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Federal Employees News Digest : Jan. 21, 2013
January 21, 2013 Vol. 62, No. 25 7 Visit us on the Internet at www.FederalDaily.com In recent months there have been several questions on FEND's FederalSoup "Question and Answer" online forum concerning CSRS Offset retirement rules and benefits. As a result, this week's column will review CSRS Offset retirement rules and benefits. Who is a CSRS Offset Employee? A CSRS Offset employee is an employee who entered federal service as a full or part time permanent employ- ee prior to Jan. 1, 1984, and: (1) had at least five years of creditable CSRS service as of Jan. 1, 1987; (2) had a break of service that exceeded one year sometime after Dec. 31, 1983; and (3) returned to federal service some- time after Jan. 1, 1984. Another category of CSRS Offset employees includes those who were hired before Jan. 1, 1984, and acquired CSRS "interim coverage" between 1984 and 1987 with at least five years of creditable CSRS service as of Jan. 1, 1987. CSRS Offset employees follow the same rules as CSRS employees with respect to retirement eligibility. CSRS Offset employees are cov- ered by both CSRS and Social Security. As such, CSRS Offset employ- ees contribute to both the CSRS Retirement and Disability Fund and to Social Security. In particular, employees contribute 0.8 percent of their after-tax wages to the CSRS Retirement and Disability Fund and 6.2 percent of their gross wages to Social Security up to the maximum Social Security wage base ($113,700 during 2013). Computation of CSRS Annuity A CSRS Offset employee's CSRS annuity is computed in the same manner as for a CSRS employee. A CSRS Offset employee who retires before age 62 will receive a CSRS annuity until the retiree meets the basic requirements for Social Security---usually age 62---even if the employee does not apply for Social Security. If the employee retires after age 62, then the "offset" to the computed CSRS annuity occurs at the time of retirement. Amount of the Offset The amount of the offset is the lesser of: (1) the amount of the Social Security benefit attributable to the employee's service after Dec. 31, 1983, covered under the interim CSRS provisions or the CSRS Offset provision; or (2) the amount obtained by the following: [Total years of CSRS Offset service/40] times Social Security benefit at Age 62 (or at the time of retirement, if later than age 62). Note: Partial years of offset service are rounded to the nearest whole number, with one-half being rounded to the next higher number. Example. A CSRS Offset employee retires at age 56 with 32 years of federal service. Of the 32 years, 16 were CSRS Offset service. At age 62 the employee becomes eligible for Social Security in the amount of $1,600 per month. His CSRS annuity at age 62 is equal to $60,000/year or $5,000/ month. The offset to the annuitant's $5,000 monthly CSRS annuity is equal to the lesser of: (1) the $1,000 that the Social Security Administration computes as attributable to the employee's service as a CSRS Offset employee; or (2) 16 years of CSRS Offset Service/40 x $1,600 = $640. The $5,000 monthly annuity will therefore be offset by $640. The annuitant will receive a check from OPM equal to $4,340 ($5,000 less $640) and a check for $640 from the Social Security Administration. Effect of the Windfall Elimination Provision (WEP) A CSRS Offset annuitant may have worked out- side the federal government and earned at least 40 credits of Social Security. As such, the CSRS Offset annuitant can apply for the rest of the Social Security benefit they earned. But that remaining benefit is subject to the following: (1) the WEP if the annuitant has less than 30 years of non-federal government "substantial" earnings under Social Security; The WEP reduces that amount of Social Security on aver- age about 50 percent; (2) a reduction if the annuitant applies for the benefit before full retirement age; and (3) the "earnings test," if the annuitant applies for the benefit before full retirement age and is still working. Example. In the above example, the annuitant can apply for the remainder of the $1,600/month benefit ($1,600 less $640) or $960/ month. Assuming the annuitant applies for that benefit at full retire- ment age, the $960 will be reduced by approximately 50 percent, leaving a benefit of $480. The annuitant's total Social Security benefit consisting of one check will be $640 plus $480, or $1,120 per month. Effect of the Government Pension Offset (GPO) CSRS Offset annuitants are not subject to the GPO. As such, CSRS Offset annuitants are eligible to collect one half of a spouse's or former spouse's Social Security, or all of a deceased spouse's Social Security, if that amount is more than their Social Security benefit. The CSRS Offset annuitant would collect one Social Security check, as the fol- lowing example illustrates: Example. In the example above, the CSRS Offset annuitant is mar- ried. The spouse's monthly Social Security benefit is $2,400 per month. Assuming the spouse is collecting the $2,400 monthly benefit, the annui- tant can collect a spousal Social Security benefit equal to $1,200 per month. The $1,200 monthly benefit includes the $640 offset amount. Edward A. Zurndorfer is a Certified Financial Planner and Enrolled Agent in Silver Spring, MD. He is also a registered representative with FSC Securities Corporation, branch address: 833 Bromley St. - Suite A, Silver Spring, MD 20902. Phone: (301) 681-1652. Securities offered through FSC Securities Corporation,member FINRA/SIPC. EZ Accounting and Financial Services and FSC are independent companies. Informed Investor CSRS Offset retirement rules and benefits
Jan. 14, 2013
Jan. 28, 2013