What federal employees get wrong about divorce and retirement

Sometimes, life comes with unpleasant surprises. From a financial planning and retirement preparation perspective, one of the most difficult is divorce.

One person who knows a lot about this topic is Dan Jamison, a CPA and retired FBI special agent. Over the years, he has shared information with me that might help those going through this process. Dan specializes in assisting federal employees and annuitants with the division of retirement benefits in divorce and has written the popular FERS Retirement and Benefits Guide.

CSRS or FERS retirement benefits

The number one misunderstanding, in Dan’s experience, occurs when a former spouse of a federal employee is granted a pro-rata award of a federal retirement benefit, but there is no mention of a survivor annuity that is payable to the former spouse.

Another common oversight is when a survivor annuity is awarded to a former spouse without the level of survivor annuity being defined. In such cases, the Office of Personnel Management interprets it as a full survivor annuity.

Many times, employees don’t fully understand this until after retirement. After the retirement or death of the employee, the survivor annuity portion of a divorce agreement or court order can’t be modified.

Got a question for federal retirement expert Tammy Flanagan? Send to us at newstips@govexec.com and she might answer it during our live webinar on June 18. Stay tuned for details.

Another problem can arise if the former spouse was awarded full survivor benefits and the employee remarries. The survivor annuity is paid on a “first come, first served” basis, which means the former spouse will receive the court-ordered benefit and there may be little to nothing left for the new spouse if the employee dies before either of them.

In this situation, you should elect the survivor benefit for your current spouse that you would have chosen if there wasn’t a court-ordered award to your former spouse.

Remember that your current spouse will not receive the benefit, however, unless the former spouse loses entitlement due to his or her death or remarriage before age 55. If your marriage had lasted 30 years or more, remarriage will not cause the former spouse to lose entitlement.

You also can choose an “insurable interest” survivor election at retirement so your current spouse would be entitled to 55% of your reduced retirement benefit, even if the former spouse is eligible for the court-ordered benefit.

This would cause your retirement to be reduced twice, so it can be expensive. You must select the insurable interest survivor benefit at the time of retirement and prove your insurability, meaning your good health.

Remember, if your current spouse is not entitled to a spousal survivor annuity, they also might lose entitlement to health benefits if you die first unless they are entitled under their own federal employment or retirement benefit.

If an employee provides an insurable interest survivor annuity and the former spouse subsequently loses title to their survivor annuity, the insurable interest survivor annuity can be converted by OPM back to a normal spousal survivor annuity.

Dan says that in most cases the intent of the parties in a divorce is to award a survivor benefit in the same amount as the annuity award so that the former spouse receives the same amount of annuity regardless of whether the retiree is alive or deceased.

For example, if the portion of the retirement annuity payable to the former spouse is $20,000 per year, then the survivor annuity is often spelled out in the divorce agreement as the same amount.

If the employee has not yet retired, the divorce decree can be superseded at OPM by a new court order with revised survivor annuity terms.

Follow-through failure

Another area of concern, according to Dan, is the lack of follow-through after a divorce is finalized.

Upon finalization of a divorce in which a portion of a retirement annuity and/or Thrift Savings Plan funds are awarded to the former spouse, separate court orders for the TSP and OPM must be prepared to divide the funds.

The dividing order for the TSP is called a Retirement Benefits Court Order. The order for OPM to divide the annuity is called a Court Order Acceptable for Processing.

A COAP may award several retirement-related benefits, including survivor annuity, refunds of retirement contributions, health benefits and assignment of life insurance, as well as a portion of the retirement.

If you have been through a divorce, take a moment to locate a copy of your decree and/or settlement agreement.

Ensure that the appropriate court orders have been obtained and sent to the appropriate agencies at least one year prior to your anticipated retirement.

OPM will mail a determination letter to both parties after receipt of a COAP. Locate that letter as well and make sure it reflects your understanding of the award.

Another mistake employees sometimes make is failing to inform their Federal Employees Health Benefits Program carrier about their divorce.

Dan said he recently talked to someone who had been divorced for two years and was still carrying his ex-wife on self-and-family FEHBP enrollment. This is not allowed.

Upon the issuance of a divorce decree, only your current spouse and your dependent children can be covered under your FEHBP plan.

I know of divorced feds who are being sued for tens of thousands of dollars by FEHBP carriers for this mistake.

A former spouse may have rights to carry FEHBP coverage through spouse equity provisions of the law, but he or she must enroll in their own plan and pay both the employer and employee share of the premium.

Causes for delay

Here are a few additional divorce-related factors that can cause delays in processing a retirement application:

• OPM automatically rejects a court order that isn’t a certified copy, and an applicant may not even know this has occurred. If you’re unsure whether a court order sent to OPM is certified, call the agency’s Court Order Benefits Branch at 202-606-0222 or email retire@opm.gov.

• OPM does not automatically start annuity payments to a former spouse upon an employee’s retirement. The former spouse must apply to OPM by written letter, confirming their marital status, personal identifiers and the status of the COAP.

