By Tammy Flanagan
February 2, 2007My column last week on supplements under the Federal Employees Retirement System generated lots of questions. In fact, I spent the better part of last weekend answering them. So I thought I'd share some of the most common ones with you. And oh, for you Civil Service Retirement System folks, my apologies. We'll talk about your retirement next week -- it's not nearly as complicated! Just as a refresher, the FERS supplement affects those who retire before turning 62, and therefore can't collect Social Security. The legislation creating FERS more than 20 years ago created a special supplement to the FERS basic retirement benefit to be paid to retirees in this situation. The supplement is included in the FERS basic annuity payment.
Now on to the questions about the specifics: I will be eligible to receive the FERS supplement when I retire at age 60. Will this decrease my Social Security payment when I am 62?
The FERS supplement will not have any affect on your Social Security benefit. You might think of it as a bridge between your government retirement and qualifying for Social Security. It is paid by the Office of Personnel Management as part of your FERS retirement. Social Security will not even know you have received this payment.
Can I apply for the supplement in conjunction with my retirement application or do I have to wait until after I have retired?
The supplement will be computed automatically with your FERS basic annuity benefit. You do not need to file separately for it. The Office of Personnel Management makes the eligibility determination based on your age and retirement eligibility. You won't need to do anything besides apply for FERS retirement.
Does the supplement continue to a surviving spouse and if so, when does it end for the surviving spouse?
To be eligible for the spousal annuity supplement, the surviving spouse must be:
The supplementary annuity payable is the lesser of:
Does the maximum earning limit for 2007 of $12,960 include retirement income or is it in addition to this income? If I retired with a FERS pension, can my gross annual income only be that $12,960?
The definition of what counts as income is the same as Social Security uses in its benefits calculations:
If you work for someone else, only your wages count toward Social Security's earnings limits. If you are self-employed, we count only your net earnings from self-employment. We do not count income such as other government benefits, investment earnings, interest, pensions, annuities and capital gains.So your retirement, TSP income, and other unearned income do not count against this limit.
If you work for wages, income counts when it is earned, not when it is paid. If you have income that you earned in one year, but the payment was made in the following year, it should not be counted as earnings for the year you receive it. Some examples are accumulated sick or vacation pay and bonuses.
If you are self-employed, income counts when you receive it -- not when you earn it -- unless it is paid in a year after you become entitled to Social Security and earned before you became entitled.
In calculating the FERS annuity supplement, you have to estimate the Social Security benefits you would receive at 62. Those benefits are based on the average of the 35 highest years' earnings. So, if a person retires at 55, and has, say, 28 years of Social Security earnings, seven years of zeros are averaged in. If that person works seven more years, and earns $100,000 per year, then his or her average goes up $700,000 divided by 35, or $20,000 a year. I would think this would make a considerable difference in the monthly Social Security check.
The way that the supplement is computed is complicated, but it basically uses actual wages and "deemed" wages to construct your earnings history. Therefore, not having wages from age 55 to 62 would not affect the supplement. But it would affect your actual Social Security benefit. The loss of these seven years of maximum taxable wages would cause your Social Security benefit to be reduced by about $225 per month.
If a person under FERS retires mid-year in 2007, is younger than the normal retirement age, and has earned over $12,960 in 2007, then he or she will not receive Social Security until January 2008, right? This assumes he or she has earned enough to fail the earnings test. The supplement is not tested until the year after you first retire and is only affected by post-retirement earnings. For the year immediately following the first year during which a retiree became eligible to receive the annuity supplement, the annual earnings reduction amount cannot exceed the total annuity supplement to which the individual was entitled in the first year.
For example, suppose Curtis retires at the end of September 2007, and is awarded an annuity supplement of $600 a month. Since his supplement payments during 2007 total $1,800, any reduction of his annuity supplement payments during 2008 for excess earnings during 2007 cannot exceed $1,800 -- no matter how much he earns during October-December 2007.
OPM asks each retiree who has reached the minimum retirement age to provide a statement of earnings each year he or she is eligible to receive the annuity supplement. Earnings must be reported by retirees in a form available here.
I read that, under the FERS program, if a reservist is voluntarily or involuntarily activated in a leave-without-pay status, that time is applied to the FERS supplement. Is this correct?
The supplement is based on years of civilian service under FERS. However, civilian service includes time in military service performed during a period covered by military leave with pay -- or leave without pay from civilian service.
Does the "military service not included" rule apply to the FERS supplemental even if I bought into the FERS system 11 years of military service out of 33 total years of service? Do I use 33 years or 22 years in the formula for estimating the supplement?
You would use 22 years in computing the supplement, even though you've paid for your military service. The payment to FERS for military service was done to credit the service toward your FERS basic retirement benefit, but not the supplement. I know it doesn't seem right, but those are the rules.
It was my understanding that the supplemental would continue until you reach minimum Social Security retirement age. Under Social Security, I believe my age based on their formula is 66 or 67 years old. I thought the supplemental would not end at age 62, but at the age I am eligible for Social Security.
The supplement ends at age 62, regardless of when you decide to apply for Social Security. You are correct that the full retirement age for Social Security is increasing from 65 to 67, based on your year of birth. The minimum age for Social Security is not changing, however.
I used the formula in your column to calculate my supplement, then contacted my retirement office to verify my calculations. I was informed that only whole years of work are used in the calculation, and that an employee's last year of work is not used in the calculations. Since I started on May 10, 1987, my first year of employment will not be used for calculation purposes and obviously my last year will not be used. From the information provided by my employer, I used 18 as the number of years I have been employed, divided it by 40 and multiplied it by the Social Security amount I will receive at age 62. The difference in using 20 years and 18 years in the calculation is $876.00 a year, or $10,512 over the 12 years I could collect the FERS supplement. I am trying to determine if the information I was provided by my employer is correct. Also, I am a law enforcement officer, which allows me to retire with 20 years of service.
This is a case of confusing the computation of your earnings history with the computation of the number of years to divide by 40. When completing the earnings history, you are correct that the last year of earnings is not the "actual" amount, but a "deemed" amount. This is done so that every year of your working career is counted as a "full year" of wages. This has nothing to do with the number of years of FERS civilian service that you divide by 40 to estimate your supplement. That number is your total civilian service creditable under FERS, rounded to the nearest whole number, but not exceeding 40 years. In your example, the number would be either 20 or 21 depending on when you retired. If you retired on May 31, 2007, you would have 20 years even and if you retired on Dec. 31, 2007, you would have 20 years and 7 months -- and this would be rounded up to 21 years.
I hope this helps address some of the common concerns about the FERS supplement. If you still have questions, try checking Chapter 51 of the CSRS and FERS Handbook.
Tammy Flanagan is the senior benefits director for the National Institute of Transition Planning Inc., which conducts federal retirement planning workshops and seminars. She has spent 25 years helping federal employees take charge of their retirement by understanding their benefits.
By Tammy Flanagan
February 2, 2007