MSPB finally rules on OPM apportioning the Retiree Annuity Supplement

If you retired with eligibility for the FERS Retiree Annuity Supplement and have a court order that awards a portion of your FERS retirement benefit to your former spouse, then you may have a special interest in reading today’s column.   

The “RAS” is payable to federal employees retiring under FERS before age 62 with an immediate, unreduced retirement benefit. This benefit is in addition to the FERS retirement benefit and provides additional retirement income as a “bridge” between the retirement date and qualifying for Social Security retirement (typically at age 62).  

Often when a federal employee divorces, a portion of their FERS retirement is awarded to the former spouse at the time of the employee's retirement. OPM will honor the terms of a “Court Order Acceptable for Processing,” or COAP, that is written according to the language specified in the Handbook for Attorneys. The Handbook and the law that governs federal employee divorce issues were called into question in 2016 regarding the division of the RAS. Originally, unless the court order specifically mentioned the RAS, it wasn’t subject to division in the court order.  However, that changed in 2016.  Now, in 2023, it has changed again. Here is the background and the rest of the story: 

In 2016, I received emails from several retirees that went something like this:

Starting in August (2016), the Office of Personnel Management (OPM) started deducting payments to my former spouse from the FERS Retiree Annuity Supplement (as well as my FERS annuity). There was no prior notification, news, information, etc. The adjustment notice was sent out AFTER the August payment.  It only refers to "the Law", but with no details or clarification. They changed their "rules" this month...they have never taken deductions out of the FERS Special Retirement Supplement before.

At that time in 2016, Dan Jamison, CPA, had written the following in his September 2016, FERS Guide Newsletter:

OPM has silently changed the way that they process divorce court orders.  If you have been divorced, and a portion of your annuity was awarded to your former spouse.  The policy change has to do with the Retiree Annuity Supplement, or RAS.  Since the inception of FERS, the RAS was not subject to apportionment, unless the order 1) expressly stated that the RAS was to be apportioned or, 2) was an award based upon the Net Annuity. Orders that awarded a portion of the Gross Annuity or Self-Only Annuity did NOT have a RAS apportionment under OPM policy. OPM, citing 5 USC 8421(c), now believes that the RAS should be apportioned to the former spouse in the same way that the "regular" FERS annuity is apportioned in the order. OPM started mailing out letters in mid-July and the change was reflected on the 8/1/2016 annuity payment.  If your court order awarded your former spouse a portion of your annuity based upon a percentage or a formula, OPM will now also apportion the RAS to the former spouse using the same formula or fraction. OPM is not only applying this prospectively, but for those in annuity pay status, they are going back retroactively as well.

Fast forward to Nov. 28, 2023, and Merit Systems Protection Board ruling has reversed OPM’s decision to divide the RAS.  Here is what happened as related to me by Dan Jamison, CPA, and federal employee divorce expert:

As many of you know, the MSPB was unable to meet from January 2017 until March 2022, due to a lack of a quorum. Now that the MSPB has a quorum, they are doing a wonderful job of moving through thousands of cases awaiting review. One of those pending cases involved OPM and a policy change they instituted in June 2016 that concerns the division of the Retiree Annuity Supplement in divorce. For thirty years prior to OPM’s June 2016 policy change, OPM only apportioned the RAS when the Court Order Acceptable for Processing expressly divided the RAS. After the June 2016 policy change, OPM began to apportion the RAS in the same percentage as the award of the FERS gross annuity or self-only annuity. For example, if COAP awarded the former spouse 23% of the annuitant’s gross annuity, OPM began paying the former spouse 23% of the RAS as well. 

OPM’s Office of the Inspector General was asked to review this policy change. One of the interesting things about this case is that the June 2016 policy change is not memorialized anywhere. The OPM IG conducted a thorough review of the matter and in February 2018, issued a Management Advisory Letter which advised the agency to cease the practice of apportioning the RAS, absent an express award. OPM chose not to follow the advice of the IG and continued the practice.

As OPM IG was conducting its review of the matter, a retired air traffic controller in Denver filed a complaint against OPM with the MSPB after his RAS was apportioned to his former spouse, which was never the intent. OPM even went back six years from the policy change and paid his former spouse almost $25,000 of RAS back to June 2010. The MSPB in Denver found in favor of the complainant and OPM then appealed the judge’s decision by asking for a Petition for Review. It took over five years for the MSPB to rule on OPM’s appeal, but on 11/28/2023, the MSPB issued its Opinion and Order.  

Although it is almost 20 days after the date of the decision, we have yet to hear that OPM has issued guidance on this matter.  A strong message here is that one person can make a difference. This change didn’t come about because of a legislative change or a class-action lawsuit. It came about because ONE person stood up for themselves and filed a claim with the MSPB. Even more awe-inspiring is that this retired air traffic controller did this all without the assistance of counsel.

I can assure you that this will be a momentous undertaking by OPM. According to the latest published Civil Service Retirement and Disability Fund annual report, dated Sept. 30, 2022, there were 1,056,000 FERS annuitants as of that date. Even if just 15% of those annuitants were under age 62 in June 2016, were eligible to receive the RAS, and had a COAP on file, OPM is looking at over 150,000 cases to re-adjudicate.  

Dan Jamison, CPA, and Chris Barfield, CPA, are keeping a close eye on this matter and both have issued updates on their websites. You can see the latest developments on this matter at  https://fersguide.com/opm-mspb-decision-on-the-ras/ or www.barfieldfinancial.com. You can also email Dan Jamison at MSPB_RAS_Divorce@fersguide.com if you are an affected party.

I requested a response from OPM for today’s column, but yet, they have not provided any additional information or guidance for retirees who are affected by this decision.