A Shrinking Annuity Payment for Some Former Feds

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By on February 11, 2018 in Pay & Benefits, Retirement with 0 Comments

A man appears very angry/upset while reading some documents he is holding in his hands

Organizations within the federal government publicly and aggressively voicing their disagreement on policy matters is a little unusual. Here is an unusual case.

The Office of Personnel Management (OPM) asked the Office of Inspector General (OIG) not to publish a report the OIG wrote on a retirement computation issue impacting some federal employees. OPM wrote that publishing the report “…might place (the OIG) in the position of tipping the scales in favor of one group of affected individuals over another.”

But, in a response some would view as sardonic, the OIG essentially retorted: “Are you kidding? Here is the report.”

What the OIG actually wrote was more circumspect. It read in part:

The OIG declines to accept OPM’s request that the OIG forego publication….OPM’s unpublished decision…is a highly significant change pertaining to OPM’s administration of the Retirement Services Program, a program that has particular significance for thousands of Federal law enforcement personnel.

Why The Public Angst?

What is going on that has led to the strong, public disagreement between the Office of Personnel Mangement (OPM) and its Office of Inspector General that was so controversial OPM asked that the report not be published?

If you are a retired federal law enforcement officer (LEO) who is divorced, you may have noticed that your monthly annuity payment has gone down—perhaps by a large amount for an individual who has retired.

The first apparent public explanation of why this reduction in an annuity payment occurred was from FedSmith author Carol Schmidlin who outlined the situation in OPM’s Shocking Letter to Some Annuitants.

Now, a report from the Office of Inspector General at the Office of Personnel Management provides an explanation of what has occurred and why.

Why Is the OIG Investigating This Issue?

In its February 5, 2018 report, the OIG investigated a recent decision by OPM that reverses how the agency splits up a retirement annuity based on a state court-ordered former spouse’s portion of the annuity. In effect, some former federal law enforcement officers are now receiving a smaller annuity than they did previously as a result of more money going to a former spouse.

In some cases, the divorce was many years ago. Those who are affected are now being told they owe a considerable amount of money as a result of the OPM change in how the agency is computing the retirement annuity for these former federal employees.

The OIG initiated its review after receiving a complaint from the Federal Law Enforcement Officers Association (FLEOA). FLEOA raised concerns that OPM’s change was made without prior notice, is contrary to established law and practice, and was not implemented in a way visible to the public as it normally would be.

OPM has identified 595 annuitants currently receiving the FERS Annuity Supplement and who are subject to OPM’s recent interpretation of Title 5 of US Code Section 8421(c).

What Is the Annuity Supplement?

The Annuity Supplement is a supplemental annuity received by Law Enforcement Officers (LEOs) and a few others (such as Members of Congress). They receive this additional money when they retire earlier than Social Security benefits start.

OPM used to consider the Annuity Supplement to be a Social Security type of benefit. This meant that a portion of the supplemental annuity did not go to a former spouse unless a state court order specifically addressed the Annuity Supplement.

Previously, OPM advised employees and annuitants that “the apportionment to a former spouse does not include the FERS Supplement.” This policy was in effect for about 30 years according to the OIG report.

Why Are LEOs Different Than Other Federal Employees?

Law enforcement officers (LEOs) are treated differently under the federal retirement system than most others under the FERS system. They are able to retire earlier than other federal employees. They are eligible to retire at 50 after completing 20 years of service or, at any age, after completing 25 years of service. LEOs are subject to mandatory retirement by age 57 because of the stringent physical requirements of their jobs.

Retirees other than LEOs are not eligible for an Annuity Supplement until they reach the minimum retirement age.

What Happened?

In the waning months of the Obama administration (July 2016), OPM decided to apply a state court-ordered marital share to both the Basic Annuity and the Annuity Supplement—even in cases where the state court order did not address the Annuity Supplement.

In many cases, these retirees and their former spouses learned of the new OPM decision when their annuity amounts changed. In some cases, it had been years since the divorce was granted.

OPM applied its new interpretation retroactively after concluding its new interpretation was retroactive to when the retiree began receiving an Annuity Supplement. This meant that the retiree owed money—in some cases a lot of money—to a former spouse. In one case identified by the OIG, a former law enforcement official owed a former spouse an additional $28,389.96.

