| Terms of Disability Retirement
By Reg Jones
December 28, 2005.
It’s a funny (not ha-ha) thing. The federal government doesn’t have a short-term disability program. It has untidily filled in the gap with sick leave and annual leave (both your own and donated). On the other hand, the government does have a first-rate program for those employees with a disabling mental or physical condition that makes it impossible for them to continue in their current job. If their condition is expected to last for at least one year, these employees can apply for disability retirement. Periodic medical evaluations will be required until age 60 unless the disability is determined to be permanent.
Under both CSRS and FERS, disability benefits are payable if you have become so disabled that you are prevented from performing useful and efficient service in your current position. Under law, to be eligible to apply for disability retirement, a FERS employee needs to have competed 18 months of creditable civilian service while a CSRS employee must have completed at least five years. Because CSRS was closed to new hires years ago and anyone returning to the workforce as a CSRS Offset employee will already have five years under his belt, the later provision of law is now moot.
To apply for a disability retirement, you must fill out a Standard Form 3112 and send it to the Office of Personnel Management. Your agency can help you do this. Concurrently, your agency will have to certify that it you can’t provide useful and efficient service in your present position, even with reasonable adjustments to your working conditions, and that it doesn’t have any less demanding vacant position in your commuting area that is at the same grade and pay. (Note: Collective bargaining agreements prevent the reassignment of a disabled Postal Service employee to a position in a different craft.)
Because they are covered by Social Security, CSRS Offset or FERS employees must also apply to the Social Security Administration for disability retirement. SSA has different and much higher standard for determining if you are disabled. To be judged disabled by SSA, you must be so severely disabled that you cannot perform any substantially gainful employment.
If you are a CSRS employee who is judged to be disabled, you will receive either 40 percent of your “high-3” years of average salary or an amount that results from increasing your actual service from the date the disability retirement is approved to age 60. In effect, the 40 percent calculation is the guaranteed minimum you will get.
If you are a FERS employee who is under age 62, you will receive 60 percent of your “high-3” average salary – minus 100 percent of any Social Security disability benefit to which you are entitled – for the first 12 months. After that, the first figure is reduced to 40 percent minus 60 percent of the Social Security benefit.
Note: Whether you are CSRS or FERS employee, if your earned benefit based on years of service is greater than these figures, you will get the higher amount. If you are a FERS employee, at age 62 your whole benefit will be recalculated as you had worked from the onset of the disability to age 62.
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| Wake-Up Call for CSRS Retirees
By Reg Jones
December 14, 2005.
'Tis the season to retire for many employees. If you are one of them and are covered by CSRS, you need a wake-up call. There are two provisions of law that can reduce your retirement income. While they won't affect your CSRS annuity, they may reduce – or even eliminate – certain Social Security benefits to which you may otherwise be entitled. The "bad news bears" are the Windfall Elimination Provision and the Government Pension Offset.
The Windfall Elimination Provision
Under the WEP, most CSRS retirees who have accumulated enough credits to be eligible for a Social Security benefit will have that benefit reduced. That's because they'll be receiving an annuity from CSRS, a retirement system where they didn't pay Social Security taxes. Under the law, they'll have a modified formula used to compute their Social Security benefit. Only those with 30 or more years of "substantial earnings" under Social Security will receive a full Social Security benefit. Everyone else will get less, often much less.
To meet the substantial earnings criterion, you have to earn much more per year than the amount need to qualify for Social Security credits. For example, in 2005 you'd only have to make $3,680 to get a full year's credit from Social Security. However, for your earnings to be considered substantial, you'd have to earn $16,725!
Under the WEP, the first multiplier in the Social Security benefit formula – 90 percent – is reduced by 5 percent for every year of Social Security-covered employment that is less than 30. Fortunately, the reduction bottoms out at 40 percent for those who have 20 or fewer years of substantial earnings. As a result, even those who only have the 40-credit minimum needed to be eligible for a Social Security benefit will still get something.
The Government Pension Offset
The GPO only affects those CSRS retirees who would be eligible for a Social Security spousal benefit based on their spouse's earned Social Security benefit. In most cases, that benefit will be reduced or eliminated. If you are a CSRS employee – not CSRS Offset or FERS – the GPO will reduce your Social Security spousal benefit by $2 for every $3 you receive in your CSRS annuity.
For example, if you were eligible for a monthly CSRS annuity of $2,100, two-thirds of that – $1,400 – would be used to offset your monthly Social Security spousal benefit. If that benefit was $1,500, you would receive only $100 a month from Social Security ($1,500 - $1,400 = $100).
Obviously, the more money you receive in your CSRS annuity, the less you'll get from your spousal benefit, until you reach a point where you'll get nothing. For example, if you had a monthly CSRS annuity of $2,400 and a monthly spousal benefit of $1,200, you wouldn't get anything from Social Security ($1,200 - $1,600 = 0). Because CSRS annuities are usually much greater than Social Security spousal annuity benefits, the GPO usually eliminates the latter benefit.
The Future
Over the years there have been efforts by some members of Congress to eliminate or modify the WEP and the GPO, but nothing has happened to date. While there is always a chance that it will, don't plan on it.
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| The FERS Special Retirement Supplement
By Reg Jones
November 30, 2005.
The special annuity supplement is a benefit paid to certain FERS employees who retire before age 62 and are entitled to an immediate annuity. The SRS approximates the Social Security benefit earned while covered by FERS, and is designed to bridge the gap between retirement and age 62, when a retiree first becomes eligible for Social Security.
