The Benefit That Already Can Be Cut

Even if you’re eligible for a FERS supplement, it can be reduced or eliminated if you go back to work.

If you’re covered under the Federal Employees Retirement System and are potentially eligible to receive the FERS Annuity Supplement, you may have heard that proposals are circulating to eliminate it. But even if that doesn’t happen, you should be aware that the supplement can be reduced or eliminated if you return to work while you are receiving it. Many FERS employees have questions about how and why that happens.

Before I try to explain, here’s a quick overview of this benefit.

The FERS supplement serves as a monetary bridge between retiring under FERS and qualifying for Social Security retirement benefits. The income produced from the FERS supplement helps to fill in the gap of the missing Social Security retirement benefit.

Employees who retire under FERS with an unreduced, immediate retirement benefit and who are under age 62 are eligible to receive the supplement. This includes those who retire at the FERS minimum retirement age with 30 or more years of creditable service and also those who retire at age 60 with 20 or more years of service. In addition, the supplement is payable to “special provision” retirees, including federal law enforcement officers, firefighters and air traffic controllers, who retire at any age with 25 years of covered service or at age 50 with 20 years of covered service. Finally, employees who retire under Voluntary Early Retirement or Discontinued Service Retirement provisions are also eligible for the FERS supplement upon reaching the FERS minimum retirement age.

The supplement is computed using the civilian service performed as a FERS employee. An easy way to estimate the supplement is to divide your years of civilian service performed under FERS by 40 (representing the years of a career from age 22 to age 62), then multiply this result by your estimated Social Security benefit payable at age 62. You can get an estimate by setting up a mySocialSecurity account.

For example, if your Social Security estimate shows a benefit payable at age 62 of $1,600 per month and you have performed 32 years under of civilian service under FERS, then the approximate value of the supplement would be: 32/40 x $1,600 = $1,280 per month.

The determination of whether you’re entitled to the FERS supplement is made at the Office of Personnel Management during the adjudication process of your FERS retirement. You do not need to apply for the supplement; it is included as part of your FERS application for immediate retirement. Once your retirement claim is finalized, you will be notified the supplement is payable.

Earnings Limit

Sometimes federal employees retire from their federal careers and then return to work in the private sector, state or local government, or become self-employed. If so, they need to know that the FERS supplement is subject to an annual earnings limit. (For those who retire under special provisions, the earnings limit doesn’t apply until after they reach the FERS minimum retirement age.)

The earnings test is very similar to the limit that applies to the receipt of Social Security benefits prior to reaching your full retirement age. According to Social Security:

If you are younger than full retirement age and make more than the yearly earnings limit, your earnings may reduce your benefit amount. If you are under full retirement age for the entire year, $1 will be deducted from your benefit payments for every $2 you earn above the annual limit. For 2018, that limit is $17,040. In the year you reach full retirement age, $1 will be deducted in benefits for every $3 you earn above a different limit. In 2018, the limit on your earnings is $45,360, but Social Security only counts earnings before the month you reach your full retirement age.

Every year in April, OPM mails a survey on outside earnings to annuity supplement recipients subject to the earnings limit. The supplement is reduced by $1 for every $2 of earnings over the exempt amount ($17,040 in 2018).

Under federal law, a reduction in the supplement on account of outside earnings “shall be effective… beginning on the first day of the seventh month after the end of the calendar year in which the excess earnings were earned.” According to OPM, “if earnings from 2018 produce a reduction, the reduction would begin with the annuity supplement accruing in July 2019. Retirees would see this reduction with their Aug. 1, 2019, payment (July’s payment).”

Let’s look at an example:

John retired June 30, 2016, at age 56 and received a $14,000 per year FERS supplement. He did not work from July 2016 through December 2017. But he returned to work in 2018. Here’s how his future could play out:

Survey 1: April 2017 (covers August-December 2016). No earnings reported, supplement continues for 2017. John is 57.

Survey 2: April 2018 (covers January-December 2017). No earnings reported, supplement continues for 2018 John is 58.

Survey 3: April 2019 (covers January-December 2018.) John will earn $50,000 in 2018, which is $32,960 over the 2018 earnings limit. His supplement will be reduced by $16,480, which will eliminate John’s supplement beginning Aug. 1, 2019. (Any earnings reduction during a year cannot exceed the amount of the annuity supplement payable during that year.) John is 59.

Survey 4: April 2020 (covers January-December 2019). John continues working and earning well above the earnings limit. The supplement continues to be suspended starting Aug. 1, 2020. John is 60.

Survey 5: April 2021 (covers January-December 2020). John stops working in January 2020 and only earns $6,000 during this period. Beginning on Aug. 1, 2021, the supplement is reinstated. John is 61.

Survey 6: April 2022 (covers January-June 2021). John is no longer employed during this period and he reaches age 62 on June 15, 2021. The supplement continues through June 2021 (payment for the June retirement is made on July 1). No supplement is payable after July 1.

Information on the duration of the FERS supplement is available on page 6 of in Chapter 51 of the CSRS and FERS Handbook. Also, OPM’s website offers answers to frequently asked questions about the supplement.

Of course, all of this will be moot if Congress decides to eliminate the FERS supplement. But there’s a long way to go before that happens. For now, the supplement is available to those who qualify for this valuable retirement benefit.