By: Richard S. Wetzler, J.D.
Understanding the effects a divorce has on a federal employee’s retirement is important. Three types of retirement plans that will be addressed are the Federal Employee Retirement System (FERS), the Civil Service Retirement System (CSRS), and the Thrift Savings Plan (TSP).
Federal Employee Retirement System & Civil Service Retirement System
Divorce affects FERS and CSRS similarly. The Office of Personnel Management (OPM) handles the administration of these two retirement plans. In a divorce, specific language in a court order divides FERS and CSRS. Courts can issue orders awarding benefits to legally separated spouses, former spouses, and children of current employees, former employees, and retirees. Benefits that can be awarded include:
- Retirement benefits (while federal employee and former spouse are still living)
- Survivor benefits (payable upon federal employee’s death before or after retirement)
- FERS basic death benefit (payable upon the death of a FERS employee)
- Refund of federal employee’s retirement contributions
- Return of retirement contributions upon the death of a federal employee or recent retiree
- Continued enrollment in the Federal Employees Health Benefits Program (under certain circumstances)
- Federal Employees Group Life Insurance benefits paid to a former spouse upon federal employee’s death
- Thrift Savings Plan funds.
Any of the above benefits must be specifically spelled out in the divorce agreement (in the form of a court order). Otherwise, the former spouse will not be entitled to the benefit that is not spelled out. In addition, the necessary court order in this process is not a qualified domestic relations order. That type of order is used for private pension plans.
Thrift Savings Plan
A TSP, similar to a 401(k) plan, is operated by an agency of the federal government. However, unlike FERS and CSRS, a TSP is administered by the Federal Retirement Thrift Investment Board, so there are additional requirements that must be satisfied in order to divide a TSP. A TSP account can be divided in two ways. First, it can be divided by means of a court decree of divorce. Second, it can be divided by means of a court order or court-approved property settlement agreement, which is part of a decree of divorce. A court order may be issued at any stage of a divorce, and a TSP refers to a court order as a “retirement benefits court order.”
After receiving a court order that is issued in an action for divorce, the TSP will “freeze” a federal employee’s account as soon as possible. Once an account is frozen, no new loans or withdrawals are permitted from the account until the action is resolved. All other account activity will be permitted, including investment decisions and payments on existing loans. The freeze on a federal employee’s TSP account can be removed in one of the following ways:
- If the account was frozen upon receipt of an incomplete court order, the freeze will be removed if a complete copy of the order is not received within 30 days of the TSP’s written request for a complete copy.
- If the account was frozen in response to a court order issued to preserve the status quo (freeze order), the freeze will be removed when the TSP receives a court order that removes the freeze, or when the TSP receives a court order that purports to require a payment from the TSP (described below).
- If the account was frozen in response to an order that purports to require a payment from the TSP, or in response to a freeze order, the freeze will be removed as follows:
- If the court order requires a payment from the TSP, the freeze will be removed after the payment is made.
- If the court order is not qualifying, the account will remain frozen for 45 days from the date on which the TSP informs the parties in writing that the order does not qualify. The freeze will be removed sooner if the TSP receives a written agreement – signed by both of the parties involved in the divorce proceeding – that it may be removed.
A TSP account can also be garnished with a writ, order, summons, or similar document in the nature of a garnishment that is brought to enforce a federal employee’s child support or alimony obligation. The TSP refers to this type of document as a “legal process.” A federal employee who is liable for alimony or child support can be prevented from withdrawing from his or her TSP account. The federal employee’s account will be frozen as soon as possible after the TSP receives a legal process that 1) expressly names the TSP and 2) either requires a payment from the TSP to satisfy a child support or alimony debt or requires the TSP to withhold a portion of the federal employee’s account in anticipation of an order to make such a payment. The freeze will be removed 1) if a legal process requires a payment from the TSP and the payment is made or 2) if a legal process does not qualify to require a payment from the TSP.
A divorce is a difficult time for anyone, and it is crucial for federal employees to understand the issues surrounding their retirement during a divorce. These issues can be complex, and consulting an attorney is in one’s best interest. At the very least, one should contact the Office of Personnel Management because it has a court order unit that reviews orders and determines if the court orders are acceptable for processing.
The author of this article may be contacted at:
Richard S. Wetzler
Martin, Pringle, Oliver, Wallace & Bauer, LLP
6900 College Boulevard, Suite 700
Overland Park, KS 66211
Tele: (913) 491-5500
Fax: (913) 491-3341
rswetzler@martinpringle.com
