What Makes the FERS Supplement Special

The Federal Employees Retirement System annuity supplement is important for those covered under FERS who plan to retire before turning 62, but it is especially significant to those who must retire early under special provisions that apply to certain groups of employees: law enforcement officers, firefighters, air traffic controllers, National Guard technicians, Customs and Border Protection officers, nuclear materials couriers and special agents of the Diplomatic Security Service—as well as a few other positions.

Although the special provisions apply to a large number of employees at agencies such as the FBI and the Secret Service, they cover a smaller portion of employees at agencies like the Food and Drug Administration. It can be difficult for some special group employees to get information about specific retirement rules for them that are slightly different due to their retirement coverage. These differences include an earlier retirement age with eligibility to retire with less service than other employees, immediate cost-of-living adjustments, a more generous retirement computation, and an immediate FERS retirement supplement.

To help with this week’s column, I called on Dan Jamison, who is a certified public accountant and retired FBI agent. For more than 20 years, he has produced a FERS retirement guide for special category federal employees.

The FERS retirement supplement bridges the time between the beginning of retirement and the age you qualify for Social Security retirement—which is generally 62. This benefit provides a source of income that mimics the age 62 Social Security benefit, but is computed using only civilian federal service creditable to the FERS retirement benefit. About half of all FERS employees are entitled to this benefit when they retire. To receive the supplement, you must be eligible for an immediate, unreduced FERS retirement benefit. In addition to employees with special retirement coverage, employees who retire at the FERS minimum retirement age with at least 30 years of service or those at age 60 with at least 20 years of service are entitled to the FERS supplement. The supplement ends when a recipient turns 62 and is subject to an earnings test from the minimum retirement age until the supplement ends at age 62. The earnings test can cause a reduction or elimination of the supplement.

The FERS supplement is generally payable at retirement for special coverage employees when they retire as early as age 50 with 20 years of covered service. It’s sometimes available even earlier for employees eligible to retire when they complete 25 years of covered service. This benefit is especially important those in the special coverage groups, because the mandatory retirement age for most of them is 57. (It’s 56 for air traffic controllers).

Dan said one of the things many employees find difficult to understand is the annual earnings test. For special coverage groups, the earnings test is applied once the retiree reaches the FERS minimum retirement age.

Let’s suppose Josie, a federal law enforcement officer, plans to retire at 51 on Dec. 31, 2017, with 20 years of service. Her date of birth is Nov. 15, 1966. Her minimum retirement age is 56 years and four months. She won’t be subject to the annual earnings test until she has reached that age.

Now, let’s fast-forward and see what happens when Josie turns 56. Assume she has been receiving a FERS supplement of $900 per month, or $10,800 annually.

She will reach her minimum retirement age on March 15, 2023. Josie will not be subject to the earnings test until 2023 because she didn’t reach her MRA by the end of 2022. Josie will continue to receive her full, unreduced supplement during 2023. An annual earnings survey (Retirement and Insurance Form RI 92-22) will be sent to her early in 2024.

Let’s assume Josie earns $36,000 per year. On the earnings survey, she will report all earnings from 2023 received after reaching her MRA. That adds up to $27,000 (nine months of wages). The reduction to her supplement is computed at $1 for every $2 in earned income over the limit. The earnings limit amount for 2017 is $16,920 per year. If Josie earned $13,080 over the 2024 earnings limit, then her supplement would be reduced by dividing the amount over $13,080 in half, arriving at an annual reduction of $6,540. After the reduction is applied ($10,800 - $6,540), the new supplement rate becomes $4,260 annually, or $355 per month. So, effective in July 2024, Josie will see her supplement reduced from $900 per month—which she had been receiving since retirement—to $355 per month.

In April 2025, Josie will receive another earnings survey. At this point, let’s say she increased her earnings to $75,000 a year in 2024. That means with the July 2025 annuity payment, she will see her supplement reduced to zero.

Now supposed Josie decides to fully retire in December 2025 at age 59. Once she can provide proof of her earnings level going below the annual limit, she can file to restore the supplement. This proof is generally a tax return—in this case, her 2026 return, which would be the first to show the reduced income. After a long process of submitting new lower wage reports to OPM and gaining approval to restore the supplement, then it will be reinstated. The supplement ends at age 62 for all FERS participants.

Dan reminds retirees that it is not a good idea to contact OPM and report job changes or earnings. Instead, it is better to wait to receive the RI 92-22 earnings survey in the mail. It is very important to update any address changes to OPM, so that the earnings survey is not returned by the post office. If your whereabouts are unknown, OPM will typically stop the supplement payment. Contact OPM immediately if you don’t receive an earnings survey by mid-May if you have reached your minimum retirement age by Dec. 31 and still haven’t turned 62.

If you’re subject to the earnings limit at retirement, you only need to report earnings from wages and salaries earned after your retirement date. You do not need to report the payment of your unused annual leave. There is a good description of earnings on the back of the earnings survey form. The definition of earnings that count against the supplement is the same definition of earnings used by Social Security to apply the earnings limit from age 62 to your full retirement age.

Policymakers have proposed eliminating the FERS supplement over the years—including this one. But so far, it’s still available to eligible federal retirees. The FERS supplement is one of the benefits included when FERS was implemented that allows federal employees to plan for retirement with similar age and service requirements as employees who retire under the older Civil Service Retirement System.

Photo: 401kcalculator.org