You are eligible for an immediate annuity and the SRS if you retire:
- at your minimum retirement age (MRA) with at least 30 years of service;
- at age 60 with at least 20 years of service;
- at your MRA under one of the early retirement provisions, whether your retirement is voluntary or involuntary; or
- under the special provisions for law enforcement officers, firefighters, air traffic controllers, or military reserve technicians who lose their military status due to medical reasons.
Retirees who are not eligible for the SRS include the following:
- disability retirees;
- anyone retiring under the MRA+10 provision;
- anyone who is eligible only for a deferred annuity; and
- anyone retiring at age 62 or later.
To get a reasonable estimate of what your SRS will be, take your annual estimated Social Security benefit at age 62 provided by the Social Security Administration, divide that estimate by 40, and multiply the product by the number of years you've been employed under FERS, rounded up to next full year. For example, if your estimated annual Social Security benefit at age 62 is $22,000 and you have 20 years of FERS service, your SRS will be $11,000 ($22,000 ÷ 40 x 20).
If you don't have a Social Security benefit estimate, you can get it by calling the Social Security Administration at 1-800-772-1213 or you can apply online by going to www.ssa.gov. Under Resources, click on Your Social Security Statement, then click on Need to Request a Statement?
Just remember, this is only a rough estimate and is probably a little low. Also, the closer you are to retirement when you do the calculation, the more dependable it will be.
One final note. As a retiree, your SRS isn't increased by cost-of-living adjustments (COLAs); however, it is for survivor annuitants. Also, for most retirees, if your earnings from wages or self-employment exceed the Social Security annual earnings limit, your supplement will be reduced or eliminated. This is not true if you are a special category employee, such as a law enforcement officer, firefighter or air traffic controller. They may earn as much as they want until they reach their minimum retirement age (MRA). After that point, they are treated the same as all other retirees.
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| The Alternative Form of Annuity
By Reg Jones
November 16, 2005.
Did you know that there's a thing called the Alternative Form of Annuity? The AFA once meant a great deal to those retirees who were able to take advantage of it before things took a turn for the worse. When the FERS law was passed, a provision was included that allowed retirees to elect to take their retirement contributions in a lump sum and have their annuities actuarially reduced. The refunded contributions would be tax free because they were made up of dollars that had already been taxed. The annuities would be 100 percent taxable.
It didn't take much time for retiring CSRS employees (and those who transferred to FERS) to discover that if you elected the AFA and invested the lump sum payment wisely, you could more than make up for the annuity reduction. That actuarial reduction ranged from 5 to 15 percent of annuity, so, the younger you were when you took the lump sum, the smaller the offset. Even if the money wasn't being used for investment purposes, it was still a good deal.
The AFA was so popular that it raised alarm bells with high-level federal budgeteers. Money was leaving the system without any counterbalancing taxes to reduce the loss. Congress tried to save the provision by requiring that the lump sum be received in two equal payments rather than one, thus spreading out the loss to the government. Sadly, that compromise only lasted until October 1, 1994. That's when the AFA was eliminated for everyone except those suffering from a life-threatening condition, who may still receive their lump-sum in a single payment.
If you feel that your health is such that you might be eligible for the AFA, you can get more information by going to OPM's website at www.opm.gov/asd/hod/pdf/C053.pdf. That's the handbook chapter on Alternative Annuity Elections.
If you were eligible for the AFA, took it, and then recovered from your life-threatening condition, you would not have to repay the lump-sum you received. And your actuarially reduced annuity would continue as before.
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| Benefits for a Non-Spouse Changing times need different ways of dealing with those changes. For example, as long as anyone can remember, married federal employees have been able to elect a survivor benefit for their spouses. When the law was drafted, no one gave a passing thought to the possibility of a world in which there would be a significant number of companions, significant others, life partners, etc. However, what they did know was that some single or widowed federal employees might have relatives or care givers who they would like to provide for. While the Congress had no intention of providing a traditional survivor annuity for these folks, they did include language that would allow them to receive another kind of annuity, which could be purchased at retirement. It’s called an insurable interest annuity.
So, what’s does “insurable interest” mean? It means that the person you want to receive the annuity is financially dependent on you and might reasonably be expected to derive a financial benefit from your continued life. Obviously, that would include your current spouse, if a court order blocked him or her from receiving a regular survivor annuity. But it could also apply to a blood or adoptive relative closer than a first cousin (such as a child), a former spouse, someone to whom you are engaged to be married, or someone with whom you would be considered to be in a common-law marriage, but only if the state you live in recognizes them or your common-law marriage occurred in such a state even though you now live somewhere else.
Now if the person you want to provide a benefit for isn’t among those named above, you can establish an assumption of insurable interest by submitting affidavits from one or more people who have personal knowledge of your relationship. They’d need to confirm your relationship, the extent to which the non-spouse is dependent on you, and the reasons he or she might reasonably expect to derive a financial benefit if you stayed alive. Of course, you’d also need to prove that you’re in good health by having a medical exam, and then having the report signed and dated by a licensed physician.
An insurable interest annuity provides the survivor with 50 percent of the dollar amount you select as a base. How much that will cost you depends on two things: the difference in ages between you the person you want to get the benefit and the amount of your annuity that’s available to be used as a base. The latter will vary depending on whether there is anyone else who is entitled to a survivor benefit, for example, a current or former spouse.
