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Federal Employees News Digest : July 29, 2013
T his third of six columns examining survivor annu- ity benefits for federal employees discusses spou- sal survivor annuity options for annuitants covered by the Federal Employees Retirement System. FERS employees are those employees who entered federal service as permanent employees sometime after Dec. 31, 1983. Also included among FERS employees are those employees who entered federal service before 1984, were covered by the Civil Service Retirement System for at least five years, and voluntarily joined FERS in one of two "open seasons" held in 1987-1988 and in 1998. "Trans" FERS employees give two survi- vor annuities to their spouses: (1) one based on their service as a CSRS employee; and (2) one for survivor annuity based on their FERS service. The information that follows refers to a survivor annuity benefit given to the spouse of a deceased FERS annuitant. A FERS annuitant for purposes of determining an individual's sta- tus at the time of death means that the individual had separated from federal service and had fulfilled all of the requirements to receive a FERS annuity; namely, having filed, or being "deemed" to have filed for the FERS annuity prior to his or her death. A former FERS-covered employee who was entitled to an immediate "MRA+10" FERS annuity when he or she separated, who filed an application for the benefit, but who has postponed the commencing date of the FERS annuity is considered to be an annuitant for the purpose of who is a FERS annuitant. Former FERS employees who were entitled to an immediate MRA+10 FERS annuity at separation but who die before they file an applica- tion are "deemed" to have filed the application and therefore meet the definition of a FERS annuitant. There are two choices for a spousal FERS survivor annuity: (1) the full FERS survivor annuity which is equal to 50 percent of the annuitant's gross annuity at the time of death before it is reduced by the cost of the survivor annuity; the cost to the annuitant for giving a full FERS survivor annuity is 10 percent of the annuitant's starting FERS gross annuity; and (2) the less than maximum sur- vivor annuity which is equal to 25 percent of the annuitant’s gross annuity at the time of death before it is reduced by the cost of the survivor annuity. The cost for giving a less than maximum survi- vor annuity is 5 percent of the annuitant’s starting gross annuity. Note that unless there is a court order granting a full survivor annuity to a former spouse, a current spouse is entitled to a full survivor annuity unless he or she formally waives it. Cost-of-living adjustments (COLAs) that are given to a FERS annuitant increase the survivor annuity by the same percentage. The survivor annuity will also be increased by all future COLAs. The following example illustrates: Jason, a FERS employee, retired from federal service in 2008. Jason elected to give a full survivor annuity to his wife, Pam. At the time of retirement, Jason's computed FERS annuity was $40,000. To give Pam the maximum survivor annuity benefit, Jason's FERS annuity is reduced by 10 percent of $40,000, or $4,000. His net annuity is therefore $40,000 less $4,000, or $36,000. If Jason were to die, Pam would receive 50 percent of $40,000, or $20,000. If Jason died sometime after age 62 after receiving some COLAs and his annu- ity had increased to $45,000, then Pam would receive at the time of Jason's death 50 percent of $45,000, or $22,500 per year. Note that the age difference between Jason and Pam does not affect the cost of the spousal survivor annuity. The cost to give the maximum FERS spousal survivor annuity remains at 10 percent of the starting FERS gross annuity, even with COLAs starting at age 62. Spousal Survivor Special Retirement Annuity To be eligible for the spousal Special Retirement Supplement (SRS) annuity, the surviving spouse must: (1) be entitled to a cur- rent spousal survivor annuity; (2) be under age 60; (3) be entitled to a Social Security survivor (widow/widower) benefit which is based on the deceased annuitant's employment; and (4) not cur- rently eligible for Social Security. The deceased FERS annuitant must have had at least five years of creditable service and one full year of civilian service creditable under FERS to give a spousal survivor SRS annuity. In order to determine the actual amount of a spousal survivor SRS annuity two calculations have to be performed. The survivor SRS annuity is the smaller of: (1) the amount by which the "assumed" CSRS survivor annuity exceeds the FERS survivor annuity; or (2) the amount of the computed Social Security spousal survivor (widow/ widower) benefit. The "assumed" CSRS survivor annuity is the maximum amount of a survivor annuity to which the survivor would be entitled under CSRS based on the service of the deceased annuitant. It is determined: (1) as of the day after the annuitant's death; (2) as if the survivor had applied for the benefit; and (3) as if the service of the deceased annuitant were creditable under CSRS. 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 III: FERS July 29, 2013 Vol. 63, No. 2 7 Visit us on the Internet at www.FederalDaily.com
July 22, 2013
Aug 5, 2013