Strong Disagreement Between OIG Report and OPM

The Office of Inspector General made a number of recommendations. Essentially, it concluded that the new OPM policy is wrong and, even if the new interpretation was correct, it was improperly implemented.

OPM disagreed with the recommendations. OIG then states in the report why it disagreed with OPM’s failure to accept the recommendations.

Recommendation 1

The first recommendation of the OIG was that OPM discontinue its new policy and to apply the state court-ordered marital share to Annuity Supplements unless a court “expressly and unequivocally identif[ied] the Annuity Supplement to be apportioned.”

In response, OPM said its conclusion is correct because applicable law requires OPM “to treat the supplemental annuity in the same fashion that it treats the basic annuity for the purposes of court orders dividing employee annuities.”

Reading between the lines, OIG effectively responded with a classic rejoinder which roughly translates as “This is unbelievable! What is wrong with these people!”

The report was worded more diplomatically. Specifically, the OIG wrote “OPM’s response is contradicted by its nearly three decades of acknowledged practice of interpreting the Basic Annuity to not include the Annuity Supplement.”

Recommendation 2

The second OIG recommendation was on this issue: “We recommend that OPM take all appropriate steps to make whole those retired LEOs and any other annuitants affected by this re-interpretation.”

In response, OPM noted it disagrees because the OIG “characterizes OPM as having reinterpreted the statutory and regulatory provisions governing annuity supplements.”

OIG again, in a rough translation, essentially countered with: “This is unbelievable! What is wrong with these people!”

In a more diplomatic, bureaucratic response, OIG actually wrote: “…OPM has changed its interpretation after almost three decades of interpreting the Basic Annuity to not include the Annuity Supplement.”

Recommendation 3

The OIG also recommended that “OPM determine whether it has a legal requirement to make its updated guidance, including Retirement and Insurance Letters, publicly available.”

OPM again disagreed. It wrote that it is not obligated to post information “when management observes a problem with consistent application of the law and the regulations.”

Again, the OIG again strongly stated its conclusions. Its response to OPM, in part, read: “Employees, annuitants, spouses, and courts rely heavily on OPM’s guidance and are entitled to notice of OPM policies that directly affect them….OPM’s continuing failure to provide public notice of this new policy is troubling.”

Don’t Publish This OIG Report!

The OIG also noted: “OPM requests that the Inspector General forego such publication here, where the very essence of the alert is legal argument.”

The OIG response, boiled down to its essence, which essentially: “Stuff it. We are making this public.”

In the more polite, bureaucratic response, the OIG report reads, in part: “The OIG declines to accept OPM’s request that the OIG forego publication, as it would be inconsistent with the Inspector General Act of 1978…”

Summary

There are likely to be a number of expensive repercussions from OPM’s change in computing the Annuity Supplement.

Presumably, spouses of retired LEO’s have been receiving higher payments from the annuity of a former spouse since OPM made this change in 2016. Before the issue is completely resolved, there will be touchy issues to settle concerning who gets the money and who loses it.

Will former spouses end up being asked to repay the additional money? Will the LEO’s continue to have a reduced annuity? Will they get the additional money that was withheld if the issue is resolved in favor of the LEO’s paying less to former spouses? Will there be significant litigation costs involved before all issues are figured out?

The OIG report notes: “…[W]e are advised that the previously pending MSPB appeals have been dismissed as a result of OPM’s issuing of a ‘rescindment’ of OPM’s decisions on reconsideration.” A footnote observed that at least one subject in the report was still receiving annuity payments at the lower rate “notwithstanding the ‘rescindment.'”

Advisory on OPM Retirement Annuity Actions by FedSmith Inc. on Scribd

© 2018 Ralph R. Smith. All rights reserved. This article may not be reproduced without express written consent from Ralph R. Smith.

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About the Author

Ralph Smith has several decades of experience working with federal human resources issues. He has written extensively on a full range of human resources topics in books and newsletters and is a co-founder of two companies and several newsletters on federal human resources. Follow Ralph on Twitter: @RalphSmith47

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