The following table can help you to figure out how much your base annuity would be reduced if you elected an insurable interest annuity:
- 10 percent if the survivor is the same age, older than, or less than 5 years younger
- 15 percent if 5 but less than 10 years younger
- 20 percent is 10 but less than 25 years younger
- 25 percent if 15 but less than 20 years younger
- 30 percent if 20 but less than 25 years younger
- 35 percent if 25 but less than 30 years younger
- 40 percent if 30 or more years younger
So far, I’ve only talked about insurable interest annuities, but there are other kinds of benefits you could provide for a non-spouse; for example, the proceeds of your Thrift Saving Plan account and/or your Federal Employees Group Life Insurance. They can receive those benefits as long as someone else doesn’t have legal title to them. To make sure that these benefits go where you want them to go, remember to fill out designation of beneficiary forms, which are available from your personnel office or on-line at www.tsp.gov or www.opm.gov.
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| How CSRS Offset Works
CSRS Offset is one of those quirky hybrids. That’s why I get so many requests to revisit the subject. If you are covered by CSRS Offset, you know what I mean when I say quirky. You are paying into the Civil Service Retirement System and Social Security: 6.2 percent to Social Security and.8 percent to CSRS (1.3 percent if you are a special category employee). At retirement, your annuity will be calculated under CSRS rules. And that’s the annuity you’ll receive, unless you are eligible for a Social Security benefit at age 62. That’s when your annuity will be “offset” by the amount of the Social Security benefit you earned while covered by CSRS Offset. This is true whether or not you apply for that Social Security benefit.
Under the law, the Office of Personnel Management uses two formulas to determine the amount of the offset. The offset reduction is the lesser of: the difference between the Social Security monthly benefit amount with and without CSRS Offset service or the product of the Social Security monthly benefit amount, with federal earnings, multiplied by a fraction where the numerator is the employee's total CSRS Offset service rounded to the nearest whole number of years and the denominator is 40. Got that?
Fortunately, there’s a simple formula you can use. It’s the one mentioned in the second method. And it will give you an answer that’s close enough to what the final result will be to satisfy most people. Here it is:
Social Security benefit x total years of Offset service (rounded up) ÷ 40
You should be receiving a Social Security benefit estimate from the Social Security Administration. If you don’t have one, you can get it by going to www.ssa.gov and asking for one.
I’ll use an example to show you how simple the calculation is. Let’s say that SSA’s estimate of your Social Security monthly benefit is $1,000. You’ve been covered by CSRS Offset for 10 years, so you multiply that $1,000 by 10. The result is $10,000. Now you divide that by 40 and come up with a monthly benefit estimate of $250. That’s the amount that will be “offset” from your monthly CSRS annuity.
There you have the basics of how your time under CSRS Offset will be treated. However, you also need to know that any additional Social Security benefit you earned before or after being under CSRS Offset will not be affected by the formulas discussed above. And, as a CSRS Offset employee, when you retire, you won’t be affected by the windfall elimination provision (WEP) or the government pension offset (GPO) if you were first hired after December 31, 1983. Sounds like a good deal to me.
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| Buying Back Military Time
By Reg Jones
August 31, 2005.
Getting credit for active duty service in the military used to be a simple thing. It still is for anyone whose service was performed before January 1, 1957. If you are one of them, you’d get credit for that time in your annuity computation without paying a deposit. Everybody else with military service has to wrestle with the matter.
This being the federal government, there are two sets of rules that govern whether you are required to make a deposit in order to get credit for your period(s) or military service.
If you were first employed before October 1, 1982, you have two options. The decision you make hinges on whether you expect to be eligible for a Social Security benefit at age 62 (or later if you retire after age 62). If you don’t expect to be eligible for a Social Security benefit, you can decide not to pay the deposit and your annuity will remain unchanged.
If you do expect to be eligible for a Social Security benefit, it’s probably in your interest to make a deposit. If you don’t, those years of military service will be dropped and your annuity recomputed downward. And it’s highly unlikely that what you’ll receive from Social Security will come close to matching what you will lose in your CSRS annuity.
On the other hand, anyone hired after October 1, 1982, must make a deposit for their military service time in order to get credit for it in their annuity computation.
The amount to be deposited is based on two things, the amount of your military base pay (not including allowances) and a percentage. If you don’t know what your base pay was, you can get that information by completing OPM form RI-20-47 and sending it in to your military finance center. You can get a copy of the form from your personnel office or download it from OPM’s website at www.opm.gov. Just click on the Federal Forms icon.
The percentage of base pay required depends on the retirement system you are in. If you are covered by CSRS, it’s 7 percent for all periods of military service between 1957 and 1958. For periods of service in 1999, it’s 7.25 percent; for 2000, it’s 7.40. For all periods of service after that, it’s back to 7 percent. For FERS during the same time periods, it’s 3 percent, 3.25, 3.40, and 3. If you transferred to FERS from CSRS, and your military service occurred before or during the time you were covered by CSRS, you’ll follow CSRS percentage rules. If after transferring, you’ll follow FERS rules.
If a deposit for military service isn’t made within two years after you first became employed, interest will be charged to your account one year after that two year period ends. In effect, you have three years minus on day to complete an interest-free deposit. After that, interest is added. So, the longer you wait to make a deposit, the bigger the bill will be. Note: If you decide to make a deposit, it will have to be completed before you retire. If you don’t, the amount you deposited will be refunded to you and you’ll get no credit for that time.
