Of money and matrimony

Court orders related to divorce or separation can have a significant impact on your federal benefits.

Court orders can divide federal retirement benefits, allocate refunds from retirement contributions, provide survivor benefits for former spouses when a retiree dies, permit former spouses to continue federal health benefits coverage and require assignment of federal life insurance.

There is a difference between a court order applying to a private-sector pension and a court order applying to federal retirement. Court orders that affect private-sector pensions are governed by the Employee Retirement Income Security Act. However, federal pensions are exempt from ERISA.

ERISA created the term "qualified domestic relations order," or QDRO, to describe a court order that divides private-sector retirement benefits. QDROs are not applicable to Civil Service Retirement System (CSRS) or Federal Employee Retirement System (FERS) benefits unless the QDRO expressly states that it is written in conformity with Office of Personnel Management regulations.

Inexperienced attorneys sometimes prepare federal retirees' court orders on the mistaken assumption that all annuities are alike. Under ERISA, a QDRO can provide that a former spouse's share of a benefit can begin when the employee reaches minimum retirement age, even if the employee is still working. However, this will not work if the retiree is receiving an annuity under CSRS or FERS.

The way to avoid mistakes in drafting divorce, separation or annulment papers is to have your attorney consult "A Handbook for Attorneys on Court-Ordered Retirement, Health Benefits," and "Life Insurance Under the Civil Service Retirement System, Federal Employees Retirement System, Federal Employees Health Benefits Program, and Federal Employees Group Life Insurance Program." These booklets are available from the Government Printing Office or from OPM.

The maximum survivor annuities payable to current and former spouses is 55 percent of the self-only annuity payable to a fed under the Civil Service Retirement System, or 50 percent under the Federal Employees Retirement System. A court order awarding a survivor annuity to a former spouse reduces the maximum that can be paid to the spouse married to the annuitant at the time of death.

An insurable interest election can be made at retirement to provide a current spouse with additional survivor benefits if the retiree is in good health. See your personnel department about an insurable interest if you are still employed and interested in this election in a divorce situation.

It is important that provisions of a decree intended to award a survivor annuity reflects the intent of the parties, and conforms to law and regulations. While orders can be changed before an employee retires or dies, they cannot be modified to effect survivor benefits afterward.

— Zall is a free-lance writer based in Silver Spring, Md., who specializes in taxes, investments and business issues. He is a Certified Internal Auditor and a Registered Investment Advisor. He can be reached via e-mail at miltzall@starpower.net.