of creditable service or would have been immediately eligible to retire, the formula will be 1% x high-3 average salary x years of creditable service. If the employee is age 62 with twenty years or more of creditable service, the formula adjusts to 1.1% x high-3 average salary x years of creditable service. However, if the disabled employee is under age 62 and is not eligible for immediate retirement, the benefit will be calculated as follows:
5 C.F.R. § 844.302(b). The annuity will be recalculated once the employee reaches age 62, consistent with the above. In addition, like CSRS, FERS disability annuities are reduced to account for any applicable survivor benefits.
Termination of Disability Annuities
Under both CSRS and FERS, the disability annuity may terminate when certain conditions are met. If the annuitant is under age 60, the annuity will stop if the recipient is medically recovered from the disability, re-employed with the federal government in a position that is equivalent to the one held before becoming disabled (administrative recovery), or in any calendar year where the annuitant has income that is greater than or equal to 80% of the basic pay for the position that was held at the time of the disability retirement. 5 C.F.R. § 844.401; 5 C.F.R. § 831.1208; 5 C.F.R. § 831.1209.
Death and Survivorship
A former spouse may be awarded a basic death benefit under FERS or a former spouse survivor annuity (“FSSA”) under both FERS and CSRS in a divorce, provided the benefit is specified in the COAP. The former spouse may receive a basic death benefit if the employee had at least 18 months of creditable service and the parties were married for at least nine months. If the parties were married for less than nine months, the basic benefit might still be payable if the employee’s death was accidental or there is a marital child or children. The benefit amount is $15,000, indexed, plus 50% of the higher of the employee’s final or average salary. 5 C.F.R. § 843.102. As of 2021, the indexed portion of the lump-sum benefit amount is approximately $35,000.
An FSSA is a recurring benefit payable to the former spouse after the employee’s or retiree’s death. 5 C.F.R. § 838.103. To be eligible for an FSSA, the employee must have had at least 18 months of creditable service, and the parties must have been married for at least nine months. In addition, the former spouse must state in the benefit application that they have not remarried before age 55. 5 C.F.R. § 838.721(iv)(A). If the former spouse remarries before age 55, the FSSA will terminate unless the parties were married for more than thirty years.
The maximum amount of an FSSA under CSRS is 55 percent of the rate of the self-only annuity that otherwise would have been paid to the employee or retiree. 5 C.F.R. 831.641. Conversely, the maximum amount of an FSSA under FERS is 50 percent of the rate of the self-only annuity that otherwise would have been paid to the employee or retiree. 5 C.F.R § 842.613. An FSSA can also be stated as a fixed dollar amount or as a pro-rata share of the maximum allowable amount. See 5 C.F.R. § 838.922. However, please note that any FSSA amounts awarded to a former spouse will not be available to be paid to an employee’s subsequent spouse, if applicable.
The cost of paying for an FSSA is only permissible by reducing the annuity amount to be received by the employee, former spouse, or both. 5 C.F.R. § 838.807(b). However, if the COAP is silent on allocating the costs of the FSSA, the Office of Personnel Management (“OPM”) will deduct the cost from the employee annuity. 5 C.F.R. § 838.807(c). If an FSSA is awarded during the divorce, it is prudent to negotiate which party will pay for the FSSA.
Default provisions
OPM has several default provisions for validating a COAP and dividing a CSRS or FERS annuity. However, there are two to be aware of that differ from private-sector pensions. First, CSRS and FERS annuities can only be divided using a shared interest approach. This means a former spouse can only begin collecting their portion of an annuity when the employee retires and begins collecting benefits. In addition, the payments to the former spouse cease upon the retiree’s death unless a basic death benefit or FSSA is incorporated into the COAP. Second, OPM does not review proposed COAPs. Therefore, the first time OPM will look at a COAP is after receiving a certified copy of the order signed by a judicial officer.
CSRS and FERS are highly nuanced retirement systems. This two-part series summarized a federal employee’s eligibility under each plan, the pertinent annuity types, benefit formulas, and COAP requirements and application procedures. Hopefully, these posts gave you some additional things to consider and tools for effectively dividing these plans in a divorce.
Sources:
Opm.gov/retirement-services
United States Office of Personnel Management, A Handbook for Attorneys on Court-ordered Retirement, Health Benefits and Life Insurance (1997).
United States Office of Personnel Management, Court-Order Benefits for Former Spouses (2014).
United States Office of Personnel Management, Information for Disability Annuitants (2009).