• Many former spouses fail to continue health insurance under the FEHBP temporary continuation of coverage program or coverage under the spouse equity provisions of the Federal Employees Retirement System within the prescribed 60-day period after the marriage ends. This can leave the former spouse without health insurance benefits.

• You must notify your agency’s human resources office, and you need to complete SF 2809, the Health Benefits Election Form, if you want to change your enrollment from self and family or self plus one to self only, or vice versa. You must let the health plan know the date of the divorce so that your ex-spouse can be removed from your enrollment.

If you’re facing the possibility of divorce or if you’ve already gone through the process, OPM provides a publication that may come in handy: Court Order Benefits for Former Spouses.

Federal Employees Group Life Insurance qualifying life event

Divorce is a life event under FEGLI when an employee, not a retiree, may elect Basic insurance and all Optional insurance coverage, including up to the maximum number of multiples of Option B and/or Option C coverage.

The time limit for making a life event election is 60 days after the date of the qualifying event.

You must file the election with your employing office using the Life Insurance Election form, SF 2817, or its electronic equivalent, along with proof of the event.

You can either file the election before the event, to be followed up with the necessary proof within 60 days after the event has taken place, or you can file the election and provide the necessary proof no later than 60 days after the date of the event.

Proof of an event is your divorce decree. Your employing office determines what is acceptable proof of the life event, not OPM or OFEGLI.

You may want to consider completing a new designation form.

For example, a divorce does not invalidate a designation that names your former spouse as beneficiary, nor do state laws invalidate a designation unless a valid court order names the former spouse to receive FEGLI benefits.

You need to complete a new SF 2823 to remove a former spouse.

In addition to filing your court order with OPM’s Court-Ordered Benefits Office, if there is a FEGLI benefit provided for in the court order and you are an active employee at the time of filing, a copy of the court order must be filed with your agency, too.

Example: Martin is a married employee with FEGLI coverage. He has no designation of beneficiary form on file. He divorced his spouse, Kayla. They have no children.

The divorce court order provides that Kayla is entitled to a future share of Martin’s retirement annuity and to 100% of his FEGLI insurance.

Kayla’s attorney properly files a copy of the court order for the future annuity share with OPM’s Court-Ordered Benefits Branch but does not file a copy with Martin’s agency. Martin also does not file the court order with his agency.

Martin later dies as an active employee. Because the court order awarding FEGLI benefits is not on file with the appropriate office, in this case his employing agency, at the time of his death, FEGLI proceeds will be paid based on the order of precedence, so his parents will receive the proceeds.

You may assign your insurance to comply with an order issued by a divorce court requiring that a former spouse and/or children from a previous marriage be named as the beneficiary of FEGLI proceeds.

If a court order requires you to make an assignment, you must still complete an assignment form for the assignment to take place. A court order requiring an assignment is not a valid assignment.

You may make an assignment by completing an Assignment, Federal Employees’ Group Life Insurance form (RI 76-10).

Only the insured, or an assignee reassigning the insurance, may assign the insurance. No one may make an assignment on the insured or assignee’s behalf.

The assignment form must be signed by two witnesses. An assignee cannot be a witness to the assignment.

An assignment is effective on the date your employing office receives the properly completed, signed and witnessed form.

The assignment must specify percentages or fractions of the insurance to go to each assignee. The percentages must total 100%, or fractions must equal 1.0.

You cannot name contingent assignees in the event the primary assignee or assignees predecease you. You cannot assign dollar amounts, and you cannot assign specific types of coverage.

The TSP and divorce

Your former spouse could be awarded a portion of your TSP account if a valid Retirement Benefits Court Order to divide your account is issued.

The RBCO can be issued at any time in divorce, annulment and separation proceedings.

Read the TSP booklet Court Orders and Powers of Attorney to learn more about RBCOs and how they can affect your TSP account.

The rules for qualified domestic relations orders that apply to private-sector plans do not apply to the TSP.

A valid RBCO requires the TSP to freeze your account, preventing you from taking any new loans or withdrawals until the award is paid out or the order is otherwise resolved.

However, a freeze will not prevent you from making contributions or changing your contribution allocation or investment choices, and you will still be required to make payments on existing loans.

In addition, the TSP’s Court Order Center provides a booklet, Court Orders and Powers of Attorney.

Social Security benefits for former spouses

If you were married for at least 10 years before your divorce, your ex-spouse may qualify to receive benefits on your record.

Or you may qualify for benefits as an ex-spouse on his or her record if you are not currently married.

Note: If you were married to the same person more than once during a 10-year period, you or your ex-spouse may still qualify.

Social Security can count those marriages as one if you remarried no later than the calendar year after the year the divorce became final.

Contact Social Security or make an online appointment if you want to file for divorced spouse’s benefits.

For more information about spouse benefits, see Who can get Family benefits.

Widow’s and widower’s benefits

If you are the widow or widower of someone who worked long enough under Social Security, you may be eligible for benefits on his or her record.

Social Security will use the information you give about your prior marriage along with your other responses to evaluate whether you can receive benefits on your deceased spouse’s record.

For more information about benefits for widows and widowers, go to Who can get Survivor benefits.