Retirement planning can be a complicated process, and it becomes even more complex when considering the retirement benefits of a divorced spouse. The Federal Employee Retirement System (FERS) provides retirement benefits to federal employees, including divorced spouses. However, determining the amount of retirement benefits for a divorced spouse under FERS can be confusing. In this article, we will break down the process and provide a step-by-step guide on how to compute FERS retirement for a divorced spouse.
FERS Retirement Basics
Before delving into the specifics of FERS retirement for a divorced spouse, it is necessary to understand some basic concepts. FERS retirement benefits consist of three components: Basic Benefit, Social Security, and Thrift Savings Plan (TSP). The Basic Benefit and Social Security are defined benefit plans, meaning the benefits are predetermined based on length of service and salary. On the other hand, TSP is a defined contribution plan, and the benefits depend on the contributions made by the employee and the returns on those contributions.
Under the FERS program, an individual must meet certain eligibility criteria to receive retirement benefits, typically a combination of age and years of service. However, a divorced spouse may be eligible for benefits based on their former spouse’s employment without meeting these requirements.
Step 1: Determine Eligibility
The first step in computing FERS retirement for a divorced spouse is to determine their eligibility for benefits. To be eligible, the divorced couple must have been married for at least 10 years, and the former spouse must have served at least five years of creditable civilian service. The divorce must also be finalized before the former employee’s retirement date.
It is important to note that the eligibility of a divorced spouse is not affected by the former employee’s eligibility for retirement benefits.
Step 2: Calculate the Basic Benefit
The Basic Benefit is the core component of FERS retirement benefits, and it is determined by a formula that takes into account the former employee’s length of service and high-three average salary. For a divorced spouse, the high-three average salary is based on the former employee’s salary at the time of divorce.
The formula for calculating the Basic Benefit is: (Years of Service x 1.1%) x High-Three Average Salary = Basic Benefit
For example, if the former employee had 25 years of service and a high-three average salary of $70,000, the Basic Benefit would be $19,250 (25 x 1.1% x $70,000).
Step 3: Consider Social Security Benefits
In addition to the Basic Benefit, a divorced spouse may be entitled to a portion of their former spouse’s Social Security benefits. This is known as the Auxiliary Benefit, and it is equal to 50% of the former employee’s primary insurance amount (PIA).
The PIA is calculated based on the former employee’s earnings, similar to how Social Security benefits are calculated for individuals. However, the PIA will not be reduced by early retirement or increased by delayed retirement, as it would for the former employee.
To determine the Auxiliary Benefit, the Basic Benefit is subtracted from 50% of the former employee’s PIA. For example, if the former employee’s PIA is $2,000 and the Basic Benefit is $1,000, the Auxiliary Benefit would be $500 ($2,000 – $1,000). The maximum Auxiliary Benefit that a divorced spouse can receive is 50% of the former employee’s PIA.
Step 4: Account for TSP Benefits
TSP benefits are not considered in the computation of FERS retirement for a divorced spouse, as the former employee’s contributions and earnings on those contributions are their personal property. However, a former spouse may be entitled to a portion of these benefits through a court order.
If a former spouse is entitled to a portion of TSP benefits, it is important to consult with a lawyer to ensure that the necessary paperwork is filed with the TSP Thrift Savings Plan Service Office. This will ensure that TSP benefits for the former spouse are properly distributed upon the former employee’s retirement.
Step 5: Finalize Benefits Payment
Once all the computations have been made, the Office of Personnel Management (OPM) will determine the amount of retirement benefits for the divorced spouse. The payment will consist of the Basic Benefit, the Auxiliary Benefit, and any TSP benefits awarded through a court order.
FAQs
1. Can a divorced spouse receive FERS retirement benefits if the former employee is still working?
Yes, a divorced spouse may be eligible for FERS retirement benefits even if the former employee is still working. The eligibility of a divorced spouse is not affected by the former employee’s retirement eligibility.
2. Can a divorced spouse collect both Social Security and FERS retirement benefits?
Yes, a divorced spouse may collect both Social Security and FERS retirement benefits if they meet the eligibility criteria for both programs.
3. Can a divorced spouse receive a lump-sum payment for their portion of TSP benefits?
No, a former spouse cannot receive a lump-sum payment for their portion of TSP benefits. The benefits must be distributed as a court-ordered direct payment or transferred to a personal account.
In Conclusion
Computing FERS retirement benefits
