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October 24, 2022 Feature

The Interplay Between Military Retirements and the Federal Employee Retirements

Brent Tanner

Understanding the complexities related to military retirements in divorce tends to reside with a small bastion of experts who specialize in that area of law. There are even fewer attorneys in the nation who understand the interplay between military retirements and the federal retirements available to civilian employees. Under the federal government, federal employees contribute to a system, either under the Civil Service Retirement System (CSRS) or the Federal Employees Retirement System (FERS). Most current civilian employees will fall under the current system, which is FERS. Depending on the particular facts of the servicemember, it is possible that a portion or the entirety of the creditable active-duty military service can be counted towards the civil service retirement. Assuming that a civilian employee has five or more years of creditable service under CSRS/FERS, prior military active-duty time can be deposited by the employing agency assuming that such service was deemed honorable upon completion.

The issue for the attorneys of former spouses is to recognize that there almost inevitably remains the possibility that such creditable service time may be deposited into a federal employee retirement system, often times well after the finalization of the property division in the divorce case. The impact here is that without the utilization of precise wording, it is possible that an otherwise divisible asset contained in the military retirement is lost altogether by the conversion to the federal employee retirement. The instances in which such rollover occurs is typically when there is not the obtainment of 20 creditable years of active-duty time at the time of the divorce or there is a reserve component servicemember who has a blended period of service between active-duty time and reserve component time.

It is possible for there to be a transfer of creditable active military service to creditable civil service time to ascertain the timing of retirement as well as the annuity figures at retirement. Moreover, most occurrences of these rollovers involve FERS retirees. The FERS retirees must pay a deposit for their active-duty service to be counted towards retirement. Those under the former plan, CSRS, have different provisions, but most federal employees who are retiring now fall under FERS as CSRS was the older plan that has been phased out over time.

It is important to highlight that it still remains possible for a military retiree and FERS retiree to receive both a military retirement and a federal employee retirement at the same time. Alternatively, a military servicemember can waive military retired pay and receive all such credit as a federal employee retirement, which may be beneficial depending on the status of the military service period. Another option, which is a rare possibility truly known by only the most astute of military divorce attorneys is the combination retirement for reservists and National Guard members. If you have a servicemember whose military time is spent in such reserve component time and who also works a federal employee, the creditable active-duty (and only active duty) time can be used to calculated both the non-regular reserve retirement and the FERS annuity so long as the deposits are made to the employing agency. In other words, in such a scenario, the servicemember counts that active-duty time twice, both in the reserve retirement and the federal employee retirement.

So how does a former spouse protect himself/herself from such a conversion? First, if it is feasible, consider a buyout of the creditable service time through a present valuation assuming that other assets exist to compensate for such value. If that is not possible, consider the use of spousal support payments in lieu of such promises to pay if that is a permissible option under state law. When all else fails, absolutely insist on protective language to cover a former spouse in the event that such a rollover conversion occurs after the finalization of the property division. Federal law now permits that a former spouse may continue to receive payments under a military retirement order if the retiree has waive such retired pay towards credit to a federal employee retirement. Moreover, any such deposits of military service towards a federal employee retirement system must authorize the Office of Personnel Management (OPM) to deduct from the federal retirement the court ordered amount awarded previously to a former spouse. Even with that protective requirement, it is still vital for the former spouse (and his/her attorney) to anticipate that possibility and include specific language about any such conversion so it is both statutorily and expressly provided for in the controlling order. Perhaps most importantly, the failure to have a court order dividing the military retirement before the successful rollover of military time to a federal employee retirement may cause the federal statutory protections to not timely take effect. In that event, one would only be protected from the express requirements in the controlling orders.

All and all, the most important consideration in instances as described above is to anticipate all possible contingencies and carefully draft language in any such agreement or order to handle any scenarios that might occur in divorce cases that have military servicemembers who are not vested in their active-duty retirement but have the possibility to transfer and transition to federal employee service.

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Brent Tanner is a partner with Parker Bryan Britt Tanner & Jenkins, PLLC in Raleigh, North Carolina. Brent is known both statewide and nationally as an expert in military member family law matters. He is a member of the Editorial Board of Family Advocate and issue editor of this issue.