Edward A. Zurndorfer, Certified Financial Planner

The previous column on My Federal Retirement discussed the FERS supplement, including which employees are eligible to receive it, how it is calculated, and when it starts and ends. This column discusses both the "earnings test" and the survivor benefit associated with the retiree annuity supplement.

The survivor benefit is available only to a spouse of either a deceased FERS annuitant who was currently receiving the annuity supplement at the time of the annuitant's death or to a spouse of a deceased current employee who would have been eligible for the retiree annuity supplement.

A FERS annuitant who is employed after retiring may lose some -- or all -- of the monthly retiree annuity supplement if the annuitant's "earned income" exceeds the "exempt" amount under what is called the "earnings test". Earned income includes:

1. salary or wages from a job;
2. self-employment income (net profit) from a business in which the annuitant is a sole proprietor; and/or
3. self-employment from a partnership in which the annuitant is a general partner and earns a net profit from the partnership.

The "earnings test" applies only to the retiree annuity supplement and not to the FERS annuity. Also, the "earnings test" does not apply to the retiree annuitant supplement of a FERS-covered employee who retired before minimum retirement age (MRA) under the special provisions for law enforcement officials, firefighters, air traffic controllers and military reserve technicians until they reach MRA. But at the time these individuals reach MRA, the "earnings test" takes effect.

The "exempt" amount is the same dollar amount established by the Social Security Administration (SSA) each year for the purpose of the "earnings test" that applies to Social Security retirement and disability recipients who are younger than "full retirement age" and who have earned income. For example, during 2010 "full retirement age" is age 66. That means any Social Security recipient receiving monthly benefits and who was born after the year 1944 is subject to the "earnings test". Note that there is a different "earnings test" that applies to Social Security recipients during the year in which they become full retirement age.  

During 2010, the exempt amount for the "earnings test" is $14,160. That means a FERS annuitant who is also receiving the retiree annuity supplement can have maximum earned income of $14,160 during calendar year 2010 without losing any of the retiree annuity supplement to which he or she is entitled to. Each year, SSA publishes the exempt amount. With the exception of the year 2010, the exempt amount has increased from the previous year to the next year.

If a FERS annuitant's earnings exceed the exempt amount, then the retiree annuity supplement will be reduced $1 for every $2 that is earned above that amount. Earnings for the purpose of the "earnings test" consist of wages for service performed in the year plus all earnings (net profit) from self-employment (or a partnership) for the year minus any net loss from self-employment (or a partnership) for the year.

Any earnings reduction during a year may not exceed the amount of the retiree annuity supplement payable during that year. For the year immediately following the first year during which a retiree becomes eligible to receive a retiree annuity supplement, the annual earnings reduction amount cannot exceed the total annuity supplement to which the FERS annuitant was entitled in the first year.

Consider the following example:

Elizabeth retired from federal service on July 31, 2009 as a FERS employee. At the time of her retirement, Elizabeth was 60 years old and she starting receiving her FERS annuity and retiree annuity supplement checks on Sept. 1, 2009. Her retiree annuity supplement check is $1,000 per month. Since her retiree annuity supplement income totaled $4,000 during 2009 (fours months at $1,000 per month), any reduction of her retiree annuity supplement check during 2010 for excess earnings cannot exceed $4,000. This is true no matter the amount of Elizabeth's earned income during the period September 1 through December 31, 2009.

A reduction in the retiree annuity supplement in a given year is based on excess earned income in the previous year. The reduction is applied beginning with the year immediately after the first year during which a retiree becomes entitled to the retiree annuity supplement (or reached the MRA if the annuitant was receiving the annuity supplement before the MRA such as a retired law enforcement official or firefighter). 

The following examples illustrate:

Example 1. Peter retired on December 31, 2008 at age 60 with 20 years of FERS service. He is eligible for a retiree annuity supplement. His earnings during the period Feb. 1 (the day Peter receives his first FERS annuity and retiree annuity supplement checks) through Dec. 31, 2009 are subject to the "earnings test". If Peter's post-retirement earnings during 2009 exceeded the 2009 amount of $14,160, then his retiree annuity supplement for 2010 will be reduced.

Example 2. Sue retired at age 52 in 2007 as part of an "early out" retirement program at her agency. When she retired, she was eligible to receive the FERS annuity. Her retiree annuity supplement will not start until the month she becomes MRA, or 56. This will be in March 2010. Sue took another job right after she retired from federal service. Her "earned income" will affect her retiree annuity supplement via the "earnings test" starting Jan. 1, 2010. If her post-retirement earnings exceed the 2010 exempt amount of $14,160, then her retiree annuity supplement for 2011 will be reduced.

Example 3. Bob retired at age 49 in January 2010 with 25 years of federal service as a law enforcement official. He started receiving a FERS annuity check and retiree annuity supplement check starting Feb. 1, 2010. Bob's retiree annuity supplement check will not be subject to the "earnings test" until Bob reaches his MRA of age 57 in 2018.

