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Home | Articles | Guide to CSRS Offset Retirement Benefits and Rules

Guide to CSRS Offset Retirement Benefits and Rules
Edward A. Zurndorfer, CFP
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Any individual who entered federal service as a full time (permanent) or as a part-time employee prior to Jan. 1, 1984 was placed in the Civil Service Retirement System (CSRS). By law, federal employees covered by CSRS are excluded from Social Security coverage and do not pay Social Security (Federal Insurance Contributions Act or FICA) payroll taxes.

Congress made several important changes to the Social Security laws in 1983. Among the changes starting in 1984 was mandatory Social Security coverage for most new federal employees hired after Dec. 31, 1983, and for departed federal employees with previous CSRS coverage who were rehired after Dec. 31, 1983 after a break in CSRS coverage for more than one year. These latter employees were placed in an interim retirement plan that provided for full Social Security deductions from pay and reduced CSRS deductions, a precursor of the CSRS Offset retirement.

On Jan. 1, 1987 the federal government started the Federal Employees Retirement System (FERS). While most employees were at that time covered by either CSRS or FERS, Congress also established the CSRS Offset retirement plan. This plan applies to employees who had a break in service that exceeded one year ending after Dec. 31, 1983, and who had at least five years of creditable CSRS service as of Jan. 1, 1987. For example, an individual entered federal service on June 22, 1975, worked for 18 years, and left federal service on July 1, 1993. This individual then re-entered federal service on Aug. 1, 1994. Upon re-entering federal service, he or she would be classified as a CSRS Offset employee.

Another category of CSRS Offset employees includes individuals who were hired before Jan. 1, 1984, who acquired CSRS "interim coverage" between 1984 and 1987, and who had at least five years of creditable civilian service as of  Jan. 1, 1987.

An employee who is classified as a CSRS Offset employee will have that coverage designated officially on his or her form SF 50 (Notice of Personnel Action). In particular, Box 30 of SF 50 will be coded with a letter "C" or a letter "E" if the employee is a CSRS Offset employee. Employees are encouraged to check their most recent SF 50 statement to make sure they are in the correct retirement system. If they have any questions or doubts about which retirement system they are currently covered by, they should check with their Human Resources or Personnel Office.

CSRS Offset employees are covered by both CSRS and Social Security. The employee is eligible for both a CSRS annuity upon retirement and in most cases Social Security retirement benefits. The employee may be adding to his or her already earned Social Security benefits (earned outside of federal service) and can continue to add to the Social Security retirement benefit if the individual continues to work in a job covered by Social Security after leaving federal service.

Upon retiring from federal service before age 62, a CSRS Offset employee will have his or her CSRS annuity computed under the same rules that apply to CSRS-covered employees. When a CSRS Offset annuitant becomes age 62, the CSRS annuity will be reduced - offset - by the amount of the Social Security benefits earned during CSRS Offset service. Instead of receiving one check from the Office of Personnel Management (OPM) that reflects all CSRS service while a federal employee, the annuitant will receive another check from the Social Security Administration (SSA). If the annuitant earned less than 40 credits of Social Security and is therefore not eligible for Social Security retirement benefits, then there is no offset to the CSRS annuity.

Here is an example.

Jan started federal service on Jan 15, 1975. She worked for 24 years and left federal service on Jan. 14, 1999 to work in the private sector. After one year Jan returned to federal service and was placed in CSRS Offset, working 8 years until her retirement at age 57 on Jan. 31, 2008. At the time of her retirement and at age 62, Jan had a total of 36 credits of Social Security. She is therefore not eligible for any Social Security benefit and her CSRS annuity will not be offset.

If a CSRS Offset employee becomes disabled or dies, any disability CSRS annuity or CSRS survivor benefit will also be reduced in a like manner. If there is no disability or survivor Social Security benefit payable, there is no offset of CSRS benefits.

CSRS Offset employees contribute 0.8 percent (.008) of their after-taxed wages to the CSRS Retirement and Disability Fund, and 6.2 percent of their wages is subject to the FICA tax up to the maximum Social Security wage base ($106,800 in 2009). If a CSRS Offset employee earns more than the maximum wage base, then FICA taxes will stop being withheld until the end of the calendar year. CSRS deductions will then increase to the full CSRS rate for the remainder of the calendar year (7 percent during 2009). The FICA tax withholding will resume at the start of the new calendar year and the CSRS deduction will decrease to the offset amount, until the employee again reaches the maximum taxable wage base for that year. The FICA tax is also imposed on some types of wages such as overtime and awards that are not subject to the CSRS retirement contribution rate of 7 percent. This means that an employee's FICA deduction may stop before the employee's CSRS deduction reverts to the full amount.

As mentioned earlier, a CSRS Offset employee who retires before age 62 will receive a CSRS annuity until age 62. The CSRS annuity is computed the same way as it would be for a CSRS-covered employee. Retirement eligibility rules are the same for CSRS and CSRS Offset employees. In particular, a CSRS Offset employee may retire at age 55 with at least 30 years of service; age 60 with at least 20 years of service; or age 62 with at least 5 years of service.

The CSRS Offset employee who retires before age 62 will receive the regular CSRS annuity until becoming age 62. At that time, OPM will contact the Social Security Administration (SSA) to find out what the annuitant's Social Security benefit is at age 62. If the employee retires after age 62, then the determination of the offset amount is done at the time of employee's retirement and takes effect immediately.

