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Married FERS Employees Should Beware of Basic Employee Death Benefit

Edward A. Zurndorfer, Certified Financial Planner

The basic employee death benefit (BEDB) is a benefit payable to the spouse or former spouse of a deceased FERS-covered employee who met certain eligibility requirements on the date of death. In order for the BEDB to be payable, the deceased employee must have completed at least 18 months of creditable civilian service and died while subject to FERS deductions.

An eligible employee includes a deceased FERS employee who had applied for retirement but had not been separated from federal service prior to his or her death, even if the individual's retirement would have been retroactive effective upon separation.

In determining whether an employee completed 18 months of potentially creditable service, the following types of service are included:

  1. service in a CSRS component, included "refunded" CSRS service (service time in which an employee's CSRS contributions were refunded when the employee left federal service);
  2. CSRS Offset service for which an employee received a refund of CSRS contributions before becoming covered by FERS;
  3. FERS service for which FERS retirement contributions remain to an employee's credit; and
  4. temporary or seasonal service - also known as "nondeduction" service performed prior to Jan 1, 1989, regardless of whether a deposit for such service has been made.

The following types of service are not included for purposes of the 18 months requirement:

  1. "refunded" FERS service. Note that under a new law that took effect on Oct. 28, 2009, a FERS employee who withdrew previously made FERS contributions upon leaving federal service may now upon reentering federal service redeposit - with interest - withdrawn funds. If a redeposit is made, a FERS-covered employee will receive credit for those "refunded" years:
  2. temporary or seasonal service on or after Jan. 1, 1989; and
  3. service performed on or after Jan.1, 1989 under another retirement system for federal employees.

Amount of BEDB

The BEDB is equal to:

  1. $15,000, increased annually by all CSRS COLAs beginning Dec. 1, 1987 plus:
  2. 50 percent of the employee's final salary (or high-three average salary if larger).

The $15,000 has increased - as a result of CSRS COLAs 1987 through 2011 - to $29,722.95 during 2011. To determine 50 percent of the decreased employee's final salary; the employee's basic pay (including locality pay adjustment) shown on the deceased employee's most recent SF 50 (Notice of  Personnel Action) as of the date of death should be used.

The following example illustrates:

Calvin, a FERS-covered employee earning $100,000 a year and married to Cynthia, died suddenly on Feb. 15, 2011 at the age of 49. Calvin had 16.5 years of federal service. Cynthia is therefore entitled to the BEDB and will receive: (1) half of $100,000, or $50,000 plus (2) $29,722.9,5 for a total BEDB of $79,722.95.

For part-time employees, the final salary will be prorated according to the tour of duty that was in effect immediately before death. For intermittent employees, the final hourly rate is multiplied by the number of weeks worked in the last 52 weeks immediately preceding the end of the last pay period the employee was in a pay status.

The high-three average salary for BEDB purposes is computed the same way as for  CSRS or FERS annuity computation purposes. If an employee has less than three years of service, then the salary is simply averaged over the total period of service.

If the employee has temporary or seasonal service prior to Jan.1, 1989, for which no retirement deductions were taken and the deposit must be made to meet the 18 month minimum service requirement for a death benefit, then OPM will withhold that deposit from the BEDB in the event it is not paid back in full.

Payment of the BEDB

A surviving spouse must elect to receive the BEDB in either one payment (but see rollover information below) or 36 monthly installments. The survivor's election of one payment or 36 monthly installments is made on form SF 3104B after the deceased employee's employing agency inserts the amount payable.

For those surviving spouses who elect the 36 monthly payments, the amount of each monthly payment is determined by multiplying the total amount of the BEDB by 0.0306921. For example, in the above example with a BEDB of $79,722.95, the amount of each monthly payment is equal to:

0.0306921 times $79,722.95, or $2,446.86 per month

Note that the total amount paid in 36 installments is larger than a single lump sum payment because it includes the 36 monthly payments include interest.

The surviving spouse may at anytime elect to stop receiving the BEDB in installments and to receive a lump sum payment of the unexpended balance. The amount of the lump-sum payment will be less than the sum of the remaining payments because the interest stops on the date of the last payment.

Also, if the surviving spouse elects installment payments but dies before the completion of these payments, then any unexpended lump sum payment to a beneficiary will also be less than the sum of the remaining payments because the interest stops on the date of the last payment.

Rollover of BEDB

A surviving spouse or former spouse has the option of directly rolling over the BEDB to a traditional Individual Retirement Arrangement (IRA). If not rolled over, a lump sum payment made to the surviving spouse is subject to mandatory 20 percent withholding for federal income taxes. If the surviving spouse lives in a state with a state/local income tax, then the lump sum payment is subject to state and local income taxes.

The rollover election can be submitted with the BEDB application (Form SF 3104B, section 5). If no election is made with form SF 3104B, then OPM will send the surviving spouse or former spouse of a deceased FERS-covered employee the rollover election information and election form. This takes 30 to 60 days after OPM receives the application and supporting documentation.

Posted:  4/28/2011

About the Author

Edward A. Zurndorfer is a Certified Financial Planner, Registered Health Underwriter, Registered Employee Benefits Consultant and Enrolled Agent in Silver Spring, MD and the owner of EZ Accounting and Financial Services, an accounting, tax preparation and financial planning firm also located in Silver Spring, MD.  He is an instructor at federal employee retirement seminars throughout the country and writes numerous columns and books on federal employee benefits.