Federal Pension Present Values

When Present Values are Needed

Federal employees are covered by either the Federal Employees Retirement System (FERS) or the Civil Service Retirement System (CSRS). These are both defined benefit pension plans which pay a monthly benefit upon retirement. Sometimes it is necessary to know the lump sum present value of all future payments for the purpose of equalizing marital assets or insuring the former spouse’s share under certain circumstances. Specifically, if a federal employee terminates work and dies before becoming eligible to commence retirement benefits there is no survivorship for a former spouse. Because of this risk, it may be wise to obtain a life insurance policy in approximate amount of the former spouse’s lump sum interest in the plan.

CSRS is unique in that those who participate in it are not covered by Social Security and are typically entitled to an offset of the value of their spouse’s Social Security earned during the marriage. To effectuate this offset, present value calculations are typically prepared for both the CSRS and Social Security benefit.

Challenges to Preparing Federal Plan Present Values

One of the main challenges when preparing a present value calculation of a Federal Government Plan is obtaining the necessary information. The Office of Personnel Management (OPM) is responsible for administering retirement benefits for Federal Employees, and it is not possible for a third party to obtain information regarding a plan participant. This means that the employee must provide the necessary information, or we will likely not be able to perform the calculation.

Another challenge is OPM’s use of the Service Computation Date (SCD) for the purposes of determining a retirement benefit of an employee. The SCD is the same as the employee’s date of employment in most cases, however, in some scenarios a purchase of military service and leave of absence service can cause complications. The SCD is adjusted forward or backward by OPM so that the amount of service as of the date of estimate, is based on elapsed time. For example, an employee could have a date of hire of August 1, 2010 but his/her SCD could have been pushed back to account for a purchase of 3 years of military time to August 1, 2007. In this scenario, it’s important to consider how a purchase of service should be treated, and to attempt to obtain documentation which provides details.

If you would like to request that we prepare a present value calculation please complete the present value request form.

Information Needed

Federal employees have the ability to obtain information online that will allow us to prepare an estimate of benefits for the evaluation. Information can also be obtained from Human Resources. We ask that the plan participant provide the following information:

  1. Date of employment and/or Service Computation Date (SCD) for retirement purposes
  2. Current accrued benefit estimate (if possible) with an immediate termination date and retirement commencement at the earliest unreduced retirement age
  3. Highest 3 years of base pay listed on Form 50 or another equivalent source
  4. Any other information that may be relevant to retirement benefits such as law enforcement service, part-time service, military time, unused sick time that will convert for retirement or redeposit service purchase.

Military Present Values

When Military Present Values are Needed

An actuarial present value report on a military pension benefit can be helpful when deciding on a method for the equalization or division of military retired pay. While not always necessary it is often used in the following scenarios:

When the service member is wanting to propose a buyout the former spouse’s interest in the military retired pay, a present value can provide the approximate amount of other assets that would be need to be offered.

If there are multiple retirement assets in the divorce, a present value of the military retired pay can be used (along with similar values for other benefits) to offset the plans against each other. Present values allow you to bring all assets (often payable at different points in time) back to a current and common date.

When the parties did not meet the 10/10 rule and a Military Retired Pay Division Order (MRPDO) cannot be prepared to directly divide the disposable retired pay, a present value can provide the marital value of the benefit to be divided or equalized in some other manner.

Recent changes to the Uniformed Services Former Spouse Protection Act (USFSPA) have eliminated the ability to use the time rule (traditional coverture) to divide military retired pay. Rather than trying to work around the conflict between federal and state law on division of military retired pay, you can use a present value to offset assets.

Even when the parties’ intention is to divide the military retired pay with a MRPDO, a present value of the benefit may be necessary. Since there is no pre-retirement survivor benefit for former spouses of military service members, an appropriate amount of life insurance can be determined based on a marital present value calculation.

Status, Rank and Years of Service

In order to prepare a present value for a military member, it is important to determine the member’s status. Is the member on active duty, in the reserves, or currently receiving retirement benefits? If the member is currently receiving monthly retirement benefits, did they retire from active duty or from the reserves? The answers to these questions not only impact the way the benefit and present value are calculated but also the way that the marital portion is determined. While the marital coverture fraction for an active duty service member is based on years of service, the same is not true for a reservist. Members of the reserves are essentially part-time participants and are granted retirement points based on the number of days they serve. The appropriate method of determining the marital portion of a reserves pension is based on those points.

In the case of a non-retired member, we will need to determine the member’s high-3 pay at the time of the evaluation to determine the monthly benefit that would become payable upon retirement. This calculation involves determining the member’s rank in the military, and if rank has changed within the previous 3 years of the evaluation date.

A member who has 20 years of active duty military service may commence benefits immediately upon the completion of 20 years of service.

A reservist can retire at age 60 if the member has obtained 20 years of what is referred to as “qualifying” years of service. A “qualifying” year is defined as a year in which the service member earns at least 50 retirement points.

Information Needed to Prepare a Military Present Value

If you would like to request a present value calculation please complete the present value request form and provide the following information:

For Active Duty Service Members:

  • The date member entered active duty
  • The member’s current rank and the date they were promoted to that rank
  • The member’s previous rank, if promoted in the last 3 years
  • The member’s current monthly pay
  • The number of years of credited service for retirement purposes
  • If current rank is a commissioned officer, is there 10 years as a commissioned officer (includes services as a warrant officer)

For Reservists:

  • Military Retirement Points Statement
  • The member’s current rank and the date they were promoted to that rank
  • The member’s previous rank, if promoted in the last 3 years
  • The member’s current monthly pay

For Service Members Who Have Commences Benefits:

  • The member’s current gross monthly benefit
  • Is part of the benefit VA Waiver? What is the disability percentage rating?
  • The form of benefit elected at the time of retirement
  • The member’s date of enlistment and information on date(s) of discharge
  • The total number of points earned at the time of retirement (reservist)
  • The number of retirement points earned between date of marriage and or the date of retirement (reservist)

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