5 Things To Know About Supplemental Retirement Benefits

The ins and outs of the FERS supplement.

Federal workers who are younger than 62 and eligible for an unreduced Federal Employees Retirement System benefit also are eligible for a temporary extra benefit, the FERS annuity supplement. This group includes those who retire under special provisions for law enforcement officers, firefighters and air traffic controllers as well as regular FERS retirees who retire at their minimum retirement age with 30 or more years of service or at age 60 or 61 with at least 20 years of service. Those who retire under Voluntary Early Retirement Authority (also known as “early out” offers) are entitled to begin receiving the FERS supplement at their MRA.

The supplement represents what you would receive for your FERS civilian service from Social Security. It is calculated as if you were eligible to receive Social Security benefits on the day you retired. The supplement is paid by the Office of Personnel Management as part of your FERS retirement.

Here are five things to know if you’re thinking about retiring with a FERS supplement—or are already receiving one:

The supplement has no impact on your eventual Social Security benefit. In fact, the Social Security Administration is not even aware you’re receiving the benefit. There is an indirect impact on Social Security benefits: While you’re getting the supplement, you’re not working and paying the FICA tax on your wages, so you may wish to estimate your future Social Security benefit using the year you stopped working. The estimate you may have received from Social Security shows your earnings as if you continued working to age 62, your full retirement age or age 70.

There is no reduction to your supplement, even if you are working, until after the first calendar year you receive the benefit. Don’t be alarmed if you receive the supplement even if you started working the day after your federal retirement. You’re entitled to the benefit and won’t need to report your earnings until the next year. Then the earnings you receive after retirement (or after reaching your MRA if you retired at a younger age) will be compared to the Social Security earnings limit for the same year. Your monthly annuity supplement will be reduced by 1/12 of the annual excess earnings.

Don’t forget to fill out your earnings report. If you retired in 2020 or earlier or you reached your MRA as a FERS retiree in 2020, you may have received the Annuity Supplement Earnings Report. (They may not all have been mailed or delivered yet.) Be sure to return your supplement survey before the deadline (generally May 15) or as soon as possible if you didn’t receive it until after the deadline, which happens sometimes. This year’s form asks you to report earnings greater than $18,240 that you earned in 2020. If you didn’t have any earned income in 2020 after your retirement, then you don’t need to return the form.

You’ll  see the reduction or termination of your FERS supplement in your July retirement benefit (payable on Aug. 1). For example, let’s say John retired on June 30, 2020, was over the FERS MRA and earned $30,000 from July 1 to Dec. 31, 2020 for consulting work. He would report this income on his 2020 Annuity Supplement Earnings Report. He earned $11,760 more than the 2020 earnings limit, so his supplement will be reduced by $5,880. Between January and June of 2021, John would have already received his unreduced supplement for six months. So the reduction to John’s supplement starting with his July 2021 retirement payment would be $490.

If you stop working before age 62, your supplement can be reinstated. According to OPM, the amount of time throughout the year that an individual works is not a variable in the computation of eligibility. What is a variable is how much the annuitant received in countable work earnings within the tax year in question. If the countable earnings that they received from just working one month, 10 months, or a year far exceed the earnings limitation for that tax year, then their request for a reinstatement of the supplement for January following the tax year in question might be denied.

According to Dan Jamison, author of the FERSGUIDE, when you receive an earnings survey for the first time, it is imperative to include documentation of when exactly you received your earnings. Suppose you receive biweekly paychecks from a post-government job and you reached your MRA on June 30, 2020. You need to send OPM copies of your pay stubs or earnings records with pay dates between July 1 and Dec. 31, 2020, along with your earnings report and a letter explaining the income that you reported is just the income after your MRA.

If you only report the income division without any justification and pay records, OPM will just look at the amount of earnings reported in your Social Security earnings file, which will reflect money you received for the entire year and not just from your MRA date onward. That will likely cause your supplement to be adjusted downwards, and it will take considerable effort to get the issue resolved.