The Office of Personnel Management (OPM) requests that each FERS annuitant who has reached MRA for a statement of earnings for each year he or she is eligible to receive the retiree annuity supplement. Earnings must be reported by retirees on OPM form RI 92-22, Annuity Supplement Earnings Report. This form can be downloaded from OPM's website at http://www.opm.gov. Please note that the form currently available for download is dated 2003 and should not be used during 2010. Affected FERS annuitants need to contact OPM and ask what form should be used to report earned income.

There is one exception to the "earnings test" reduction to the retiree annuity supplement.  As indicated in the Part I column of this topic, in the month an annuitant becomes age 62 the retiree annuitant supplement ceases. If during the year an annuitant becomes age 62, the annuitant earns more than the exempt amount, then there would be no reduction applied since the annuitant would not be receiving the annuity supplement in the following calendar year.

The following example illustrates: 

James is a FERS annuitant who turned age 62 during 2008. During 2008, James earned $58,000 in salary. James' retiree annuity supplement was not reduced during 2008 because of his excess earnings. This is because James did not have earned income during 2007. But his retiree annuity supplement also stopped as of his 62nd birthday which means no retiree annuity supplement during 2009 and beyond.

The retiree annuity supplement is not increased by cost-of-living adjustment (COLAs). Once it is computed, it does not increase or decrease (except for those recipients affected by the "earnings test") between the time it starts and the time it ends when the FERS annuitant becomes age 62.

A surviving spouse may be eligible for both a survivor FERS annuity and a surviving spousal annuity supplement if a FERS annuitant dies before age 62. To be eligible for the surviving spousal annuity supplement, the surviving spouse must be: (1) entitled to a current FERS spousal survivor annuity; (2) under age 60; (3) entitled to a Social Security survivor benefit based on the deceased annuitant's employment under Social Security; (4) not presently eligible for a Social Security "mother or father benefit" in the event there is at least one child younger than age 16 in the care of the surviving parent; and (5) not be eligible for disability benefits from the deceased spouse.

Note that in the event the surviving spouse is eligible for a Social Security "mother or father" benefit (because he or she is caring for at least one child age 16 or younger) failure to apply for that Social Security benefit will not allow payment of the surviving spousal annuity supplement. Also, the surviving spouse's earned Social Security benefit is not considered in determining if he or she is eligible for the surviving spousal annuity supplement.

In order to give a survivor spousal retiree annuity supplement, the annuitant must have had at least five years of creditable civilian service and have at least one full calendar year of civilian service creditable under FERS. Military service cannot be counted in determining if the annuitant had one full year of FERS service.

The spousal survivor annuity supplement requires determination of the amount of an "assumed" CSRS survivor annuity and a hypothetical Social Security calculation. In general, the surviving spouse will not get less in total survivor benefits compared to the spouse of a deceased CSRS employee or annuitant.

The spousal survivor annuity supplement payable is equal to the lesser of:

• The amount by which the "assumed" CSRS survivor annuity exceeds the FERS survivor annuity; or
• The amount of the hypothetical Social Security spousal survivor benefit.

The "assumed" CSRS survivor annuity is the amount of annuity to which the survivor would be entitled under CSRS based on the service of the deceased annuitant. It is determined:

• As of the day after the date of the annuitant's death;
• As if the survivor had applied for the benefit; and
• As if the service of the deceased annuitant was creditable under CSRS.

The following example illustrates the computation of the spousal survivor supplement annuity:

Jane (age 58) is the surviving spouse of deceased FERS annuitant William who had 30 years of FERS service. At the time of his death, William's spousal survivor Social Security benefit for Jane was $18,000 per year. Jane's spousal FERS annuity is $15,000 per year. William's "equivalent" CSRS annuity would have been $56,250 and Jane's "assumed" survivor spousal CSRS annuity would be 55 percent of $56,250, or $30,937.50. Since $18,000 is less than $30,937.50, Jane's surviving spousal retiree annuity supplement is $18,000 per year (subject to FERS COLAs). Jane's survivor spousal retiree annuity supplement will cease the month that Jane becomes age 60. Note that Jane's total FERS annual survivor spousal benefit is $15,000 plus $18,000 or a total of $33,000.

The surviving spousal retiree annuity payment ceases the month in which the surviving spouse becomes age 60. The spousal annuity supplement is not subject to an "earnings test" and is increased each year by the amount of the FERS COLA.

About the Author

Edward A. Zurndorfer is a Certified Financial Planner and Enrolled Agent in Silver Spring, MD. He is a seminar speaker at federal employee retirement seminars throughout the country for the National Institute of Transition Planning, Inc. , and an author of numerous publications on federal employee benefits.

Related Articles & Resources

·  FERS Supplement and Survivor Benefit Guide (Part I of II)

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