When negotiating a divorce property settlement with a spouse employed under the Federal Employment Retirement System (FERS), it is important to know the available options [1] regarding FERS benefits. By law, all federal employees under FERS contribute a percentage of their salaries to FERS, and these contributions are deducted automatically.

Typically, the marital share of a federal employee’s FERS annuity is divided on an “as, if and when” basis. This means only if and when your spouse receives a monthly annuity will you receive your portion of that annuity. If your FERS spouse retires at his or her minimum retirement age with at least 10 years of creditable service, he or she will be entitled to receive an immediate retirement annuity. If your FERS spouse leaves federal employment before the age of 62 and has at least five years of creditable civilian service, he or she will be entitled to a deferred retirement (the annuity will begin at the age of 62), provided that his or her FERS contributions remain in the retirement system.

However, a federal employee leaving federal employment is also entitled to a lump sum refund of his or her contributions, as well as the interest on the FERS contributions for creditable service of at least one year. The interest is paid at the same rate that the government pays for government securities. The interest portion of a refund of more than $200 is taxed at the rate of 20 percent, but the refund of the retirement contributions itself is untaxed. A FERS employee leaving federal employment may also choose to roll over all or part of his or her FERS contributions to an IRA, 401(k), Thrift Savings Plan (TSP), or another retirement plan that accepts rollovers.

Generally, the future value of a FERS annuity far outweighs the value of an immediate return of FERS contributions. However, when a FERS employee leaves federal employment before eligibility for a retirement annuity, a lump sum refund or rollover should be considered. Thus, when negotiating a property settlement agreement with a FERS spouse with less than five years of creditable service, you might benefit from a provision that if your spouse leaves federal employment prior to eligibility for an annuity, his or her contributions will be refunded and divided between the parties. Likewise, if your spouse is considering leaving federal employment prior to divorce and has less than five years of creditable service, you might consider a provision which requires your spouse to roll over the FERS contribution to his or her TSP or IRA, which can then be divided between the parties.

[1] This article does not cover all issues concerning the division of FERS benefits upon divorce and does not address survivor annuities.

If you need an attorney to for any family law matter, please contact me at lbecker@offitkurman.com or 240.507.1780.

ABOUT LISA BECKER

lbecker@offitkurman.com | 240.507.1780

Lisa Seltzer Becker began practicing law in 1996. Since then, she has helped many clients in Maryland and the District of Columbia with their family law issues, including high-conflict divorces, custody cases involving special needs children, domestic violence, and premarital and postmarital agreements. Lisa is an experienced litigator, but is also a trained Collaborative practitioner and trained mediator.

For the last twelve years Lisa has also represented numerous students and families in education matters, including school discipline and bullying in public and private schools, and campus sexual assault/Title IX cases and academic misconduct cases in colleges.

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