One last point. Some of you will have retired from the military. In most cases, you will not only have to make a deposit for that time but you will have to waive your military retired pay. Only those who were awarded that pay on account of a service-connected disability either incurred in combat with an enemy of the United States or caused by an instrumentality of war and incurred in the line of duty during a period of war will be allowed to receive both their military retired pay and their civilian annuity without a reduction in either. Your branch of service will have to determine if you meet that criterion.
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The
FERS
Age
Reduction
Penalty
and
How
to
Avoid
It
By Reg Jones
July 6, 2005.
When
it
comes
to
retiring
early,
FERS
employees
have
a
big
advantage
over
their
CSRS
counterparts.
If a
CSRS-covered
employee
retires
before
age
55,
his
annuity
is
reduced
by 2
percent
(1/6
percent
per
month)
for
every
year
he
is
under
age
55.
While
the
penalty
for
FERS
employees
who
retire
early
is
much
worse
–
5/12ths
of 1
percent
per
month
or 5
percent
per
every
year
you
are
under
age
62
(60
if
you
have
at
least
20
years
of
service)
–
there
are
three
ways
that
they
can
avoid
that
penalty:
the
“early
out,”
the
delayed
annuity,
and
the
deferred
annuity.
Stick
with
me.
The
Early
Out
The
age
and
service
retirement
hurdles
are
lowered
for
employees
if
an
agency
is
faced
with
such
things
as a
reduction
in
force,
major
reorganization
or
transfer
or
function
and
offers
an
opportunity
for
employees
to
retire
early.
When
that
happens,
you
can
retire
at
age
50
with
20
years
of
service
or
at
any
age
with
25
years
of
service.
The
additional
good
news
is
that
the
age
reduction
penalty
is
waived
if
you
elect
to
leave
or
are
forced
out
during
a
period
when
your
agency
is
making
retirement
offers.
And
as
long
as
you
were
covered
by
the
FEHB
program
or
FEGLI
for
at
least
five
years
before
retiring,
you
will
be
able
to
carry
that
coverage
into
retirement.
The
Delayed
Annuity
FERS
employees
are
eligible
to
retire
at
their
minimum
retirement
age
(MRA)
with
as
few
as
10
years
of
service.
However,
unless
you
have
30
years
of
service
when
you
reach
your
MRA,
you’ll
be
hit
by
that
age
reduction
penalty.
The
way
around
the
problem
is
to
retire,
but
delay
the
receipt
of
your
annuity
to a
later
date.
For
example,
if
your
MRA
was
55
when
you
retired
and
you
delayed
receipt
of
that
annuity
until
you
reached
age
62,
you
would
avoid
a
reduction
of
35
percent.
While
the
annuity
you’d
receive
at
that
time
would
be
exactly
the
one
you
would
have
received
7
years
earlier
(less
the
penalty),
if
you
took
another
job
in
the
interval,
delaying
receipt
of
that
annuity
might
make
very
good
financial
sense.
Also,
if
you
were
covered
by
the
FEHB
program
or
FEGLI
for
at
least
five
years
before
retiring,
you
would
be
able
to
reenroll
in
both
programs
when
you
activate
your
annuity.
Deferred
Annuity
To
be
eligible
for
a
deferred
annuity
without
penalty,
former
FERS
employees
must
be
at
least
age
62
with
5
years
of
service,
age
60
with
20
years,
or
have
reached
their
minimum
retirement
age
(MRA)
with
30.
Depending
on
when
you
left
the
service,
your
annuity
could
be a
lot
or a
little.
Either
way,
it’ll
be
like
found
money.
Unfortunately,
deferred
annuitants
may
not
reenroll
in
either
the
FEHB
or
FEGLI
programs.
The
Special
Retirement
Supplement
If
you
follow
any
of
these
penalty-avoiding
strategies
will
you
be
eligible
to
receive
the
Special
Retirement
Supplement
(SRS),
which
approximates
the
amount
of
the
Social
Security
benefit
you
will
receive
based
on
your
FERS
service
when
you
reach
age
62?
In
some
cases,
yes.
To
be
eligible
for
the
SRS,
you
must
fall
into
one
of
the
following
categories:
at
your
MRA
with
30
years
of
service,
at
age
60
with
20
years,
on
early
voluntary
retirement,
or
on
involuntary
retirement
beginning
at
your
MRA.
To
estimate
what
your
SRS
will
be,
use
this
formula:
Social
Security's
estimate
of
your
monthly
benefit
at
age
62
times
your
years
of
FERS
service
divided
40.
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The
Confusing
CSRS
Offset
By Reg Jones
June 29, 2005.
And
still
they
come.
The
questions
from
CSRS
Offset
employees
who
are
confused
about
how
their
annuities
will
be
calculated
when
they
retire,
and
just
how
that
“offset”
in
CSRS
Offset
will
be
applied
–
and
when.
Despite
their
small
number,
these
employees
generate
the
more
questions
than
any
other
category
of
federal
employees.
And
it’s
no
wonder.
Their
retirement
coverage
is a
cart
that
preceded
a
horse.
Let
me
explain.
The
problem
began
with
a
change
in
the
Social
Security
law,
which
required
that
new
employees
entering
the
government
after
December
31,
1983,
be
covered
by
Social
Security
and
CSRS.
That
same
requirement
applied
to
CSRS
employees
who
were
rehired
after
a
break
in
CSRS
coverage
of
over
one
year.
In a
word,
this
was
the
“cart.”
The
“horse”
finally
arrived
in
1987,
when
the
FERS
retirement
system
went
on
line.
