Guide to CSRS Offset Retirement Benefits and Rules
This column discusses the retirement benefits and rules associated with the CSRS Offset retirement system. There is much confusion and questions among CSRS Offset employees and annuitants, human resources and personnel offices, and Social Security Administration (SSA) personnel concerning the benefits and rules of the CSRS Offset retirement system. It is hoped that this column will clear up this confusion and answer questions related to the CSRS Offset retirement system.
First, it is important to present some background information about CSRS Offset and how this retirement system came about. Prior to Jan. 1, 1984, there was only one major retirement system for federal employees. All full time and part time employees hired before Jan. 1, 1984 were placed in the Civil Service Retirement System (CSRS). By law, federal employees covered by CSRS were excluded from Social Security coverage and taxes.
Congress made some major changes to the Social Security system in 1983. Among the changes was Social Security Federal Insurance Contributions Act (FICA) coverage for new federal employees hired after Dec. 31, 1983. Also, any employee who was rehired after Dec. 31, 1983 after a break in CSRS coverage of more than one year was to be covered by Social Security. The latter employees were placed in an "interim" CSRS retirement plan that provided the full Social Security deduction (FICA tax -- currently 6.2 percent of gross wages) from salary and reduced CSRS deductions from their salary. This "interim" retirement plan was the precursor to the CSRS Offset retirement system.
On Jan. 1, 1987, the new Federal Employees Retirement System (FERS) started. Most federal employees on that date and forward were covered by either CSRS or FERS. But in the legislation that created FERS, Congress also created the CSRS Offset retirement plan.
The CSRS Offset retirement plan applies to any employee hired as a CSRS employee prior to Dec. 31, 1983, left federal service for at least one year after Dec. 31, 1983, and then returned to federal service. The employee also had to have at least five years of creditable federal service under CSRS as of Jan. 1, 1987. The following example illustrates:
Jan entered federal service on June 22, 1975, worked for 18 years, and left federal service on July 1, 1993. Jan returned to federal service on Aug. 1, 1994. Upon returning to federal service, Jan was put in the CSRS Offset retirement system.
Another major category of CSRS Offset employees includes employees who were hired before Jan. 1, 1984, acquired CSRS "interim" coverage between 1984 and 1987, and had at least five years of creditable civilian service as of Jan. 1, 1987. The following example illustrates:
Peter had a cumulative total of four years of temporary service and obtained a career appointment on June 1, 1984. Upon entering the career appointment, Peter was placed under the CSRS "interim" retirement plan which became the CSRS Offset retirement plan on Jan. 1, 1987.
All federal employees have their retirement coverage designated officially on their form SF 50 (Notice of Personnel Action) Box 30 ("Retirement Plan"). If the employee is officially covered by CSRS Offset, then Box 30 will have entered in it either a "C" or "E". Employees are encouraged to check their most recent SF 50 Box 30 to make sure they are in the correct retirement system. If they have any questions or doubts about which retirement system they are covered by, they should check with their Human Resources or Personnel Office.
How CSRS Offset Operates
For those CSRS Offset employees who retire before their 62nd birthday, their CSRS annuity will be computed under the same rules that apply to retiring CSRS employees. Once they become eligible for Social Security - usually at age 62 -- the Office of Personnel Management (OPM) will reduce ("offset") their CSRS annuity by the value of the Social Security benefit former employee earned during their years of CSRS Offset service. The offset is applied even if the CSRS Offset annuitant does not apply for Social Security. However, if the annuitant is not entitled to Social Security at age 62 -- that is, the annuitant does not have at least 40 credits of Social Security and is therefore not "fully insured" -- then there is no offset until the annuitant later becomes entitled to a Social Security retirement benefit, if that in fact occurs.
The amount of the offset is the lesser of:
(1) The amount of the Social Security retirement benefit attributable to the employee's service after Dec. 31, 1983 while the employee was covered under the interim CSRS provisions and the CSRS Offset provisions; or
(2) The amount obtained by multiplying the following fraction by the Social Security benefit to which the individual is entitled (or would be entitled upon proper application) at the time the retired employee's CSRS annuity begins:
(Total years of interim CSRS provisions and CSRS Offset service/40) x (anticipated calculated Social Security benefit at age 62 if the employee retires before 62; at the time of retirement if the employee after age 62)
Note: Partial years of offset service are rounded to the nearest whole number with one half being rounded to the next higher number.
