“I am in the process of divorcing (prior to my federal retirement). I am considering agreeing to providing my soon to be ex-spouse partial survivor annuity and he is agreeable to paying the 5% penalty. If he pays me the penalty fee each month, am I made whole or am I at a disadvantage some other way?” – Maria.
In our experience, most divorce attorneys do not understand federal employees’ benefits. When it comes time for a married couple to determine how best to separate, you want to ensure that you are working with someone with experience with federal employee benefits. Whatever decision you and your spouse make when filing for a dissolution of marriage will be permanent and can have profound financial consequences.
Your benefits as a federal employee can be complicated. Divorce can be complicated, especially if you have been married to someone for years and accumulated a lot of shared assets.
In Maria’s question, it appears that her ex-spouse (or soon-to-be) is asking if she will provide him with a survivor benefit. If she is willing, he would then pay the “cost,” which she would give up in pension benefits.
To answer Maria’s question, we will walk through how survivor benefits and your FERS pension work.
Types of FERS Survivor Benefits
In your Federal Employees Retirement System (FERS), there are three types of survivor benefits available:
- Current spouse survivor pension.
- Former spouse pension that is voluntarily elected or awarded by court order in divorces granted on or after May 7, 1985.
- A one-time lump sum benefit.
Under FERS, the maximum survivor benefit payable is 50% of your unreduced annual benefit.
Elections you can make for Survivors.
Under FERS, you can decide what type of survivor benefit you want to leave your spouse or former spouse:
- No survivor benefit.
- A full or partial pension for a spouse.
- A full or partial pension for a former spouse.
- A combination of a full or partial annuity for a spouse and a former spouse.
Your surviving spouse will receive monthly pension payments if you have left them a survivor benefit, providing they do not marry before age 55. Or, if your spouse was married to you for at least 30 years, he or she can remarry before age 55 and continue to receive benefits (exemptions and rules apply).
When you retire, you make your surviving spouse or former spouse elections. If your divorce occurs after you have retired, you can change your surviving spouse’s elections by calling OPM and notifying them of a qualified life event.
Calculating Survivor Benefits FERS Pension for Insurable Interest Individuals
Survivor benefits are provided by reducing the retirees pension. If you are a Federal Employees Retirement System (FERS) retiree, you can calculate the cost of leaving a survivor benefit for a person with an insurable interest by using this chart:
- If the person named is older, the same age, or less than 5 years younger than the retiree, the reduction is 10 percent.
- If the person named is 5 but less than 10 years younger than the retiree, the reduction is 15 percent.
- If the person named is 10 but less than 15 years younger than the retiree, the reduction is 20 percent.
- If the person named is 15 but less than 20 years younger than the retiree, the reduction is 25 percent.
- If the person named is 20 but less than 25 years younger than the retiree, the reduction is 30 percent.
- If the person named is 25 but less than 30 years younger than the retiree, the reduction is 35 percent.
- If the person named is 30 or more years younger than the retiree, the reduction is 40 percent.
For most retirees choosing to leave their spouse or former spouse with a survivor benefit, they make one of two elections:
- Reduced Pension Benefits will provide 20% of your pension benefits to your survivors, which will cost you 10% of your monthly pension;
- Full Pension Benefits will provide 50% of your pension benefits to your survivors, which will cost you 10% of your monthly pension.
In Maria’s question, we believe she is asking if she should leave her soon-to-be former spouse a reduced pension benefit which will cost her 5% of her monthly pension. For example, if Maria were going to receive $2,000 a month, her pension would be reduced to $950 if she elected to leave her former spouse a reduced survivor benefit.
Maria’s soon-to-be ex is offering to provide her with $100.00 a month if Maria elects to leave him as a survivor benefit.
Should you leave your former spouse a FERS Survivor Benefit?
You cannot reverse this decision if you elect to leave a former spouse a survivor benefit after you have retired.
If Maria elects to leave her soon-to-be ex-spouse as a survivor and retires, that decision is permanent. If, years later, the ex-husband decides that he is no longer willing to pay Maria the $100 a month, there is very little recourse that Maria can take without going back to court. If the $100 a month was not a part of their dissolution paperwork, the court will most likely not enforce the ex paying the monthly amount.
On the surface, $100 a month may not seem like that big of a deal financially to a pre-retiree, however, over time, that is going to amount to a lot of unnecessary financial burden.
Maria, some of the ways we have seen this work successfully is if the ex-spouse pays the amount up front. For example, suppose the ex-spouse comes forward and agrees to pay the next 30 years upfront: $36,000. This shows good faith on both parties’ behalf and may be worth considering having a conversation about.