Federal employees earn a pension under the Federal Employee Retirement System, or FERS. Under FERS, an employee vests after 5 years of service. Federal employees are required to contribute to their pension, and their account balance is often mistaken as the value of the annuity. The actual pension is computed using a benefit formula which is equal to 1 percent of an individual’s highest three-year average pay times their years of service. If the individual retires at or beyond age 62 with 20 or more YOS, the formula is 1.1 percent of their highest three-year average pay times years of service. For employees with 30 or years of service, depending on their year of birth, they may be eligible to begin receiving an unreduced pension as early as age 55. (Note: There are special rules for special category employees such as firefighters and law enforcement.)
The FERS Supplement is paid monthly to a federal employee if their retirement is before age 62. The supplement is based on what they would receive in a Social Security benefit, but is not Social Security. COLAs apply to FERS pension as well as the FERS Supplement.
At present, if a former spouse is entitled to a portion of a FERS pension, he or she will also share in the FERS Supplement unless the Court Order Available for Processing (the government version of a qualified domestic relations order) expressly excludes it. However, if the former spouse is to receive a specific dollar amount of the FERS pension, rather than a percentage, the spouse will only receive the dollar amount and none of the FERS Supplement. If a flat dollar amount from the FERS pension is agreed upon in a divorce settlement, specific language needs to be incorporated in the settlement agreement to include the intent that a dollar amount will also be received by the former spouse from the FERS Supplement. Like Social Security, the FERS Supplement can be reduced if you earn over the earnings limit.
The FERS Supplement is a benefit often overlooked in divorce. It should be valued just like the pension, particularly if the former spouse is giving up the FERS Supplement. There might be good reasons to exclude the FERS Supplement, such as the earnings limit.