What rights does your spouse have to the money you have set aside in your TSP? The TSP provides spousal rights for spouses of employees and retirees, as do all employer sponsored retirement plans. Because we have two different retirement systems (FERS and CSRS), we have two different sets of rights available to spouses.
First we’ll look at spousal rights at the time of withdrawing money from the TSP and then we’ll look at spousal rights during divorce.
Under FERS, unless the spouse waives his or her right, they are entitled to receive a specific type of TSP annuity (i.e., joint-life with a 50% survivor benefit and no additional features). There are many different options offered in the current TSP annuity (which is offered by MetLife) and, in my opinion, this spousal default choice is one of the least appealing.
By saying this, I do not mean to imply that any of the TSP annuity choices are at all appealing, especially in a period of low interest rates. It turns out that TSP annuities are far and away the least popular choice among TSP withdrawals, so it appears that most spouses of separating employees are choosing to waive their right to a TSP annuity.
See also TSP Spouse and Survivor Rights at ask.FEDweek.com
Nonetheless, if you are a FERS employee, you will want to fully discuss the TSP withdrawal options with your spouse in order to get his/her informed consent. Once your spouse is aware of the alternatives, it is very likely that they will give their consent for a method of withdrawal other than the default annuity.
The spouses of CSRS employees/retirees have significantly less in the way of rights. All that is required is that the TSP notify the spouse of the choice made by the employee or retiree. The notification letter that the spouse will receive after the CSRS employee or retiree begins to take withdrawals specifically states that the spouse has no right to the TSP account.
Why is there such a difference in the way spouses are treated? There are a couple of possibilities and the one you are most likely to believe will be affected by your view of our elected representatives.
1. At the time the rules were set, all federal employees, including those who serve us in Congress, were under the CSRS system. They certainly didn’t want their spouses telling them what to do with their TSP accounts, so they only gave spousal protection to the spouses of future hires under the FERS system.
2. After seriously considering the matter and carefully weighing the alternatives, our representatives realized that the TSP was a much larger part of the retirement of a FERS person and, therefore, a much greater part of a survivor’s income. In addition, many CSRS employees would be retiring in the near future with small TSP balances. Therefore, they offered protection only to the spouses of FERS employees and retirees.
If you’re a federal employee or retiree who is getting divorced, assets such as your Thrift Savings Plan can be divided by court order. There is no federal law that prescribes any automatic award of your TSP account balance to a former spouse. You will either agree with your (soon to be ex) spouse as to the division, or the law of your state will govern the portion that is awarded. The TSP requires a Retirement Benefits Court Order (RBCO) which can be either a court decree of divorce, annulment, or legal separation; or a court approved property settlement that is incidental to such a decree. A Qualified Domestic Relations Order (QDRO) might or might not qualify as a RBCO.
The Thrift Savings Plan has a booklet, Court Orders and Powers of Attorney (last updated in September 2014), which can be found in the “forms and publications” section of the TSP website. This 31 page publication has good information, a helpful checklist and sample language that can help you or your attorney in crafting documents that will pass muster. The requirements for a RBCO can be found in this booklet.
A court order will freeze your TSP account from withdrawals and loans until the divorce action has been resolved. If you have an outstanding loan, the outstanding balance of the loan is included in the account balance for the purpose of calculating the award to the former spouse, unless it is specifically excluded in the court order.
The court order can specify the award as either a dollar amount or a percentage of the account and, regardless of the specified amount; no order can require the TSP to pay more than the participants total vested account balance.
If you end up getting divorced at some point in the future, make sure that your attorney has a thorough understanding of the rules covering federal benefits. A standard QDRO might not be approved by the TSP unless is meets specific criteria that can be found in the above referenced handbook. If you cannot find an attorney with expertise in federal benefits, provide them with the handbook.