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Military Pension Division

Learn about military pension division rules, calculations, and Frozen Benefit Rule for former spouses. Know how VA waivers impact pensions. Case studies and resources included.

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Military Pension Division

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  1. Military Pension Division Kaitlin S. Kober Sullivan & Tanner, PA Raleigh, NC

  2. Covering the Basics • Uniformed Services Former Spouse’s Protection Act – 10 U.S.C. § 1408 • A state may only exercise jurisdiction over a servicemember’s pension rights if: • That state is his or her domicile, OR • The SM consents to the exercise of the jurisdiction, OR • The SM resides there (for reasons other than military assignment in that state or territory)

  3. The Military Pension • Active Duty Pension: 20 years of creditable service • Pension = (high-3) x (2.5%)(years of service) • Ex: John Doe is an E-7 and has a total of 21 creditable years. He retires in 2016 and his “high-3” (retired pay base) is $4,423.80. John’s retired pay multiplier is 21 years of service x 2.5% = 52.5%. This means that he would receive retired pay based on 52.5% of his high three basic pay, or $2,322.50 per month. • Payments begin immediately • Reserve Pension: 20 “satisfactory years” (>50 points) • Pension = (high-3) x (2.5%) • Ex: Roberta Roe is an E-7 and has a total of 21 satisfactory years. She retires in 2016 and her “high-3” is $4,423.80 for her retired pay base. Roberta earned 1,365 retirement points. Her points divided by 360 equals 3.79 – this is the equivalent of active-duty time. Roberta’s retired pay multiplier is 3.79 years of service x 2.5% = 9.475%. This means she would receive retired pay based on 9.475% of her high 3 basic pay, or $419.16 per month. • Payments delayed until age 60

  4. 10/10 Rule 10/10 RULE: 10 YEARS OF MARRIAGE OVERLAPPING 10 YEARS OF MILITARY SERVICE DIRECT PAYMENTS

  5. *Fixed Dollar Amount *Formula Clause *Percentage *Hypothetical Four Ways to Divide Pension

  6. Three New Developments

  7. Frozen Benefit Rule December 23, 2016

  8. Sec. 641, Nat. Defense Aut. Act 2017

  9. Frozen Benefit Rule • Benefit to be divided is frozen • As of date of divorce • Ret’d pay centers locked into that Disposable Retired Pay • As if SM retired then

  10. Frozen Benefit Rule Data required for MPDO – • HI-3 as of date of divorce • Also years of service [or, for Guard/Reserve members, # of retirement points] at divorce

  11. High-3 • The “high-3” is highest average basic pay earned during any 3 consecutive years (36 months) of service. • Issues with getting data from the pay center.

  12. Total Retirement Points • Annual retirement points statement • Secure portal at Guard/Reserves HQ • Use of discovery • Release/Court order

  13. Frozen Benefit Rule • Applies – • when divorce is filed after 12/23/16 & • and member not yet getting ret’d pay • Regardless of agreement of parties otherwise • Big reduction in share of FS

  14. 10 years of marriage, div. at 20-yr. mark, ret. at 30 yrs TIME RULE: “Final ret’d pay” ($6,000), marital share ($2,000), FS share $1,000) FROZ. BENEFIT: Hypo ret’d pay ($2,000), marital share ($1,000), FS share $500)

  15. Restoring the Balance for the FS • Alimony consent order • Alimony supplement • TIME RULE – still available? Use it, with order for indemnification“John Doe is responsible for any shortfall”

  16. Restoring the Balance for the FS • Fixed percentage (since ‘fixed amount’)?? • Present value set-off • Unequal division of property • Continuing conundrums

  17. “Frozen Benefit Rule” RESOURCES • DFAS: Revised rule June ‘17, DODFMR, Vol. 7b, Ch. 29; Sample Order • Silent Partner: “Fixing the Frozen Benefit Rule” and “All Clauses Considered: Writing the Frozen Benefit Award” • www.nclamp.gov > For Lawyers > Add’l Resources)

  18. Indemnification May 15, 2017

  19. HOWELL V. HOWELLU.S. SUPREME COURT137 S.Ct. 1400 (2017) • Issue = indemnification for “VA waiver” • VA waiver: • When retiree elects VA disability compensation • for svc-connected wound, illness, injury or condition…

  20. HOWELL V. HOWELLU.S. SUPREME COURT137 S.Ct. 1400 (2017) • Issue = indemnification for “VA waiver” • VA waiver: • When retiree elects VA disability comp. • for svc-connected wound, illness, injury or condition • Dollar-for-dollar waiver of ret’d pay IF… • VA rating < 50%, or • Receiving CRSC [Combat-Related Special Compensation]

