Earlier this month, the Federal Circuit heard oral argument in a case we have been following because it attracted an amicus brief. The case, Director of the Office of Personnel Management v. Moulton, raises a question relating to apportionment of federal employee retirement annuity supplements pursuant to court orders, for example, as a result of divorce decrees. This case asks whether the Merit Systems Protection Board misinterpreted 5 U.S.C. § 8421(c) by concluding that the Office of Personnel Management cannot divide annuity supplements at all, unless their division is expressly provided for in a court order. Judges Prost, Wallach, and Chen heard the oral argument. This is our argument recap.
Kyle Beckrich argued for the Director of the Office of Personnel Management. He began by explaining that the court should reverse the decision of the MSPB because, “under basic rules of statutory interpretation,” there is no ambiguity “when the statutory scheme is considered as a whole.” He admitted, however, that “there was an operational error,” noting that “the OPM analyst found that there was inconsistent application of the rules.” And, he explained, “in 2016, OPM started issuing reconsideration decisions because it realized” the operational error.
Judge Prost asked about retroactivity, specifically with regard to Mr. Moulton receiving backpay. Beckrich responded by indicating “OPM made the decision to waive the overpayment from 2010-2016.” As a result, Beckrich explained, “from the period of 2010-2016, both Mr. Moulton and his former spouse received the benefit of the annuity supplement.”
Judge Prost then asked about the applicability of OPM’s decision regarding Mr. Moulton to other individuals that are similarly situated. Beckrich responded by indicating other overpayments may be waived, “but what OPM decided is that it was going to wait for this case to be resolved before making” that decision.
In response to a question, Beckrich argued that “OPM, in its view, did not change its interpretation.” Instead, he said, it “was just applying the law correctly” in light of its error in Mr. Moulton’s case. “The regulations have stayed the same,” he continued, “and the regulations are clear that an annuity supplement is a part of the employee’s annuity, which can be divided.”
Judge Chen then asked if OPM would interpret the divorce decree to refer to both the basic annuity and the annuity supplement, meaning that it is “expressly providing for the division of both Mr. Moulton’s basic annuity and annuity supplement.” Beckrich answered by arguing it “refers to the employee’s annuity, which would encompass both” the basic annuity and the annuity supplement.
Judge Chen then asked why, in OPM’s view, “Congress would choose to treat annuity supplements differently, in that they do not need to be expressly provided for.” Beckrich responded by arguing OPM knows Congress intended the annuity supplement to be treated the same as the basic annuity. He said, for example, “Congress was particularly explicit” with regard to CIA employees that “the apportionment of special annuities for . . . the former spouses of CIA employees shall extend to the annuity supplement.”
Evan Mann argued for Moulton. He began by arguing that Moulton and the MSPB have a better reading of the statute. He explained that that reading “requires that a court order expressly divide the supplemental annuity.” He suggested that the statute “directs that the supplemental annuity be treated in the same way as the main annuity.” Mann argued that “several background principles conclusively show” this reading is better. He stated that “domestic relations issues, such as this one, are preeminently questions of state law,” and he suggested “Congress rarely seeks to displace state law on these issues.”
Mann went on to argue that “annuity supplements . . . are meant to replace social security payments, and social security payments, by law, are not assignable and are not divisible.” As a result, he explained, the statute makes expressly clear that “annuity supplements, for purposes of [this statute] are like basic annuities.” Thus, he said, Congress intended annuity supplements to be divisible only pursuant to a court order.
Mann also argued that “gross annuity, in fact, does not refer to the supplemental annuity, and this can be seen from OPM’s own treatment of the issue and its own language.” He referred to a letter from OPM to Mr. Moulton explaining the supplemental annuity. He pointed to the language “the supplement is an amount paid in addition to your monthly gross annuity benefit.” He argued that this language demonstrates that “OPM, when Mr. Moulton was retiring, understood that the gross annuity and his annuity supplement were two different things.”
Judge Prost then posed the question of retroactivity to Mann. He responded by arguing Mr. Moulton “was forgiven the payments that he was given from 2010-2016 that were given to him that OPM contends should’ve been paid to his former spouse.” Starting in 2016, however, he said OPM “did begin dividing the supplemental annuity, which under the statute, we believe should’ve gone fully to Mr. Moulton.” Mann explained that this appeal centers around the money that was paid to Mr. Moulton’s former spouse from 2016-2024, after OPM began dividing the supplemental annuity. He pointed out that his former spouse, who is now deceased, and her estate were interveners in the proceedings below, and did not dispute “Mr. Moulton’s take of events or disputed that he should’ve received the full supplement.”
DeAnna Schabacker argued for the Merit Systems Protection Board. She began by agreeing with the arguments made by Mr. Moulton’s counsel. She argued the statute clearly states “the supplemental annuity shall be treated the same way as the basic annuity” and the basic annuity is “divided as expressly provided for by court order.” She argued OPM’s interpretation is “not the statutory language . . . and needlessly infringes significantly on the authority of state courts to divide assets in a divorce proceeding.”
Judge Prost then asked about MSPB’s interpretation “if a divorce decree provided for a split . . . of the supplemental annuity and was silent with respect to any other annuity.” Schabacker responded by arguing that, “under OPM’s interpretation,” the MSPB “would not be able to honor that court order at all.” This, she argued, demonstrates how OPM’s interpretation “render[s] all of § 8467 inoperable as to the annuity supplement.” Furthermore, she explained, while “OPM relies heavily” on its regulations, “however, as the Board acknowledged, “nothing in the regulations mentions an annuity supplement.” She argued that, therefore, OPM’s argument that its interpretation is consistent with the regulations is invalid.
In his rebuttal, Beckrich argued that, “under OPM’s interpretation,” there “wouldn’t be the need to specifically address” the annuity supplement because “gross annuity” covers the employee’s annuity, which already includes the supplemental annuity.
We will continue monitoring this case and report on developments.