After
January
1,
1987,
everyone
employed
by
the
government
for
the
first
time
was
covered
by
FERS.
The
CSRS
Offset
category
was
created
to
take
care
of
the
hybrid
employees
who
had
been
sitting
in
limbo.
Those
who
were
hired
before
January
1,
1984
and
had
at
least
five
years
of
creditable
civilian
service
by
January
1,
1987,
were
put
in
CSRS
Offset
unless
they
elected
to
transfer
to
FERS.
Special
rules
were
established
for
former
CSRS
employees
who
were
returning
to
work.
If
they
had
a
break
in
service
that
exceeded
one
year
and
ended
after
1983
and
had
five
years
of
creditable
civilian
service
as
of
January
1,
1987,
they
were
given
a
choice
of
becoming
CSRS
Offset
employees
or
transferring
to
FERS.
With
one
exception,
the
retirement
benefits
of
CSRS
Offset
employees
are
calculated
the
same
as
those
of
regular
CSRS
employees.
Here’s
the
standard
formula:
-
1.5
%
x
your
high-3
years
of
average
salary
x
creditable
service
up
to
5
year;
plus
-
1.75%
x
your
high-3
x
years
of
service
over
5
and
up
to
10;
plus
-
2.0%
x
your
high-3
x
all
years
of
service
over
10
Here’s
the
exception.
If
you
are
retired
and
become
eligible
for
a
Social
Security
benefit
at
age
62
(or
later
if
you
retire
after
that
date),
your
CSRS
annuity
will
be
reduced
by
the
amount
you
will
be
receiving
from
Social
Security
based
solely
on
that
CSRS
Offset
service.
In
other
words,
you’ll
get
the
same
dollars,
but
from
two
different
sources.
To
estimate
what
your
offset
will
be,
use
this
formula:
Social
Security's
estimate
of
your
monthly
benefit
at
age
62 x
your
years
of
FERS
service
divided
by
40.
Because
you
are
mandatorily
covered
by
Social
Security,
you
are
exempt
from
the
effects
of
the
Government
Pension
Offset.
On
the
other
hand,
although
you
are
not
exempt
from
the
Windfall
Elimination
Provision,
it
will
have
no
effect
on
your
combination
CSRS
Offset
annuity.
Instead,
the
WEP
will
apply
to
any
Social
Security
benefit
you
may
have
earned
from
Social
Security-covered
employment
outside
the
federal
service,
but
only
if
your
total
years
of
substantial
earnings
under
Social
Security
–
federal
and
non-federal
–
are
fewer
than
30.
For
every
year
fewer
than
30,
the
first
multiplier
in
the
Social
Security
formula
will
be
reduced
by 5
percent.
This
pattern
stops
at
20
or
fewer
years,
where
it
hits
a
maximum
level.
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Retiree's Continued
Acceptance Of A
Reduced Annuity
Following Divorce,
Demonstrated An
Intent To Provide
A Survivor Annuity
For The Former Spouse
The Office of Personnel
Management's (OPM)
notices regarding
the election of
former spouse survivor
benefits were "legally
deficient" because
none of them contained
any statement that
a pre-divorce election
automatically terminates
upon divorce and
that an annuitant
must make a new
election to provide
a survivor annuity
for a former spouse.
As a result, the
Merit Systems Protection
Board (MSPB) ruled
that a retiree's
continued acceptance
of a reduced annuity
following his divorce,
standing alone,
adequately demonstrated
his intent to provide
a survivor annuity
for his former wife.
The decision is
a lesson to federal
employees to pay
attention to retirement
and survivor annuity
questions, which
can often hinge
on technicalities.
In the recent MSPB
case, the retiree
elected a reduced
annuity with maximum
survivor benefits
for his wife on
his application
for Civil Service
Retirement System
benefits. OPM subsequently
provided notice
to the retiree that
“the cost of the
survivor benefit
was factored into
the computation
of [his] gross monthly
benefit.” Later,
the retiree and
his wife divorced.
The divorce decree
stated that the
former wife was
entitled to receive
50% of his Federal
Civil Service Retirement.
About two weeks
after the retiree
married another
woman, and well
after the divorce
decree was filed,
the retiree and
his first wife filed
what they called
a joint stipulated
qualified domestic
relations order
(QDRO) stating that
their divorce would
not affect the survivor
annuity for his
former wife. There
was no evidence
that the retiree
attempted to change
his annuity election
with OPM after the
divorce or after
he remarried.
After the retiree’s
death, the first
wife filed an application
with OPM for survivor
benefits. OPM rejected
it on the ground
that it could only
look to the divorce
decree, which did
not meet its standard
for awarding CSRS
survivor benefits.
(This is a technicality
that appears consistent
with OPM regulations
and is a good example
of why retirees
need to pay serious
attention to these
matters when dealing
with OPM.) The first
wife appealed OPM's
decision to the
MSPB. OPM's decision
was upheld by an
MSPB administrative
judge, and she then
petitioned the full
MSPB for review.
On appeal, she argued
that the QDRO was
valid because all
of the evidence
supported that she
would receive a
CSRS survival annuity
upon her former
husband's death.
