|
It is instructive to revisit the decision
in Valachovic (July 8, 2004, 780 N.Y.S.2d 222) as it relates
to the preparation of Domestic Relations Orders against a
Federal Employee’s Retirement benefits. The issue discussed
in this article is:
| |
When the subject pension
is that of a Federal Employee, an attorney representing
the employee and following the Valachovic reasoning may
craft a Property Settlement Agreement and Domestic
Relations Order that receives an unanticipated and
adverse interpretation from the federal agency that is
responsible for it’s interpretation and implementation.
This danger is most likely when a federal employee has
additional service credited as a result of pre-marital
military service. |
In addition to Valachovic this article
relied upon:
Consolidated Laws of New York, Article 13, Part B(1)(c),
Office of Personnel Management’s (OPM) Bulletin RI 83-2.
5 C.F.R.838.621(a)
In relevant part Valachovic stated:
| |
...Whether and to what extent a pension benefit is
marital or separate property is determined by the time
period in which the credit for the pension was earned... |
Clearly, Valachovic enunciated the view
that service rendered prior to the marriage is not deemed
marital service for purposes of Equitable Distribution. The
Office of Personnel Management (OPM) does not follow Valachovic.
As regards the military service of a retiring federal employee
the federal procedures to recognize prior military service and
to compute the marital part of same are different from the
procedure expressed in Valachovic.
Note:
This article deals with CSRS and FERS employees who were hired
on or after October 1, 1982. For information on a CSRS employee
hired prior to October 1, 1982 contact
Troyan Inc.
For the family practitioner representing a
federal employee it is essential to understand the differences
between Valachovic and OPM regarding the recognition of an
employee’s prior military service.
More specifically, we examine this issue as
it relates to Federal Employees who purchase military service
(which will be used to increase his or her federal pension
benefit) based on military service that was rendered prior to
entering Federal Civil Service employment and prior to marriage.
We look to OPM to understand the federal
procedures regarding the treatment of prior military service.
The relevant part of the above cited OPM Bulletin provides
guidance on the federal methodology:
| |
…If you were first
employed by the Federal Government under retirement
coverage on or after October 1, 1982, you will receive
Civil Service Retirement credit for any post-1956
military service at the time of retirement only if you
make a deposit for the military service… |
However, the OPM will credit this prior
military service at the time he or she is employed by the
Federal Government. If the individual does not pay for this
military service by the time of retirement the credited service
is removed from the employee’s record. When an employee with
prior military service enters the Federal Civil Service System
his or her prior military service is immediately recognized.
What OPM then does is adjust the individual’s actual hire date
by the amount of military service of the new employee. This
adjusted hire date is termed “Adjusted Service Computation
Date”. How this is done is indicated in the illustration below.
If the employee pays for this service prior to retirement this
adjusted date is used for all benefit calculations.
The emphasis of this article is the fact
that OPM, absent clear language to the contrary in the Domestic
Relations Order applies the instructions found at 5
C.F.R.838.621(a) and restated at OPM Bulletin RI 83-2. Unless,
specifically directed OPM will not apply the Valachovic
reasoning to your New York Domestic Relations Order. How does
this difference impact on your Domestic Relations Order?
Let us show how OPM’s adjustment of an
employee’s hire date can impact on your Settlement Agreement and
a Domestic Relations Order as it relates to the division of the
pension asset. To reflect the economic significance of this
adjustment to the employee’s hire date, the following
illustration is offered.
| Fact Pattern: |
|
| Employee: |
John Smith |
| Wife: |
Mary Smith |
John’s total military
service:
(6/1/1965-6/1/1969) |
4 years |
| Date of Marriage: |
June 1, 1974 |
| Begins Federal Employment: |
June 1, 1979 |
| Date of Complaint: |
June 1, 2006 |
| John’s date of retirement: |
June 1, 2006 |
| John’s monthly benefit: |
$4,200.00 |
Based on the above data what is the
Valachovic Coverture Fraction?
Based on the Valachovic Coverture Fraction what is Mary’s
monthly benefit?
|
First note the
following: |
On June 1, 1988 John bought and paid for
four years of military service.
Based on the OPM guidelines and the applicable C.F.R. John’s
purchase of four years of military service changed his actual
hire date of June 1, 1979 to June 1, 1975. This is known as
“adjusted service computation date” and represents credit for
purchased military time. Be clear that this “adjusted hire
date” results in OPM’s Coverture Fraction as being 100% marital,
because the parties were married prior to June 1, 1975.
| Valachovic Coverture Fraction: |
87.10% |
Numerator:
(June 1, 1979-June 1, 2006) |
27 years |
| |
|
Denominator:
(June 1, 1975-June 1, 2006) |
31 years |
| |
|
| OPM Coverture Fraction:
|
100%
|
Numerator:
(June 1, 1975-June 1, 2006) |
31 years |
| |
|
Denominator:
(June 1, 1975-June 1, 2006) |
31 years |
| |
|
|
Assuming half of the marital part of the
pension goes to Mary Smith:
|
| Pursuant to Valachovic, Mary’s monthly
benefit: |
$1,829.03 |
| Pursuant to OPM, Mary’s monthly benefit: |
$2,100.00 |
| |
|
The increase in Mary’s monthly benefit
due to OPM’s
Interpretation of “earned” or “acquired”:
|
$270.03 |
|
Conclusion:
The prudent attorney representing the
federal employee will, prior to negotiation and settlement
determine whether the member has any pre-marital military
service. Once this is known the attorney representing the
titled-spouse must craft language for the Coverture Fraction
which will make clear to OPM that an alternate method is to be
employed to compute the marital part of the employee’s
retirement benefit. That is a Valachovic format. For language to
avoid the adverse outcome to the titled-spouse as illustrated
above contact Troyaninc.com.
<= Back to Practice Aids
|
