QDRO Corner: FERS Annuity Supplement – MSPB Decision!

The MSPB is the Merit System Protection Board. It is a quasi-judicial agency existing within the executive branch of the federal government. One of its tasks is to review the “significant actions of the Office of Personnel Management.” The Office of Personnel Management (OPM) is the administrator of the Federal Employees’ Retirement System (FERS).

A part of the FERS pension is the Annuity Supplement. This is a benefit paid to certain employees upon their retirement and is meant to act as an early social security payment to encourage these employees to retire early. Such employees this applies to are law enforcement, air traffic controllers, firefighters, and the like. This Annuity Supplement is paid between the person’s retirement and age 62 when the full payment from the FERS pension is paid.

Within the regulations governing the administration of FERS, there are sections describing how to divide each element of FERS. The provision regarding the Annuity Supplement says that it would be treated (for the purpose of any court order) in the same way the employee annuity is treated. OPM had initially understood this language to mean that if the annuity supplement was not explicitly divided within the court order (as is required for the division of the employee annuity), then it would not be divided.

Around 2016, OPM changed its interpretation and decided it would divide a retired employee’s Annuity Supplement, and that such division would apply retroactively even if the court order was silent on the matter. As such, OPM would be treating the Annuity Supplement the same as the employee annuity by dividing it in the same manner that the employee annuity is divided. The reason for this was to create continuity between FERS and its predecessor plan, the Civil Service Retirement System (CSRS). Under CSRS participants did not pay into social security, so the benefit under CSRS is larger than under FERS because CSRS was designed to include the social security benefit. Since the Annuity Supplement is an approximation of a social security payment but to certain FERS participants, OPM believed it needed to correct its approach.

This decision caused a change to a great many retiree’s benefit payments. Not only would the people receiving the Annuity Supplement have to divide those funds, but their benefits were further reduced to pay the amount of the Annuity Supplement that their former spouse should have been receiving since the employee retired.

One affected retiree appealed OPM’s decision to divide his Annuity Supplement and to retroactively adjust the payments to his former spouse in 2018. Due to a lack of quorum on the MSPB, the case had been sitting until its decision in November 2023.

The MSPB decided that OPM’s original treatment of the Annuity Supplement, i.e.: as a separate element of the FERS plan that must specifically be divided was the correct interpretation. As such, any payments that OPM adjusted during the period 2016 through the MSPB’s decision in 2023 must be reversed.

The MSPB’s analysis explains that the language of the regulations requires the treatment of the two elements under the court order to be the same. The treatment is first whether the part of the plan is divided. Second, if it is divided, how is the former spouse’s share to be calculated. The regulations do not require that the two pieces, specifically the Annuity Supplement and the employee annuity, be calculated in the same manner. More importantly, also, that OPM’s justification that the FERS and CSRS plans should have continuity in these areas was unsupported. The fact that they are different plans and interact with social security differently inherently means that the two plans should be different in their administration.

What does this mean for the attorney handling a divorce that includes a FERS pension?

As per usual, be specific. First, does the annuity supplement even apply? If the federal government employee’s job is nothing like law enforcement, air traffic control, or firefighter, chances are they are not even eligible for the benefit. If they are eligible though, be clear, and award the former spouse a share if that’s what the parties agree. Make sure the award is in the parties’ agreement and the court order dividing the FERS pension. Notably, OPM will not double-check the parties’ agreement to make sure everything made it into the FERS Order. However, OPM can reject the order if additional awards are made in the court order that are not included in the agreement or divorce decree.

If you represent a client and federal government retirement benefits are at issue, contact us at 240-396-4373 can schedule a consultation with us to discuss the benefits, how they are accrued, what can be divided, and how long the division process takes.