Although the MSPB
denied the first
wife's petition
for review on a
technical ground,
it decided the case
on its own motion
because it was inconsistent
with precedent by
the U.S. Court of
Appeals for the
Federal Circuit,
Simpson v. OPM,
347 F.3d 1361 (2001).
As with Simpson,
OPM's notice failed
to inform the retiree
that he needed to
reelect a survivor
benefit for his
first wife. Because
OPM’s notice was
insufficient, the
retiree was not
aware of this technicality
in the rules and
continued to receive
a reduced annuity
to provide his first
wife with a survivor
benefit after their
divorce and his
new marriage. For
these reasons, the
MSPB ordered OPM
to award the first
wife the survivor
annuity. But in
the future, OPM’s
notices might be
adequate, and a
retiree who fails
to pay attention
could lose benefits.
Gordon
v. OPM, Merit Systems
Protection Board,
(April 15, 2005)
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The Effect of
a Divorce on Your
Retirement Benefits
By Reg Jones
February 23, 2005.
If you are heading
for a divorce, you
need to know about
the “Spouse Equity
Act.” That’s because
a court order filed
with the Office
of Personnel Management
under its provisions
can have a profound
impact on your future
benefits. The same
is true if you are
separated or if
your marriage was
– or will be – annulled.
Among other things,
a properly filed
court order can
divide your retirement
annuity, block or
divide a refund
of your retirement
contributions, and
provide for a survivor
annuity if you die.
In addition, it
can allow a former
spouse to continue
coverage under the
FEHB program, require
you to assign your
FEGLI benefits to
that former spouse
or your children,
and even lay claim
to some of the money
in your Thrift Saving
Plan (TSP) account.
Such a court
order is only binding
if it meets the
requirements set
down in laws that
apply to CSRS and
FERS. That’s because
CSRS and FERS are
exempt from the
Employee Retirement
Income Security
Act (ERISA). That’s
the law that applies
to everyone else
in the U.S.
Because of those
differences, OPM
has a publication
that spells everything
out. It’s RI 38-116,
A Handbook for Attorneys
on Court-ordered
Retirement, Health
Benefits and Life
Insurance Under
the Civil Service
Retirement System,
Federal Employees
Retirement System,
Federal Employees
Health Benefits
Program, and Federal
Employees’ Group
Life Insurance Program.
You can download
it by going to the
following web site:
www.opm.gov/asd.
Whether you are
on the initiating
or receiving end
of a separation,
divorce or annulment
proceeding, your
attorney needs to
have a copy of this
essential document
in order to protect
your interests.
You, on the other
hand, should get
a copy of OPM’s
non-technical booklet
on the subject.
It’s RI 84-1,
Court-ordered Benefits
for Former Spouses.
Copies may be available
in your personnel
offices or you can
download a copy
by going to
www.opm.gov/retire.
Just remember,
once a court-ordered
settlement has been
reached and filed,
it’s rarely subject
to change. The terms
of the order will
be precisely carried
out by OPM and the
TSP unless your
obligations are
canceled, for example,
by the death of
your spouse.
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Windfall
and Offset
By Reg Jones
December 1, 2004
Are a CSRS employee? Are you
getting ready to retire? If
you are, you’re probably in
a pretty good mood. So it’s
a time for me to sprinkle
on your parade. That’s because
I need to tell you (or remind
you) that there are two provisions
of law that can reduce your
retirement income. While they
won’t affect your CSRS annuity,
they may reduce – and even
eliminate – any Social Security
benefit to which you may otherwise
be entitled. The causes are
the Windfall Elimination Provision
and the Government Pension
Offset.
The Windfall Elimination
Provision
The WEP reduces the Social
Security benefit payable to
nearly all CSRS employees
who will receive an annuity
from a retirement system where
they didn’t pay Social Security
taxes. Under the law, they’ll
have a modified formula used
to compute their Social Security
benefit. Only those with 30
or more years of “substantial
earnings” under Social Security
will receive a full Social
Security benefit. Every one
else will get less, usually
much less.
Let’s see how that works.
We’ll start with the formula
used to compute the benefits
of employees who aren’t affected
by the WEP. For example, if
you are a private sector employee
who will turn 62 in 2005,
the formula would look like
this:
- Your first $627 of average
indexed monthly earnings
(AIME) would be multiplied
by 90 percent;
- Everything from $627
to $3,779 of the AIME would
be multiplied by 32 percent;
- AIME above $3,779 would
be multiplied by15 percent.
The total of these three
multiplications when adjusted
by your total years of Social
Security coverage would be
your monthly pension from
Social Security.
Now, if you are CSRS employee,
the WEP will reduce that 90
percent factor by 5 percent
for each year of substantial
earnings fewer than 30. Fortunately,
the reduction bottoms out
at 40 percent for those who
have 20 or fewer years of
substantial earnings, otherwise
CSRS employees with limited
Social Security coverage would
get nothing.
To meet the substantial
earnings criterion, you have
to have earned much more per
year than the amount needed
to gain Social Security credits.
For example, in 2004 you’d
only have to earn $3,600 to
get a full year’s credit from
Social Security. However,
for your earnings to be considered
substantial, you’d have to
make $16,275.
The Government Pension
Offset
The GPO only affects those
who will get an annuity from
CSRS and have a spouse who
will get one from Social Security.
In most cases, the Social
Security spousal benefit to
which they would be entitled
will be reduced or eliminated.
If you are a CSRS employee
– not CSRS Offset or FERS
– the GPO will reduce your
Social Security spousal benefit
by $2 for every $3 you receive
in your CSRS annuity.
Let me illustrate. If you
are eligible for a monthly
CSRS annuity of $1,800, two-thirds
of that – $1,200 – will be
used to offset your monthly
Social Security spousal benefit.
