For employees covered by the Federal Employees Retirement System (FERS), Social Security retirement benefits will be an important part of their retirement. The earliest age a FERS annuitant can receive his or her Social Security retirement benefit is age 62.
What is the FERS Special Retirement Supplement?
Many FERS employees retire before age 62 (some retire as early as when they are in their mid-to-late 40’s) and therefore will not be able to start receiving their Social Security retirement benefits for as many as five to 18 years after they retire from federal service.
The Office of Personnel Management (OPM) therefore provides a FERS annuity “supplement” to these FERS employees who retire before age 62 until the month they become age 62. This “supplement” is called the Special Retirement Supplement (SRS) annuity, also called the Retirement Annuity Supplement annuity, and is distributed in addition to the “basic” FERS annuity.
To be eligible for an SRS annuity, a FERS employee:
· Must have performed at least one calendar year of service (from January 1st through December 31st) under FERS; and
· Must retire under the immediate (non-disability) retirement rules, meeting one of the following age and service requirements:
- Early retirement provisions (VERA or VSIP) – that is, either age 50 with at least 20 years of service, or any age with at least 25 years of service. Note that the SRS annuity will commence once the annuitant becomes minimum retirement age (MRA). MRA ranges from age 55 to age 57, and depends on what year an employee was born.
- MRA with 30 years of service.
- Age 60 with 20 years of service
- Retired under special provisions for law enforcement officers, firefighters, and air traffic controllers
- Congressional employees with at least 20 years of service at age 50
Note that those FERS employees who leave federal service under a deferred retirement or a postponed (“MRA+10”) retirement arrangement are not eligible for the SRS annuity.
OPM’s calculation of the SRS annuity is not discussed in any detail here. In short, the SRS annuity is calculated based on a FERS employee’s number of years of FERS civilian service, including regular service and temporary time (before Jan. 1, 1989 that a FERS employee “bought back”) (made a full deposit for) and the employee’s anticipated Social Security benefits at age 62. But bought back” military service is not included in the SRS annuity calculation. Once calculated, there SRS annuity receives no cost-of-living adjustment (COLA).
The SRS annuity is subject to an “earnings” test. In particular, a FERS annuitant employed after retiring from federal service, may lose part or all of the SRS annuity if the amount of the FERS annuitant’s earned income (salary, wages or net income from self-employment) from outside employment exceeds the “exempt” amount.
FERS annuitants who are eligible to receive the SRS annuity should note the following:
(1) The possible reduction because of excess earnings applies only to the SRS annuity, and not to the ”basic” FERS annuity; and
(2) the possible reduction because of the excess earnings does not apply to employees who retire under the special provisions for law enforcement officers, firefighters, and air traffic controllers and Congressional employees until they reach their MRA.
What is the “earnings test” that OPM uses to determine the reduction of one’s SRS annuity?
SRS annuity recipients are subject to an earnings test that is identical to the earnings test applied each year to Social Security beneficiaries who are younger than their full retirement age (age 65 to 67 depending on what year they were born). In particular, an SRS annuity will be reduced $1 for every $2 the SRS annuitant’s earned income exceeds an exempt amount. The exempt amount usually increases slightly from year to year. For the year 2019 (the year that OPM is currently using), the exempt amount is $17,640.
The formula that OPM is currently using is: For every $2 of an SRS annuitant’s 2019 earned income exceeded $17,640, the annuitant’s SRS annuity will be reduced by $1. Before presenting some examples to help understand the “earnings” test, it is important to explain what OPM considers as “earned income” and how OPM applies any computed SRS annuity reduction.
Earned income includes salary, wages and net income resulting from self-employment income. This type of income is subject to Social Security (FICA) and Medicare Part A (hospital) payroll taxes as well as federal and state income taxes. Earned income does not include retirement income (this includes the FERS annuity, IRA withdrawals, 401(k) plan distributions, and TSP withdrawals), investment income (this includes interest, dividends and capital gains), rental income, tax-free income (for example, an inheritance or life insurance beneficiary proceeds) and other taxable income (such as lottery and gambling winnings).
OPM applies the reduction in the annuitant’s SRS annuity in a given year based on excess earned income in the previous year. The reduction is assessed beginning with the year immediately after the first year during which a FERS annuitant becomes entitled to the SRS annuity, or reached the MRA, if already receiving the annuity supplement before the MRA. The following three examples illustrate:
Example 1. Jack retired in March 2019 at his MRA of age 56 with 30 years of federal service under FERS. He is eligible for a SRS annuity equal to $15,000 per year. Jack become employed again in a private industry job starting May 1, 2019. For the period May 1, 2019 through December 31, 2019, Jack earned a salary of $45,600. Since Jack’s earned income exceeded the exempt amount of $17,640 during 2019, Jack’s SRS annuity will be reduced by OPM. The reduction will be computed as follows:
[Amount of earned income – $17,640]/2
In Jack’s case, the reduction is {$45,600 – $17,640/2 or $13,980.
