Federal Pension Survivor Benefit Loophole

Federal retirement plans are not covered under ERISA and therefore cannot be divided by a QDRO.  In 1984, the federal government began to accept a form of QDRO called a Court Order Acceptable for Processing (“COAP”). A COAP is the standard vehicle to divide a federal employee’s pension benefits and can also include a provision to provide the former spouse a survivor annuity. However, there is the possibility that an individual will not receive the survivor benefit, even if it is written into the COAP.
 
If the employee resigns from federal employment before retirement and dies before beginning to draw his or her retirement benefit, the former spouse will not be eligible for benefits. The reason is that the Office of Personnel Management does not recognize the former employee as either an employee or a retiree and therefore concludes that the former spouse is not entitled to any benefit.
 
This was challenged in the federal appeals court and was upheld.
 
An exception to this exists for a former spouse who was married to a member of Congress. He or she would be entitled to a survivor annuity if the former member died before retirement from Congress. The reason is that the word “member” in the statute is interpreted to mean a “member of Congress.”
 
So, no matter how solid a COAP is, there remains a chance that survivor benefits will be denied if the employee leaves federal service and dies before beginning his or her retirement benefit.
 
One may want to consider life insurance on the employee to protect the former spouse’s portion until the employee commences with his or her retirement benefits.