What You Need to Know About CSRS Offset

For those feds covered by the Civil Service Retirement System and Social Security, calculating retirement benefits can get complicated.

While the vast majority of federal workers are now covered by the Federal Employees Retirement System, for those covered by the older Civil Service Retirement System and Social Security—a subset of CSRS known as CSRS Offset—things can get complicated. 

The Office of Personnel Management does not report how many of the 1.3 million people on the rolls who retired under CSRS qualify as CSRS Offset beneficiaries, but if you’re one of them—or think you may be qualified—it pays to understand the ins and outs of the program. There’s plenty of anecdotal evidence to suggest that many retirees may be missing out on benefits as a result of misunderstandings about how CSRS Offset works. 

CSRS Offset, as described by OPM, is the same as CSRS, except that it is coordinated with Social Security. Most federal retirement benefits specialists, myself included, believe CSRS Offset provides the best of both worlds because beneficiaries are fully covered by Social Security during the CSRS Offset years of federal service and they are entitled to the more generous CSRS benefit formula, cost of living adjustments, and survivor benefits of CSRS, even though those benefits are subject to a reduction—or “offset”—when qualified for Social Security retirement. 

CSRS Offset was created in 1987 to accommodate employees who had at least five years of prior civilian service under CSRS and were rehired after 1983 with more than a one year break in service. Those employees were required to pay the FICA tax even though they were vested under CSRS with five years of previous service. CSRS Offset also applies to employees who were hired into a civilian job before 1984, but did not acquire retirement coverage until after 1984 and had at least 5 years of service as of January 1, 1987. Retirement contributions of 7% are reduced (offset) by the FICA tax of 6.2% up to $137,700 (2020 amounts) during the CSRS Offset service. Likewise, CSRS retirement benefits are reduced by the Social Security benefit attributable to the CSRS Offset service but never more than the lesser of two calculations.  

The first formula is computed by the Social Security Administration and provides the amount of the Social Security benefit that is attributable to the employee's federal service after December 31, 1983. The second formula is computed by OPM by multiplying the Social Security benefit that the individual is entitled to receive at retirement by the total years of offset service divided by 40. 

If a retiree is married, widowed, or divorced, she also may be entitled to a higher Social Security benefit based on her spouse’s work record. Under CSRS, this spousal entitlement is reduced (using a different “offset” called the Government Pension Offset) by two-thirds of the CSRS retirement and often results in an offset of the entire spousal or widows benefit amount. However, when a retiree has paid into FICA (Social Security) for the last 60 months of their federal career, they are exempt from the two-thirds Government Pension Offset and may be entitled to receive the spousal or widows benefit amount if higher than their own earned Social Security retirement benefit. (For more on this an other exceptions review the GPO Fact Sheet.)

Unfortunately, some Social Security representatives may not fully understand how to apply the Government Pension Offset to beneficiaries covered by CSRS Offset. I know of two recent cases where a CSRS Offset retiree who became widowed was denied the widow’s benefit. The Social Security office issued an overpayment collection letter of more than $47,000 in one case because the retiree failed to notify SSA when she retired from federal service and the agency continued paying the widow’s amount for two years. She has been trying to convince Social Security to reconsider this overpayment as she was under CSRS Offset from 2002 until her retirement in 2018—well over 60 months. In the other case, the employee was told by her local Social Security office that she is not entitled to a widows benefit because she retired under CSRS. She retired under CSRS Offset and met the 60-month requirement to allow her an exception to the GPO, but the employee did not understand the difference between CSRS and CSRS Offset and was not aware of this exception. 

It’s not surprising that some Social Security employees are unfamiliar with this exception as there aren’t many CSRS Offset retirees apparently. OPM does not distinguish CSRS from CSRS Offset when providing statistical data. According to the 2018 OPM Statistical Year Abstracts, at the end of FY 2017 there were 108,000 full-time equivalent CSRS employees. OPM estimates that the number of CSRS-covered employees decreased by over 20,000 full-time employees during FY 2018. The proportion of covered employees continues to shift toward the FERS system, accounting for about 97% percent of active employees. 

Although CSRS Offset retirement benefit is still the “best of both worlds” in my opinion, it has generated a lot of confusion. I fear there are many retirees who have repaid the unnecessary overpayments or are not receiving widows or spousal benefits to which they are entitled.