If that benefit was $1,300,
you would receive only $100
a month from Social Security.
That’s because $1,000 subtracted
from $1,100 leaves a positive
balance of only $100.
The larger your CSRS annuity,
the less you’ll receive from
your spousal benefit, until
you reach a point where you’ll
get nothing. For example,
if you had a monthly CSRS
annuity of $2,400 and a monthly
spousal benefit of $1,200,
you wouldn’t get anything
from Social Security. Two-thirds
of $2,400 is $1,600. Subtracting
that from $1,200 leaves you
with zip. Because CSRS annuities
are often much greater than
Social Security spousal annuity
benefits, the GPO usually
wipes out the latter benefit.
The Future
While there have been moves
in Congress for years to eliminate
or modify the WEP and the
GPO, nothing has happened
so far. However, there is
always a chance that they
will. Keep your fingers crossed,
but don’t plan on it.
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Calculating Retirement Survivor Benefits
By Reg Jones
November 10, 2004
One of the finer features of federal employment
is this: if you retire and die, your spouse
can receive benefits – valuable benefits.
First among these is the survivor annuity.
Under FERS, a full survivor annuity is
50 percent of the retiree’s base annuity;
under CSRS it is 55 percent. A reduced
survivor annuity under FERS is 25 percent,
while under CSRS it may be any amount.
Yep, that’s right – any amount. If you
elect a specific dollar amount, it may
be as little as $1. However, under either
retirement system, a full survivor annuity
is mandatory unless you and your spouse
agree to a lesser amount (or none) in
writing. Note: Electing a survivor annuity
for a current spouse may not be possible
if there is a court-ordered divorce settlement
blocking it.
When you retire, OPM first calculates
your “basic” annuity. In general, basic
means the full amount of your annuity
based on your age, years of creditable
service, and “high-3” average salary,
before any reductions are taken (e.g.,
taxes, health or life insurance, etc.).
Then OPM applies a formula to determining
the annual reduction for a survivor benefit.
Under CSRS it’s 2.5% of the first $3,600
plus 10 percent of any amount over $3,600.
For example, if your basic annuity were
$60,000, the cost of providing a full
survivor annuity would be $5,730 ($3,600
x .025 = $90 + $56,400 x .10 = $5,640).
Thus, you would have your $60,000 basic
annuity reduced to $54,270. If the two
of you decided on a smaller annuity base,
the reduction would be less. For example,
a $2,500 base would produce an annual
reduction of only $62.50 ($2,500 x .025).
Under FERS, the reduction produces
essentially the same result, but the calculation
is simpler. The base annuity is simply
reduced by 10 percent.
Importantly, the annuity reduction
for a survivor benefit doesn’t affect
the amount of annuity to which your spouse
would be entitled. Under CSRS, your spouse
would receive 55 percent of the annuity
base selected. With a $60,000 base, your
spouse would be entitled to $33,000 per
year ($40,000 x .55). With $2,500 as a
base, it would be $1,375 ($2,500 x .55).
Using the same annuity base, under
FERS a full survivor annuity would be
$30,000 ($60,000 x .50). A reduced survivor
annuity would be $15,000 ($60,000 x .25).
If the surviving spouse was under age
60, a supplement would be added until
he or she is eligible for Social Security.
Importantly, the dollar amount of your
annuity base will continue to increase
along with any cost-of-living adjustments
(COLAs) you receive. Thus, your survivor
spouse will receive a percentage of the
updated base when you die. Further, both
CSRS and FERS survivor annuity benefits
will be increased annually by COLAs, regardless
of the age of the survivor.
If both you and your spouse are federal
employees and are eligible for a retirement
annuity, you have a choice to make. You
may each provide a full survivor annuity
for the other or, by mutual agreement,
a reduced annuity or none at all. If you
elect a survivor annuity and then die,
your spouse will be entitled to receive
both his or her own annuity and the survivor
annuity.
If you elected survivor annuity and
your spouse dies (or there is a divorce),
the survivor annuity reduction is eliminated
and your annuity returns to its full amount
(unless a court order says otherwise).
If you later remarry and want to provide
a survivor annuity for your new spouse
(and are not blocked by a court order),
you can do that. However, your annuity
will be reduced actuarially to pay for
that benefit.
If you die and your spouse remarries
before age 55, the survivor annuity is
terminated. However, it may be restored
if that new marriage is ended through
annulment, divorce or death of the current
spouse.
In addition to survivor annuities,
your survivor spouse may be entitled to
a variety of other benefits. If you were
enrolled in an FEHB plan and your spouse
was covered under it, he or she may continue
to be covered by that plan or change to
another one in the program. Premiums will
be deducted from the survivor’s annuity
or, if the annuity is too small, may be
paid directly to OPM.
If you were covered under the Federal
Employees’ Group Life Insurance (FEGLI)
program, your spouse may be entitled to
the proceeds of that insurance. Nearly
all employees are covered under Basic
insurance and carry it into retirement.
If you also purchased and kept Option
A or B coverage, that could provide additional
dollar benefits.
While these are the most common forms
of benefits available to the spouses of
deceased federal retirees, there are many
others. For example, those available from
the Thrift Savings Plan, earned through
Social Security-covered employment under
CSRS Offset, FERS and private sector employment,
and military service. Because the range
and number of potential survivor benefits
is so large, it’s important that you make
a record of your spouse’s potential entitlements
and share that information with him or
her.
