Guide to CSRS Offset Retirement Benefits and Rules
Edward A. Zurndorfer, CFP
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
- Divide the total years of offset service by 40: 15/40 = 0.375
- Multiply the result from Step 1 by the Social Security benefit:
0.375 x $8,000 = $3,000
- 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.
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
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Overview - CSRS
