Spouses and Annuities: A Closer Look

In last week’s column, we looked at an important, but sometimes confusing, question on retirement application forms about former spouses and annuities. 

Another part of the retirement application that can be confusing when there is a former spouse involved is the annuity election for survivor benefits (Section D of the SF-3107 Federal Employees Retirement System Application for Immediate Retirement and Section F of the SF-2801 Civil Service Retirement System Application for Immediate Retirement.) 

If you’re not married at retirement, generally you will initial the box beside Option 3: “I choose an annuity payable only during my lifetime.” If you have a former spouse who was awarded a survivor annuity in a court order, they will receive that automatically from the Office of Personnel Management. You don’t need to indicate it here. 

If you’re married at retirement, generally you will initial the box beside Option 1: “I choose a reduced annuity with maximum survivor annuity for my spouse…” Or you might choose Option 2, a reduced survivor annuity for your current spouse. (But this requires your spouse’s notarized consent). If you have a previous spouse, make the election for your current spouse the way you would have elected it if the former spouse did not exist.

Under federal regulations, awards to former spouses must be satisfied before an election for a current spouse. Suppose your former spouse was awarded a survivor annuity under FERS of 34%. Let’s assume that at retirement you elected to provide a full survivor annuity for your current spouse. At the time of your death, OPM will award 34% to the former spouse  and allocate 16% to your current spouse, for a total of 50%.

Should your former spouse die before your current spouse, OPM will allocate the entire 50% to the current spouse because of the election you made at retirement to provide a survivor benefit for your current spouse.

Even if your former spouse was awarded a full former spouse survivor annuity, which might leave no survivor benefit for your current spouse if both of them survive you, you still need to elect a full or partial survivor annuity for your current spouse to protect their right to maintain health insurance under the Federal Employees Health Benefits Program. There have been many instances where an employee failed to choose to provide a survivor annuity for their current spouse because a former spouse had been awarded a full survivor annuity. The current spouse was devastated to learn that they were not only not going to receive a survivor annuity, but were also going to lose entitlement to continuation of subsidized FEHBP. 

What if you’d like to provide a survivor benefit to a former spouse, even if they weren’t awarded a survivor annuity at the time of your divorce? This is the only time you should initial the box next to Option 5, “I choose a reduced annuity with survivor annuity for my former spouse(s) or for my spouse and former spouse(s) shown below.”

Don’t initial Option 5 if your former spouse was awarded a survivor annuity as part of your divorce. Even if a court order has the words “employee shall elect,” don’t make such an indication on your retirement application. When OPM processes the court order and they see language directing the employee to “elect,” they treat that as “award” and will process it with no action on your part.

If you are married at retirement, choosing Option 5 requires the notarized consent of your current spouse. 

My thanks to Dan Jamison, CPA, for his assistance with this article. Dan publishes the FERSGUIDE at www.fersguide.com and is a nationally recognized subject matter expert in the area of federal retirement benefit division in divorce. This article is not to be construed as legal advice. The division of retirement benefits pursuant to divorce is a complex matter. Seek the assistance of proper counsel.