The "offset" is computed as follows: SSA takes the federal earnings in the period(s) when the employee was covered by both Social Security and CSRS and computes a Social Security benefit with those earnings included and then without those earnings included. These two amounts are sent to OPM in order for OPM to determine the CSRS Offset amount. The CSRS annuity is computed and the offset reduction is subtracted from the CSRS annuity to become the new gross monthly annuity rate. The offset reduction is the lesser of:

1. The difference between the Social Security monthly benefit amount with and without CSRS Offset service. CSRS Offset includes service after Dec. 31, 1983 and covered under the interim CSRS provisions or the CSRS Offset provisions; or

2. The product of the Social Security monthly benefit amounts based on all employment - federal and non-federal - multiplied by a fraction in which the numerator is the employee's total years of CSRS Offset service rounded to the nearest whole number of years and the denominator is 40.

    Social Security monthly benefit
    (at age 62 or at the                             TIMES       Total Years of Offset Service/40
    time of retirement if older
    than 62)

Here are two examples:

Example 1. Joseph has three years and seven months of offset service:

Computation number 1:

Soc. Security mo. benefit at age 62 with federal offset svc. = $600
Soc. Security mo. benefit without federal offset svc. = $550

Difference = $50 

Computation number 2:

Social Security amount included federal earnings = $600
$600  x  4 years*/40 = $60 

*nearest whole year to 3 years and 7 months
 
 

Result: Since the offset is determined by taking the lesser amount of the two computations, the monthly reduction in this case is $50.

If Joseph's monthly CSRS annuity was $3,000 before the offset, then the Joseph's CSRS monthly annuity will be $2,950 after the offset, and Joseph will receive a monthly check of $50 from SSA.

Example 2. CSRS annuity before offset = $45,000

       Years of CSRS Offset service = 15
       Social Security benefit at age 62 = $8,000

  1. Divide the total years of offset service by 40:  15/40 = 0.375

  2. Multiply the result from Step 1 by the Social Security benefit:  0.375 x $8,000 = $3,000
  3. Subtract the result from Step 2 from the basic benefit: $45,000 - $3,000 = $42,000

The CSRS offset annuitant would therefore receive two checks: (1) a check from OPM for the CSRS annuity of $42,000; and (2) a check from SSA for $3,000. Both checks will receive the same cost-of-living allowance (COLA) each year.

The above example shows that the annuitant is entitled to a total Social Security benefit at age 62 of $8,000 per year. The offset amount is $3,000 and the annuitant will receive an additional Social Security benefit of $5,000. This means that the individual had at least 40 credits of Social Security that were earned outside of federal service. Keep in mind that in the event that the CSRS Offset annuitant is younger than full retirement age (FRA) (between ages 65 and 67, depending on the annuitant's year of birth) at the time the offset is computed (age 62 if a CSRS Offset employee retires before 62; or at the time the employee retires if the after age 62), the additional Social Security retirement benefit will be reduced because of the age penalty. The Social Security age penalty applies to individuals who apply to start receiving their Social Security benefit before reaching FRA.

Another potential reduction to a CSRS Offset annuitant's "other" Social Security benefit is a result of the Windfall Elimination Provision (WEP). The WEP reduces -- as much as 50 to 60 percent -- a CSRS or CSRS Offset annuitant's Social Security benefit because of the annuitant's not having paid a "substantial" amount into Social Security while employed outside federal service. To avoid the effect of the WEP, an individual would have to have at least 30 years of nonfederal employment-related Social Security wages that are considered "substantial".  For more information about the WEP, refer to the Windfall Elimination Guide or go to www.ssa.gov

There is one other potential elimination or reduction of a CSRS or CSRS Offset annuitant's Social Security benefits. In general, a married or divorced individual is eligible to receive the higher of his or her Social Security benefit or half of a spouse's or former spouse's Social Security benefit. In case the individual is a widow or widower, the individual could receive all of the deceased spouse's Social Security benefits. But as a result of the Government Pension Offset (GPO), a CSRS annuitant will most likely not receive any of a spouse's, former spouse's, or deceased spouse's Social Security benefits. 

The Social Security spousal/former spousal benefits of a CSRS Offset annuitant's spouse, former spouse or deceased spouse are not subject to the GPO if the annuitant has at least five years of CSRS Offset service . This means that a CSRS Offset could potentially receive one Social Security check consisting of his or her Social Security benefit based on the CSRS Offset calculations and a spousal Social Security benefit.

The following illustrates:

Peter, age 62, retired from federal service at age 56 as a CSRS Offset employee which included 20 years of CSRS offset service. His current CSRS annuity is $60,000. Now that he is age 62, OPM calculates the CSRS Offset that results in a Social Security benefit to Peter of $5,000. Peter's CSRS retirement benefit is summarized as follows:

CSRS annuity:              $55,000
Social Security benefit:  $5,000
Total:                        $60,000
                       

Peter is married to Alice, also age 62. Alice continues to work and retires at age 66. At age 66, Alice immediately applies for her Social Security retirement benefit which is $22,000 per year. Peter is entitled to half of Alice's Social Security benefit ($11,000). Since Peter's spousal benefit of $11,000 exceeds his own Social Security benefit of $2,000 (subject to the WEP) earned outside of federal service, he will be better off receiving half of his wife's Social Security benefit. Peter's total Social Security annual retirement benefit will be $5,000 (his CSRS Offset amount) plus $11,000 for a total Social Security check of $16,000 per year (he receives one check from SSA). This is in addition to his CSRS annuity of $55,000 per year. Note that Peter would have to contact SSA to receive half of Alice's Social Security benefit at the time or shortly thereafter Alice applies for her benefit.

Posted: 04/11/09

About the Author

Edward A. Zurndorfer is a Certified Financial Planner and Enrolled Agent in Silver Spring, Maryland. He is also a registered representative with Multi-Financial Securities Corporation (Branch A9X), member FINRA/SIPC, also located in Silver Spring, Maryland



·  Windfall Elimination Provision (WEP) Guide: How the Social Security WEP Affects Federal Retirees & Spouses
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