Understanding the key issues will help in drafting Settlement Agreements and avoid post judgment problems.
Military members receive their pension benefit from the Defense Finance and Accounting Service (DFAS). The benefit can be divided by Military Pension Division Order (MPDO). The National Defense Authorization Act for Fiscal Year 2017 requires that a MPDO can only divide a military pension as of the date of the divorce. This is called a “hypothetical retired pay award.”
Key Issues with Military Plans
Retirement
- Active Duty. A member can retire and receive his or her pension after earning 20 years of creditable service.
- Reserves/National Guard: A member with at least 20 years of creditable service (earn at least 50 points for the year) can receive retirement pay at age 60 based on reserve retirement points.
Calculation of Pension Benefits
- Unless pension benefit is currently being paid, MPDO MUST include the calculated retired base pay and calculated years of creditable service.
- Benefit formula: 2.5% times years of creditable service times retired base pay as of the date of divorce.
- Retired base pay is the high three consecutive years of compensation calculated from Pay Charts based on rank and years of creditable service.
- The same Pay Charts are used for active duty and reserve members.
- Active Duty: Military Leave and Earnings Statement (LES) provides the years of creditable service. This should be obtained prejudgment.
- Reserves: Reserve Retirement Points Statement provides years of creditable service (reserve points divided by 360). This should be obtained prejudgment.
- Marital portion can be determined by using only the creditable service earned during the marriage.
Shared Interest
Former spouse’s assigned portion is paid as a shared interest payment when benefit payments are paid to member.
Survivor Benefit Plan
- Benefit paid to former spouse ceases at member’s death unless there is specific provision for a Survivor Benefit Plan (SBP) in the settlement agreement.
- SBP is an annuity program that pays the former spouse a lifetime annuity of 55% of the designated base amount, which can be any amount between $300 and full retired pay.
- SBP is a unitary benefit and cannot be split between current spouse and former spouse. Can provide life insurance protection for former spouse in lieu of SBP.
- Former spouse must submit the MPDO and certified divorce decree within one year of the divorce along with DD Form 2656-10 (Deemed Election).
Thrift Savings Plan
- The military Thrift Savings Plan is an individual account plan similar to a 401(k) plan.
- A portion can be assigned to the former spouse with adjustment for earnings (gains/losses) via a Retirement Benefit Court Order (RBCO).
Settlement Agreement Provisions
- Specify date of divorce for determining the amount of the assigned benefit.
- Provide for COLA on former spouse’s assigned pension benefit.
- Address protection of former spouse’s pension benefit with provision for SBP with designated base amount, or life insurance.
- Put in specific language to protect former spouse if member choses not to retire from military service and elects to roll over time in the military to other federal government service.
- Address Thrift Saving Plan and any adjustment for investment gains or losses