BACKGROUND

Court Order Benefits (COB) requested guidance through the clearinghouse process on whether a qualifying court order can divide the FERS annuity supplement in addition to dividing the FERS basic annuity, especially in those circumstances where the qualifying court order does not expressly address the FERS annuity supplement.

DISCUSSION

Per 5 CFR Subpart J § 838.121, “OPM [Office of Personnel Management] is responsible for authorizing payments in accordance with clear, specific and express provisions of court orders acceptable for processing.” The statutory provisions authorizing the FERS annuity supplement state that “An amount under this section [the FERS annuity supplement section] shall, for purposes of section 8467 [the court order provision section], be treated in the same way as an amount computed under section 8415 [the computation of a basic annuity section]” (codified at 5 U.S.C. § 8421(c)).

As a result, OPM is not only statutorily obligated to honor the provisions of a court order that expressly divides a FERS annuity supplement, we must also divide the FERS annuity supplement in circumstances where the provisions of a court order does not expressly mention the FERS annuity supplement in the same way as the division of the FERS annuity benefit. Note: the only exception would be if the court order expressly excludes the FERS annuity supplement from the computation of the former spouse’s share.

EFFECTS OF THE OS CLEARINGHOUSE 359 DECISION

Since the inception of FERS, OPM has not applied 5 U.S.C. § 8421(c) to include the FERS annuity supplement with the FERS basic annuity in the calculation of the benefits paid to a former spouse. The OS Clearinghouse 359 decision clarifies the need to treat the FERS annuity supplement the same way as the FERS basic annuity whether or not there is a court order on file that expressly includes the FERS annuity supplement as part of this calculation. Consequently, OPM must apply this provision to any retirement claim that meets this requirement effective with the commencing date of the FERS annuity supplement or upon receipt of the court order application.

Changes in the Annuity Roll Processing System (ARPS) and Court Order cases involving Percentage of the Gross

The Court Order Recording and Tracking System (CORTS) is a sub-system of the Annuity Roll Processing System (ARPS). COB paralegal specialists utilize CORTS for displaying, adding, changing, reviewing and deleting information pertaining to specific court orders. A calculation code is required in the CORTS Initial Payment function when triggering the benefits for the former spouse because the code determines the basis for the payments. For example: a court order awards to a former spouse 25% of the gross benefits that the annuitant receives without Cost of Living Adjustments (COLA). The COB paralegal specialist sets up the initial payments in CORTS utilizing the calculation code 01. ARPS begins making payments once the former spouse’s record has been established and is in pay status (A02).

Before modifications were made in CORTS, the system automatically applied the apportionment calculation only to the basic annuity (life rate/reduced rate). Now, CORTS has been updated to account for the inclusion of the FERS annuity supplement (code 67) as part of the amount used in the COB calculation. Note that if there is any COLA applicable, the COLA update is applied to the life rate/reduced rate annuity without affecting the FERS annuity supplement amount (code 67). These system changes will be reflected in the benefits paid to the annuitants and their former spouses on August 1, 2016, for the month of July.

To provide a better understanding of how this works, refer to the following example:

Annuitant’s monthly basic annuity (life rate/reduced rate)

$4,069.00

Plus FERS annuity supplement (code 67)
$1,162.00

Amount to be used in the calculation
$5,231.00

Court order awards 25% of the gross amount

(Calculation code 01)
$1,307.75

Recurrent COB apportionment codes 39/89 equal to
$1,307.75

These changes affect only those court order cases in which a former spouse benefit will be calculated based on a percentage of the gross (calculation codes 01, 03, 04, 05, 06, 07, 08, and 09). While the majority of these cases (cases involving a percentage of the gross calculation codes) are going to be automatically adjusted, there is still a small population of annuitants and their former spouses whose records are not being affected by this update. Those cases can be identified by the calculation codes 11, 12 and cases that appear on the Error Report.

No changes were made to the functionality of the system for the following types of cases:

  • Cases involving a percentage of the net (calculation code 02) for the FERS annuity supplement has always been included in their net amount,
  • Cases involving benefits based upon a set amount (calculation code 88), and
  • Cases that require a manual calculation (calculation code 99).

In order to complete the update, the COB paralegal specialist must manually update the amount to be used in the calculation of the benefits for the former spouse. He/she must calculate and collect any overpayment caused by the exclusion of the FERS annuity supplement in the original calculation. In addition, the COB paralegal specialist must calculate and pay any accrued benefits to the former spouse. IMPORTANT: When calculating the overpayment/underpayment amount and a COLA is involved, do NOT apply any COLA to the FERS annuity supplement.

Because the adjustments made in ARPS will recalculate only the cases that have calculation codes involving the percentage of the gross effective July 1, 2016 (payable on August 1, 2016) and forward, the paralegal specialist must manually compute any retroactive overpayments and underpayments effective from the date in which the FERS annuity supplement was originally paid or upon receipt of the court order application as of July 2016.

Reduction or Suspension of the FERS annuity supplement initiated by Retirement Eligibility and Services (RES) FERS Annuity Supplement Earnings Report (RI 92-22) and Earnings Matches with Social Security Administration (SSA) and its impact on the amount of the FERS annuity supplement paid to the Former Spouse

In addition to the annual FERS Annuity Supplement Earnings Report (RI 92-22), RES conducts verification of earnings through a computer match with the SSA. In the majority of the cases, the amount reported as salary or wages a retiree earns after retirement affects his or her continued receipt of the FERS annuity supplement.

Under 5 U.S.C. § 8421a, the FERS annuity supplement must be reduced if a retiree is under age 62 and has excess earnings. SSA sets the earnings limitation an annuitant can earn each year and continue to receive the FERS annuity supplement. Consequently, OPM must reduce or suspend the FERS annuity supplement when an annuitant’s earnings exceed the maximum permissible amount under this statute. This statute also affects the amount of the FERS annuity supplement payable to a former spouse. Note: this reduction or suspension is based solely on the annuitant’s earnings, not the former spouse’s earnings.

CONCLUSION

If an annuitant is entitled to a FERS annuity supplement under 5 U.S.C. § 8421, OPM must include the FERS annuity supplement in the calculation of a former spouse’s benefit unless the court order expressly excludes it. If OPM must reduce the amount of the FERS annuity supplement that an annuitant receives under 5 U.S.C. § 8421a because his/her earnings exceeded the earnings limitation, OPM must reduce accordingly the amount of the FERS annuity supplement, including the amount payable to the former spouse.