Dividing FERS Retirement Plans

In a case that predates Alabama’s statute on the division of retirement plans (Ala. Code § 30-2-51(b)), the Alabama Court of Civil Appeals has affirmed the trial court’s analysis of the division of a Federal Employees’ Retirement System (FERS) plan in divorce. In Harmand v. Harmand, Case No. 2040365 (Ala. Civ. App. November 23, 2005), the Appeals Court rejected the husband’s argument that federal law preempted state law, his argument that it was impermissable to make him the payor of benefits to the wife, and that it was impermissable to require that he make payments without discounting them for taxes incurred.

The parties divorced in 1995, before the effective date of the retirement division statute on January 1, 1996. The Appeals Court therefore ruled that the statute does not apply to this case. The parties had reached agreement in their divorce and had provided that the wife was to receive 1/2 the husband’s FERS retirement plan and that, if necessary, the parties would cooperate to submit a Qualified Domestic Relations Order (QDRO) to FERS. The parties did in fact submit and implement a QDRO providing that the wife was entitled to 50% of the husband’s gross monthly annuity under the Civil Service Retirement System.

The husband worked eight more years under his FERS plan before he retired. Upon his retirement with a gross monthly benefit of $1,014, the United States Office of Personnel Management (OPM) calculated that the wife’s “pro rata share” (taking into account the period of the marriage in relation to the total period of the husband’s employment) was 29.23% rather than 50%. Thus, her benefit from OPM was not $507 per month but only $296.39 per month.

When the wife filed a contempt petition, the trial court heard evidence ore tenus and ordered that the husband pay the wife an extra $210.61 to make up the difference in what the court had ordered and what FERS was paying. The trial court also ordered the husband to pay back the intervening shortfall at the rate of $100 per month.

The husband argued on appeal that federal law preempts state law and that the state court lacked authority to order the husband to pay the wife 1/2 his retirement plan, because this division exceeded the wife’s “pro rata share.” The Appeals Court examined the husband’s argument at length and determined that federal law expressly allows for decrees from state courts to determine the division in divorce of federal employment plan benefits.

The husband also argued that he should not be required to serve as payor to the wife. The Appeals Court rejected this argument too, pointing out that (a) there was nothing in the decree to preclude the husband’s serving as payor and (b) the husband had an administrative remedy available to him, namely that of submitting a revised QDRO to OPM that would accomplish the parties’ and the court’s original intent of a 50% benefit to the wife.

Finally, the husband argued that it was impermissable of the trial court to require him to deliver tax-free to the wife a benefit on which he had already paid income tax. The Appeals Court noted that (a) there was nothing in the record demonstrating the calculation methodology of OPM in withholding taxes, and (b) again, the husband could solve this problem by submitting a revised QDRO.