Determining 'Net Annuity' and Payments to an Ex

By on November 2, 2015 in Q&A with 1 Comment

Q: I have contacted some HR folks and have gotten different answers as to how “net annuity” is calculated for what I and my ex have to respectively pay each other when we retire. Some say that you can just deduct your election for survivor benefits for current spouse and Medicare. Others have said you can also deduct health premiums. Then, to go a step further, others claim based on the CFR that you can also deduct federal and state income taxes from the gross annuity to reach the net annuity. It is the net annuity that is used to compute what my ex and I respectively pay out from our annuities.

By the way, some refer to a 1978 reference in OPM regs, yet others say there is an update in the CFR that allows for more deductions from the gross annuity. Contacting OPM just doesn’t work. Are you able to give an authoritative answer that is based on some OPM reference that makes determining net annuity crystal clear?

A: I ran this question by a colleague who specializes in assisting federal employees and annuitants with divorce matters. This answer is courtesy of Dan Jamison, CPA. Dan is an expert in divorce as it applies to federal retirement and does individual consultations in divorce.  His website is fersguide.com.

It’s very rare to see a Court Order Acceptable for Processing (COAP) award a share of a “net annuity” to a former spouse.  Typically, these awards are based upon a percentage of the gross-unreduced annuity or the gross annuity (reduced only for the survivor annuity cost). I recently encountered a COAP where OPM had interpreted the COAP as a gross annuity award, when, in fact, the COAP awarded a share to the former spouse based upon the “net annuity.”  OPM defines the “net annuity” as the amount of the monthly annuity payable to the annuitant, AFTER deducting from the gross annuity, amounts that are 1) owed by the retiree to the United States, 2) deducted for health benefits premiums (FEHB), 3) deducted for life insurance premiums (FEGLI), 4) deducted for Medicare premiums, 5) properly withheld for federal income tax purposes (you can’t claim a higher-than-allowed amount for this definition), and 6) properly withheld for state tax purposes.  As you can see, there is quite a difference between a net annuity and a gross annuity.  An award based upon a net annuity will be significantly smaller than an award based upon a gross or gross-unreduced annuity.

John Grobe’s latest book, The Answer Book on Your Federal Employee Benefits, has just been released by LRP Publications. The book is written in an easy to understand question and answer format and covers all areas of federal benefits from the perspective of an employee at various stages of their career. Order your copy at shoplrp.com.

© 2016 John Grobe. All rights reserved. This article may not be reproduced without express written consent from John Grobe.

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About the Author

John Grobe is President of Federal Career Experts, a consulting firm that specializes in federal retirement and career transition issues. He is also affiliated with TSP Safety Net. John retired from federal service after 25 years of progressively more responsible human resources positions. He is the author of Understanding the Federal Retirement Systems and Career Transition: A Guide for Federal Employees, both published by the Federal Management Institute. Federal Career Experts provides pre-retirement seminars for a wide variety of federal agencies.

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