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Federal Employees News Digest : July 22, 2013
T his is the second of six columns discussing sur- vivor annuity benefits for federal employees. This week's column discusses survivor spousal annu- ity options for CSRS Offset employees. CSRS Offset employees are employees who pay both into the Civil Service Retirement and Disability Fund and into Social Security. These employees initially entered federal ser- vice as permanent employees before Jan. 1, 1984, had at least five years of CSRS service as of Dec. 31, 1986, left federal service for at least one year sometime after Jan. 1, 1984, and then returned to federal service. In general, a survivor annuity payable to the spouse of a deceased CSRS Offset annuitant is computed in the same manner as a survivor annuity payable to the spouse of a deceased annuitant with full CSRS cover- age. For information on the computation of a CSRS survivor spousal annuity, together with the various CSRS survivor annuity options, please refer to the "Informed Investor" column of July 15. Also, as a result of the Supreme Court ruling on June 26 that Section 3 of the Defense of Marriage Act (DOMA) is unconstitu- tional, the Office of Personnel Management will shortly issue new rules for spousal survivor annuity benefits for same-sex spouses. But for the purposes of this column, it will be assumed that a CSRS Offset annuitant is married to a heterosexual spouse. The amount of a survivor annuity payable to the spouse of a deceased CSRS Offset annuitant will be offset (reduced) if the spouse is fully eligible for Social Security benefits based on the deceased's Social Security earnings as a CSRS Offset employee. But a surviving spouse who is not entitled to Social Security survivor (widow/wid- ower) benefits will be paid the full CSRS survivor annuity benefit. The following example illustrates: James and Carol are both federal annuitants. James, age 65, is a CSRS Offset annuitant while Carol is a CSRS annuitant. James and Carol are giving each other full CSRS survivor annuity benefits. If James were to predecease Carol, Carol would receive a full CSRS survivor annuity benefit from James. This is because Carol as a CSRS annuitant is ineligible to receive Social Security survivor benefits from James due to the Government Pension Offset (GPO). The GPO eliminates any type of Social Security widow/widower benefit for most CSRS annuitants. If Social Security survivor benefits based on the CSRS Offset annuitant's federal service under Social Security are payable, then: (1) The surviving spouse receives full CSRS survivor annuity ben- efits until they become entitled to Social Security widow/widower benefits. This is normally when the surviving spouse becomes age 60. But such benefits may begin before age 60 if the surviving spouse is disabled or has a minor child in care. (2) Upon becoming entitled to Social Security widow/widower benefits, the CSRS survivor annuity is reduced (offset) by the amount of the surviving spouse's Social Security benefit attributable to the period the deceased annuitant was under CSRS Offset. The offset (reduction) effect on a CSRS Offset sur- vivor annuity will cease on the date that a survivor loses eligibility for Social Security widow/widower benefits due to any of the following reasons: (1) the surviving spouse annuitant becomes eligible for a Social Security benefit based on their own earnings under Social Security and that benefit exceeds the Social Security widow/widower benefit; (2) the sur- viving spouse remarries before age 60; or (3) the Social Security widow/widower benefit stops because a minor child reaches age 16 and the surviving spouse is under age 60 (but in this case the Social Security widow/widower benefit can be restated when surviving spouse becomes age 60). Note that entitlement to a Social Security portion of a CSRS Offset survivor annuity benefit is not considered terminated when the benefit payable is reduced to zero due to the application of the Social Security "earnings" test. The following example illustrates when a widow/widower becomes eligible for his or her own Social Security benefit: Michael, a CSRS Offset annuitant receives a gross CSRS annuity of $5,000 a month when he dies at age 61. His widow, Madeline, receives a CSRS Offset survivor benefit of $2,750 a month (55 per- cent of Michael's gross annuity at the time of his death). Madeline is also age 61. When Madeline becomes age 62 her CSRS survivor annuity check will be reduced (offset). In particular, the $2,750 per month will be reduced to $2,250 per month as a CSRS survivor annuity and $500 per month as a Social Security widow/widower benefit. The $500 monthly benefit is computed based on Michael's Social Security earnings as a CSRS Offset employee. But when Madeline becomes age 66 (her full retirement age) she is entitled to her own Social Security retirement benefit of $1,000 per month. The $1,000 per month benefit is based on Madeline's Social Security earnings. At the time Madeline applies for her Social Security retire- ment benefit of $1,000 per month, she will receive a full CSRS sur- vivor annuity benefit of $2,750 (which was adjusted annually by a cost-of-living allowance) plus her Social Security retirement benefit starting as $1,000 per month. 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 Deciding on Survivor Annuity Benefits Part II: CSRS Offset July 22, 2013 Vol. 63, No. 1 7 Visit us on the Internet at www.FederalDaily.com
July 15, 2013
July 29, 2013