The following is an example presenting the offset for CSRS Offset employees who retire before age 62:
Joseph, a CSRS Offset annuitant, retired from federal service in 2012 at the age of 60. Joseph had three years and seven months of CSRS Offset service at the time of his retirement. In 2014, Joseph's CSRS annuity is $64,000/year. Joseph's anticipated Social Security benefit at age 62 is $6,000/year. Joseph will turn 62 in November 2014 at which time OPM will perform the 'offset". The "offset" is computed as follows:
(1) The amount of annual Social Security benefit attributable to Joseph's CSRS Offset service: $1,400/year
(2) The amount of Joseph's calculated annual Social Security benefit at age 62: $6,000/year:
(Four years of CSRS Offset service/40) x $6,000 = $600 /year
The lower of (1) and (2) is $600. Therefore, Joseph's CSRS annuity will be offset (reduced) to $64,000 less $600, or to $63,400.
Please note the following:
1. In order for the CSRS Offset annuitant to receive the Social Security "offset" amount, the CSRS Offset annuitant has to formally apply for their Social Security retirement benefit. The Social Security Administration does not automatically send the CSRS Offset annuitant the offset amount once the Office of Personnel Management's retirement office computes the offset.
2. Assuming the CSRS Offset annuitant applies for their Social Security retirement benefit, the offset amount is subject to two potential reductions, namely: (1) Age - if the annuitant applies for the offset amount before their full retirement age (FRA) (age 65 to 67, depending in which year the annuitant was born), then the Social Security retirement benefit will be permanently reduced; and (2) the Windfall Elimination Provision (WEP). If the annuitant has less than 30 years of "substantial" Social Security earnings, then the annuitant's Social Security benefit will be subject to the WEP and reduced. For information on how much of the Social Security benefit will be reduced by the WEP, go to http://www.ssa.gov/retire2/wep.htm or http://www.ssa.gov/pubs/EN-05-10045.pdf .
3. A CSRS Offset annuitant who is married, or who was previously married to a former spouse (to whom he or she was married for at least 10 years and divorced for at least two years), should apply for half of his or her current spouse's or, if applicable, the former spouse's Social Security benefit, if the CSRS Offset annuitant's Social Security retirement benefit is less than half of the current spouse's or former spouse's Social Security retirement benefit. Note, however, that a divorced CSRS Offset annuitant may not remarry in order to collect on a former spouse's Social Security. If the spouse or former spouse is deceased, then the CSRS Offset annuitant is eligible to receive all of their deceased spouse's or former deceased spouse's Social Security retirement benefit in the form of a widow/widower benefit.
The reason that the CSRS Offset annuitant is eligible to receive a spousal or former spouse's Social Security benefit is because unlike a CSRS annuitant, a CSRS Offset annuitant is not subject to the Government Pension Offset (GPO) that most likely eliminates any type of Social Security spousal or former spousal benefit for almost all CSRS annuitants.
There are specific rules for receiving a Social Security spouse's and a former spouse's Social Security benefits, as discussed at http://www.ssa.gov/retire2/yourspouse.htm and http://www.ssa.gov/retire2/divspouse.htm. Note also that the CSRS annuitant can only receive the higher of their Social Security benefit or half of their spouse's/former spouse's, or all of their deceased spouse's/former spouse's Social Security benefits.
From the previous example, if Joseph's wife Carol is currently receiving a Social Security retirement benefit of $20,000 per year when Joseph is age 62, then Joseph is entitled to the larger of $6,000 (his Social Security retirement benefit) or half of $20,000, or $10,000. Joseph should receive $10,000 as adjusted downward if Joseph elects to start receiving it before his FRA. The $10,000 spousal Social Security benefit is in addition to Joseph's CSRS annuity of $63,400.
For those CSRS Offset employees who retire after they become age 62, the above information applies except for the fact that OPM's retirement office performs the offset calculation at the time of the annuitant's retirement. The annuitant must still formally apply to the Social Security Administration for their Social Security retirement benefit, or half of their spouse's/former spouse's Social Security, or all of their deceased spouse's/former spouse's Social Security benefit.
Cost of Living Adjustments (COLAs)
CSRS Offset annuitants receive the same COLA's each year that CSRS annuitants and Social Security recipients receive, meaning that the same COLA is applied to the CSRS annuity and to the Social Security retirement benefit each year. The initial COLA -- effective in January following the year the annuitant retires -- will be prorated according to how many months the CSRS Offset annuitant had been retired during the first year of retirement.
