The retirement benefits of members of the military are also not divided using a QDRO because these benefits are not subject to ERISA.  Instead, military retirement pay is divided using a Court Order, which will meet all the requirements of the relevant federal laws and regulations.  Central to the division of military retirement pay is the Defense Finance and Accounting Service (“DFAS”), which is akin to the Plan Administrator for private defined contribution and defined benefit plans and to the Office of Personal Management for federal civilian retirement.

A minimum of twenty years of service is required for any member of the military to receive retired pay, unless the service member is forced to retire because of disability.  Military retirement benefits are computed under one of three formulas which is keyed to the year the service member entered active duty; partial credit is given for service in the Reserves or National Guard.  Only Disposable Retired Pay, which is the service member’s total monthly retirement pay less deductions for previous overpayments of retired pay, forfeitures ordered by a court martial, certain disability retirement payments, and the amount deducted to provide a Survivor Benefit Plan annuity for a spouse or former spouse pursuant to a Court Order, can be divided by a Virginia Court in the context of a divorce.       

As with the retirement benefits of federal civilian employees, a portion of the service member’s Disposable Retired Pay cannot be paid to the former spouse until the service member actually retires.  Additionally, any survivor benefits awarded to a former spouse will stop if the former spouse remarries prior to the age of fifty-five. (Though, if the former spouse’s marriage terminates by death, divorce, or annulment, the payments can be reinstated.)  However, survivor benefit coverage must be elected by the service member on or before his retirement, even if they are required by Court Order.  As a result, a domestic attorney representing the estranged spouse of service member (or former service member) must be mindful of the service member’s date of retirement.

The retirement benefits of federal civil servants are not divided using a Qualified Domestic Relations Order (“QDRO”) because these benefits are not subject to the Employee Retirement Income Security Act (“ERISA”).  Instead, the retirement benefits of federal civil servants are divided using a Court Order referred to as a “Court Order Acceptable for Processing” (“COAP”), which will meet all the requirements of the relevant federal laws and regulations.  Central to the division of federal civil service retirement benefits is the Office of Personnel Management (“OPM”), which is akin to the Plan Administrator for private defined contribution and defined benefit plans.

An employee of the Federal government (other than those who are military personnel, who are treated differently) will be covered either by the Civil Service Retirement System (“CSRS”) or the Federal Employees Retirement System (“FERS”) depending upon when he or she began working for the federal government.  (Though, under certain circumstances, CSRS participants were able to switch to the FERS once it became available.)   CSRS participants are enrolled in a defined benefit plan similar to the pension of a private company.  However, they are not covered by Social Security and, before their retirement, they do not pay Social Security tax on their earnings.  FERS participants, on the other hand, are covered by Social Security and do pay Social Security taxes on their earnings.  In comparison to their CSRS counterparts, though, they receive a much smaller defined benefit upon retirement.  But, FERS participants are enrolled in a 401(k)-like system called the Thrift Savings Plan (“TSP”).

When dividing the pension component of federal civil service retirement benefits in the context of a divorce, it is important to remember that there are three separate types of CSRS or FERS benefits subject to division: employee annuities, refunds of employee contributions, and former spouse survivor annuities.  The participant’s TSP is also subject to division in a divorce.  A well-versed domestic attorney will assist the client in negotiating a settlement that maximizes his or her potential eligibility for these components.

One category of assets that causes much confusion for clients in the context of dividing property and debts in a divorce action is retirement benefits.  The term “retirement benefits” includes defined contribution plans such as 401(k) plans and profit sharing plans, as well as defined benefit plans such as pensions. 

Section 20-107.3(G) of the Code of Virginia addresses how these benefits are to be divided: “Upon consideration of the factors set forth in subsection E, the court may direct payment of a percentage of the marital share of any pension, profit-sharing or deferred compensation plan or retirement benefits, whether vested or nonvested, which constitutes marital property and whether payable in a lump sum or over a period of time. The court may order direct payment of such percentage of the marital share by direct assignment to a party from the employer trustee, plan administrator or other holder of the benefits. However, the court shall only direct that payment be made as such benefits are payable. No such payment shall exceed 50 percent of the marital share of the cash benefits actually received by the party against whom such award is made. ‘Marital share’ means that portion of the total interest, the right to which was earned during the marriage and before the last separation of the parties, if at such time or thereafter at least one of the parties intended that the separation be permanent.”

But, not all retirement benefits are created equal.  For instance, although most types of retirement benefits are divided using a court Order called a Qualified Domestic Relations Order (“QDRO”), the content of those QDROs differs for defined contribution plans and for defined benefit plans when the owner of the retirement benefit is (or was) an employee of a private company.  On the other hand, the retirement benefits of federal employees are divided by a court Order called a Court Order Acceptable for Processing (“COAP”).  The retirement benefits of military personnel (retired or active duty) are divided by a different type of Order.  Over the course of the next few posts, I hope to shed some light on this very complicated area of divorce law.