Starting sometime in 2020 after OPM has computed the $13,980 reduction, Jack’s monthly SRS annuity of $15,000/12 or $1,250 will be reduced by $13,980/12 or $1,165 resulting in Jack receiving a monthly SRS annuity for 12 months of $1,250 less $1,165, or $85 per month.
Example 2. Susan retired in 2016 at 53 with 20 years of federal service under the discontinued service provision (a VERA). She reached her MRA in January 2019, at which time she started receiving her SRS annuity. Susan worked throughout 2019 in a job paying her $75,000. She was also receiving her SRS annuity of $12,000. Since Susan’s earned income of $75,000 exceeded the exempt amount of $17,640 during 2019, Susan’s SRS annuity will be reduced by OPM as follows:
[Amount of earned income – $17,640]/2
In Susan’s case, the reduction is [$75,000 – $17,640]/2, or $28,680.
Starting sometime in 2020 after OPM has computed the $28,680 reduction, Susan’s monthly SRS annuity of $12,000/12 or $1,000 will be reduced by $28,680/12 or $2,390 resulting in Susan receiving a monthly SRS annuity for 12 months of $1,000 less $2,390 or $0 per month.
Example 3. Michael retired at age 52 in 2015 as a law enforcement officer. He started receiving an SRS annuity immediately after he retired. Michael started working after he retired from federal service. But because he was a special provision employee, Michael’s SRS annuity was not subject to the “earnings test” until Michael reached his MRA of 56 in February 2019. Michael’s SRS annuity is $21,050. During 2019, Michael’s earned income was $57,888. Since Michael has reached his MRA and Michael’s earned income exceeded the exempt amount of $17,640 during 2019, Michael’s SRS annuity will be reduced by OPM. The reduction will be computed as follows:
[Amount of earned income – $17,640]/2
In Michael’s case, the reduction is [$57,888 – $17,640]/2, or $20,124
Starting sometime in 2020 after OPM has computed the $20,124 reduction, Michael’s monthly SRS annuity of $21,050/12 or $1,754 will be reduced by $20,124/12 or $1,677 resulting in Michael receiving a monthly SRS annuity for 12 months of $1,754 less $1,677 or $77 per month.
Reporting earnings to OPM
OPM asks each FERS annuitant who has reached his or her MRA for a statement of earnings each year he or she is eligible to receive the SRS annuity. The earnings must be reported on Form RI 92-22 (Annuity Supplement Earnings Report).
In April 2020, OPM contacted those FERS annuitants age MRA and older who are currently receiving the SRS annuity. OPM wants to know the amount of their earned income during 2019. OPM provides to the annuitant the most recent Form RI 92-22. In order to answer the question about the annuitant’s earned income during 2019, the annuitant will have to check his or her 2019 W-2 forms, in particular Box 3 – “Social Security wages” and/or, if self-employed during 2019 and therefore filing IRS Schedule C and IRS Schedule SE line 2 (net profit from Schedule C) and report the amounts as shown.
Other information with respect to the SRS annuity
∙ Trans” FERS employees are eligible for the SRS annuity. These are FERS employees with at least five years of CSRS service who voluntarily transferred to FERS using the service only after the transfer to FERS.
∙ SRS annuity is not included in interim pay while retirement benefits are being processed by OPM, which will be paid retroactively, or during a period of phased retirement.
∙ Those FERS annuitants who are MRA or older and eligible to receive the SRS annuity but who will have earned income that in fact will exceed the year’s “exempt” amount, can notify OPM’s Retirement Office to not give them the SRS annuity for at least that year. In this way, an annuitant will not have to notify OPM in the following year about their prior year earnings. But if an annuitant in a subsequent year decides to stop working or at least reduce his or her earned income and therefore becomes eligible to receive at least a portion of his or her SRS annuity until he or she becomes age 62, then the annuitant can contact OPM’s Retirement Office to restart the SRS annuity.
An employee who retires at MRA or older under the immediate retirement rules and then starts receiving the SRS annuity , will not have his or her SRS annuity reduced for any of SRS annuity payments received during the remainder of the calendar year following the month the employee retires. This is because there is no “earnings” test to apply to SRS annuity to. For example, in example 1 above, Jack retired in March 2019 at his MRA of 56. Although Jack earned $45,600 between April 1, 2019 and December 31, 2019, none of the $10,000 (8 monthly payments of $1,250 each) of the SRS annuity Jack received during 2019 would be reduced because Jack’s earnings in 2018 (before he retired) are not counted in applying the “earnings” test.