Credit for Military Service
Retirement credit for military service operates under the same rules for CSRS Offset employees as for CSRS employee. In particular, military service in the Armed Forces of the United States is creditable for retirement purposes if it was active service terminated under honorable conditions and performed prior to the CSRS Offset employee's separation from federal service. CSRS Offset employees hired before Oct. 1, 1982 and with prior military service (that is, before entering federal service), and/ or with military service while in federal service, will have their military service time automatically credited for retirement eligibility purposes. However, those CSRS Offset employees hired before Oct. 1, 1982 with prior (and/or while in federal service) military service and who have 40 or more credits of Social Security are required to make a military deposit in order to avoid being subject to the "catch 62" provision. A CSRS Offset employee is therefore eligible to use their military service time both for retirement eligibility and for CSRS annuity computation. A CSRS Offset employee hired prior to Oct. 1, 1982 with at least 40 credits of Social Security may therefore either:
1. Make a full deposit equal to 7 percent of their military base pay plus interest and get credit for their military service time in the computation of their CSRS annuity; or
2. Not make a deposit and have their CSRS annuity reduced at 62 if they retire before 62; if they retire after age 62, the military service time will not be used in the calculation of their CSRS annuity.
Employees first covered under CSRS after Sept. 30, 1982 are required to make a full military deposit before they retire in order to use their military service time for both retirement eligibility and in the calculation of their CSRS annuity.
CSRS Offset Spousal Survivor Annuity Benefits
A previous column discussed CSRS survivor annuity benefits for spouses and survivor annuity benefits for the widow/widower of a deceased CSRS Offset annuitant is reproduced here:
A survivor annuity payable to the spouse of a deceased CSRS Offset annuitant is computed in the same manner as a survivor annuity, payable to the spouse of a deceased annuitant with full CSRS coverage.
But the amount of a CSRS survivor payable to the spouse of a deceased CSRS Offset annuitant may be reduced if the spouse is eligible for Social Security benefits based on the deceased's federal service covered by Social Security.
A surviving spouse who is not entitled to Social Security survivor benefits is paid the full CSRS survivor benefits. Social Security survivor benefits, based on the annuitant's federal service under Social Security are payable when:
1. The surviving spouse receives a full CSRS survivor annuity until he or she becomes entitled to Social Security survivor benefits. This normally occurs at age 60. However, such benefits may begin before age 60 if the surviving spouse is disabled or has a minor child in care.
2. When the spouse becomes entitled to Social Security survivor benefits, the CSRS survivor annuity is reduced (offset) by the amount of the survivor's Social Security benefit attributable to the period the deceased annuitant was under CSRS Offset.
The reduction (offset) begins, or is reinstated, on the first day of the month during which the CSRS survivor annuitant is entitled to: (1) a survivor annuity under CSRS Offset and (2) Social Security survivor benefits upon proper application.
The offset to a CSRS survivor annuity will cease on the date that a survivor loses eligibility for Social Security benefits due to any of the following reasons:
1. The survivor annuitant becomes eligible for a Social Security benefit based on his or her own earnings under Social Security and the benefit exceeds the Social Security survivor benefit.
2. The survivor remarries before age 60.
3. The Social Security benefit stops because a minor child reaches age 16 and the survivor annuitant is under age 60.
Consider the following example:
Michelle, a CSRS Offset annuitant, is receiving $6,000 a month CSRS annuity when she dies at age 61. Her widower, Michael, receives a CSRS Offset survivor annuity of $33,000, starting the month after Michelle's death. When Michael becomes age 62 his CSRS survivor annuity will be reduced (offset). Of the $33,000 annual annuity ($2,750 per month), $2,000 per month will be from a CSRS survivor annuity and $750 per month will be from a Social Security survivor benefit (based on Michelle's Social Security earnings as a CSRS Offset employee). When Michael becomes age 66, his full retirement age, he is entitled to his Social Security retirement benefit of $1,500 per month. This is based on his Social Security earnings during his working career. Once Michael starts receiving his monthly Social Security retirement monthly benefit of $1,500, the $750 Social Security monthly survivor benefit will cease. Michael will then receive a full CSRS survivor annuity of $2,750 per month, plus his Social Security retirement benefit of $1,500 per month.
About the Author
Edward A. Zurndorfer is a Certified Financial Planner, Chartered Financial Consultant, Chartered Life Underwriter, 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. Zurndorfer is also is an instructor at federal employee retirement seminars throughout the country and writes numerous columns and books on federal employee benefits.