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How the CSRS Offset Operates
By Reg Jones
October
27, 2004
Employees covered by CSRS Offset are one of the most
neglected groups in the federal service. That’s because
they are under a hybrid retirement system that caused
them to be covered both by the Civil Service Retirement
System (CSRS) and Social Security. However, although
they’ll be eligible for benefits under both systems,
they’ll actually end up receiving the same amount
under both systems combined as they would if they
were exclusively covered by CSRS. How is that possible?
By offsetting one benefit against the other. To find
out how it’s done, read on.
First, if you are a CSRS Offset employee, your
annuity will be calculated in exactly the same way
as it is for any regular CSRS employee:
- Take: 1.5 percent times your “high-3” average
salary times your first five years of service.
- Add: 1.75 percent times your high-3 average
salary times all service between 5 and 10 years.
- Add: 2 percent times your high-3 times all years
and months of service over 10 years.
The product of these multiplications is an estimate
of your retirement annuity. Naturally, the closer
you are to retirement when you run the numbers, the
more accurate this estimate will be.
Now, if you retire before age 62, you’ll receive
a pure CSRS annuity. However, if you become eligible
for a Social Security benefit at age 62, the Office
of Personnel Management (OPM) will reduce, or “offset,”
your CSRS benefit by an amount equivalent to the Social
Security benefit you earned as a CSRS Offset employee.
If you retire after age 62, the CSRS annuity reduction
will be made when you retire.
When you are close to age 62, the Office of Personnel
Management will ask the Social Security Administration
for an entitlement determination. SSA will send OPM
two benefit computations. The first will be based
on all your Social Security-covered earnings; the
second will be based on all your Social Security earnings
minus any earnings attributable to CSRS Offset service.
OPM will then apply a formula to calculate an annuity
reduction that is the lesser of:
- the difference between the Social Security monthly
benefit amount with and without CSRS-Offset service;
or
- the product of the Social Security monthly benefit
amount, with federal earnings, multiplied by a fraction,
where the numerator is the employee’s total CSRS
Offset service rounded to the nearest whole number
of years and where the denominator is 40. The following
formula is easier to understand:
Social Security benefit times total years of offset
service divided by 40
Using the first calculation, if you had three years
and eight months of CSRS-Offset service and were entitled
to $600 a month in Social Security benefits, but only
$550 when your CSRS-Offset service was removed, the
monthly reduction would be $50.
Using the second calculation, you’d multiply that
$600 by 4 years (your years of service rounded up
to the nearest whole year). That would amount to $2,400.
To find out what the deduction would be, you’d
have to divide that number by 40. Then you’d end up
with a $60 reduction. Because the offset must be the
lesser of the two computations, the reduction would
be $50. Future cost-of-livings allowances would be
applied to the amount remaining after the reduction.
In this example, that would be $550.
When all is said and done, you’ll receive the same
amount, only it will come from two different sources.
The same amount? Well, nearly the same amount. Largely
due to rounding, in some cases you’ll get a little
more, in others a little less.
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1.
What Not to Do When Retiring
By Reg Jones
October 19, 2004
In prior
articles, I've discussed the things that you, your agency and
OPM need to do to assure that your retirement goes smoothly.
Now it's time to talk about a few of the stupid things you might
do that will screw everything up, and to urge you to avoid them.
While these may seem like mistakes you'd never make, believe
me when I say that I've seen them all many times over - sometimes
with heartbreaking consequences. So here is my list of "don't
dos."
First, don't retire on an impulse, for example, when you're
angry at someone or fed up with the job. In all likelihood,
you'll live to regret it. It's far better to retire to something
than to retire to get away from something.
Second, don't retire unless you are sure that you have been
given credit for all your years of federal service - both civilian
and military. It's amazing how many retirees have gotten a smaller
annuity than they were entitled to receive because they had
forgotten to include bits of creditable civilian service such
as from employment when they were in high school or college.
Third, don't retire if you haven't evaluated your future
financial needs and probable income to verify that you'll be
able to maintain your standard of living. Having to cut corner
after corner in retirement can take the shine right off those
"golden years."
Fourth, don't retire if you haven't been covered by the Federal
Employees Health Benefits (FEHB) program for the most recent
five years (or from your first opportunity to enroll). If you
do, you'll be losing out on one of the greatest benefits available
to federal retirees. (The same five-year rule applies to the
Federal Employees' Group Life Insurance (FEGLI) program, which
may or may not be as important to you.)
Fifth, don't retire unless you have checked out all the options
and timings. To do that you will need professional help, not
water-cooler advice. You can get such help from the benefits
officers in your personnel office, government agency websites,
or private sector specialists.
Sixth, if you are married (or have a special someone), don't
retire unless you have discussed it with that person. That old
saw, "I married you for better or worse but not for lunch,"
has a measure of truth in it. Accommodations will need to be
made and the implications of that need to be worked on before
you start being together 24/7.
Seventh, don't retire if you feel like you're walking the
plank and facing a life without purpose. As noted in the first
point above, it's far better to retire to something. That something
can be another job, starting a business, perfecting a hobby,
travel, volunteer work, etc. What is most important is to understand
that we are what we do. The common question, "What do you do?"
needs an answer that makes you feel good about yourself when
you are retired.
Oh, yes, there are other boo-boos you can make; but the ones
I've listed are the ones that have created the biggest messes
in my experience. May you make none of them when you decide
to retire.
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These
costly surprises can take many forms ;a medical emergency; an automobile
that needs early replacement; your home needs a new roof or other costly
repair; or a family member temporarily loses their job.