  21. VA Waiver means… • Share of the F.S. is also reduced • Without court approval • Without consent of the F.S.

  22. Before Any Waiver . . . 50 – 50 Division $2,000 $1,000 $1,000 W H

  23. VA Waiver means . . . Tax-Free VA Dis. Compensation 50 – 50 Division With 40% VA Rating $2,000 $2,000 $1,000 $1,000 $700 $700 $600 W H H H W

  24. Howell - Facts • 1991 – divorce in AZ, 50-50 pens. division • 1992 – H retired fm USAF • 13 yrs later, diagnosis of VA disability • 20% rating = $250/mo • Military pension = $1,500/mo • Reduction for ex-W = $125/mo

  25. Howell - Facts • Ex-W moved for enforcement • Judge ordered indemnification • Upheld in AZ Ct. of App., Supreme Ct. • Reversed by US Supreme Court

  26. Howell - Ruling & Rationale • USFSPA [Uniformed Services Former Spouses’ Protection Act]* exempted VA disability comp. from division • Mansell case** barred div’n of waived military ret. pay as marital property upon divorce • This case involves, in effect, div’n of waived mil. ret. pay = INDEMNIFICATION BARRED *10 U.S.C. 1408 **U.S. Sup. Ct. 1989

  27. Howell – Return to the Facts • No contractual indem. clause • No prior court order for indemnification

  28. REMEDIES FOR THE F.S. • Agreement to indemnify • Insert in the settlement: “If H does anything which reduces W’s share or amt. of the military pension, he will promptly indemnify her as to any losses she suffers in consequence thereof.” • Indemnification allowed: by contract

  29. REMEDIES FOR THE F.S. • If prior S/A or MSA [incorporated into div. decree] w/ indem. clause - OR - • If prior order w/ “indemnify provision” • AND no appeal - • Indemnification allowed: by res judicata

  30. Alternatives for the Judge • Justice Breyer’s thoughts – ??

  31. Alternatives for the Judge • Justice Breyer’s thoughts – • “Take possibility of reduced ret. pay into acct. in valuing the property” • What does this mean? • HOW do you calculate the chance of later VA election when John Doe is still on active duty? • Or retired but 13 yrs away from getting VA rating?

  32. Alternatives for the Judge • Justice Breyer’s thoughts – • “Well, there’s always alimony…” • Since when is alimony the re-work shop for property division? • What is the spouse waived alimony? Or is not eligible for it due to her own income? • Can the court award thru spousal support the amount of pension share that the FS has been shorted?

  33. Alternatives [cont’d] • Present value setoff – John gets the pension, Jane gets the house! • Unequal div’n of property to acct. for award to F.S. of “unstable asset” • Re-open the property division (if VA dis. comp. taken after init.div’n)? • Reservation of alimony ??

  34. Blended Retirement System January 1, 2018

  35. Blended Retirement System • 2016 NDAA • January 1, 2018 Start Date • Military Compensation and Retirement Modernization Commission (MCRMC)

  36. Defining the Benefit • At Present – All or Nothing • Defined Benefit Plan v. Defined Contribution Plan

  37. Defining the Benefit ACTIVE DUTY: Constant x years of service x HI-3 2.5% x years of service x HI-3 2.5% x 20 x $4,000 = $2,000/mo. GUARD/RESERVE: # points ÷ 360 = equiv. yrs. of svc Rest of equation is same as above

  38. On Dec 31, 2017… Not in Service < 12 Years ≥ 12 Years

  39. On Dec 31, 2017… Not in Service < 12 Years ≥ 12 Years OLD PLAN or NEW PLAN OLD PLAN – No Choice!!!! NEW PLAN – No Choice!!!! BUT WAIT! THERE’S MORE!

  40. 4 POINTS 4 ALL - Newbies & Opt-Ins… Enhanced Thrift Savings Plan (TSP) Reduced defined benefit plan Mid-career incentive bonus (or continuation pay) Option to receive immediate partial lump sum payment against the defined benefit upon retirement.

  41. An enhanced TSP… Now 2018 • SM can open a TSP • Uncle Sam contributes nothing • TSP belongs to SM • TSP will be “issued” to SM. • Uncle Sam contributes 1% (after 60 days) • Uncle Sam matches up to 3% (after 2 years) • Uncle Sam matches ½ from 3 – 5%. • TSP belongs to SM after 2 years of service.

  42. A reduced defined benefit plan 0.025 x total years x “HI-3 base pay” 0.020 x total years x “HI-3 base pay”

  43. Mid-Career Bonus [“Continuation Pay”] X 2.5% of base pay = minimum X up to 13% = maximum

  44. Advance on Ret’d Pay One-half One-quarter 25% lump or 50% lump Reduced retirement Full retirement restored at age 67

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