Lump Sum Employee Benefits Paid to Eligible Beneficiaries of Deceased CSRS and FERS Employees

This column discusses the circumstances under which lump-sum employee benefits in the form of a “lump sum credit” may be paid to eligible beneficiaries of a deceased CSRS/CSRS Offset or a deceased FERS employee or retiree.

According to the Office of Personnel Management’s (OPM) CSRS and FERS Retirement Handbook (Chapter 75), federal agencies are asked to advise survivors of deceased former employees or deceased retirees to contact OPM directly for information about their possible entitlements. But in almost all cases federal agencies do not contact surviving family members.

It is the intention of this column to explain what the lump sum credit is, the rules that apply in paying the lump-sum credit to eligible surviving family members, and the procedures eligible surviving family must follow to apply for the lump-sum credit.

Definition of Items Related to the Lump-Sum Credit

Some important items related to the lump sum credit are first defined:

1. Order of precedence. The lump-sum credit will be paid to the individual survivor or survivors of the deceased employee in the following order of precedence: (1) The beneficiary or beneficiaries designated by the individual in a signed and witnessed writing received by OPM before the date of death; (2) Widow or widower, if there is no designated beneficiary; (3) If neither (1) or (2), then to the child or children with the share of any deceased child distributed among the descendants of the child; (4) If not (1), (2), or (3), then to the parents in equal shares or the entire amount to the surviving parent; (5) If not (1), (2), (3), or (4), then to the appointed executor or administrator of the estate or to any other person who has authority under applicable state law to represent the deceased’s estate; and (6) If not (1), (2), (3), (4), or (5), then to the next of kin determined by OPM according to the laws of the deceased’s legal residence on the date of death.

2. Lump-Sum Credit. The lump-sum credit consists of the unrefunded amount of CSRS or FERS retirement deductions, deposits for civilian and military service, redeposits of previously paid refunds, and unpaid interest (as will be discussed below separately for former CSRS/CSRS Offset and FERS-covered employees).

Payment of Lump-Sum Credit for Former CSRS or CSRS Offset Employees

The lump-sum credit for deceased former CSRS or CSRS Offset employees consists of the unrefunded amount of one or more of the following:

• CSRS retirement deductions. CSRS retirement deductions are equal to 7 percent for a CSRS employee (0.8 percent for a CSRS Offset employee) that was withheld biweekly from the employee’s salary

• Redeposits of refunds previously paid

• Deposits for temporary (non-deduction) service

• Deposits for post-1956 military service

• Interest on retirement deductions through Dec. 31, 1956, and

• For an employee or former employee who dies with less than five years of creditable service, interest paid to the date of separation or transfer to a position not covered by CSRS, in any amount covering over one year of service.

Note the following:

1. Voluntary contribution program (VCP) contributions are not part of the lump-sum credit. However, if an employee dies in service or after separation from service, then all VCP contributions made by the deceased employee plus interest will be paid separately in a lump-sum payment under the order of precedence.

2. The lump-sum credit may have been disbursed to an employee or former employee while he or she was alive in one of three ways: (a) Through a refund payment to a separated employee not entitled to a CSRS annuity; (b) Through a lump-sum payment under the alternative annuity provision, or (c) Through the payment of a CSRS annuity.

Rules for Payment of the CSRS Lump-Sum Credit

The general rule for payment of a CSRS lump-sum credit is: If there is no survivor who is entitled to a monthly CSRS survivor annuity upon the death of a CSRS/CSRS Offset employee, then the total lump-sum credit in the CSRS retirement fund is payable to the individual(s) entitled under the normal order of precedence (see above).

If a CSRS/CSRS Offset employee dies in service, and a CSRS survivor annuity is payable to a spouse, former spouse or a child of the deceased employee, then the individual entitled to a lump-sum credit in the order of precedence may not be paid the lump-sum credit. However, he or she may be paid that portion of the lump-sum payment consisting of:

• Retirement deductions withheld from the employee’s salary after the employee becomes eligible for the maximum annuity

• Partial redeposits of refunds previously paid unless the survivor annuitant completed payment of the redeposit

• Partial deposits for temporary (nondeduction) service performed after Sept. 30,1982 unless the survivor annuitant completed payment of the deposits

• Partial deposits for post-1956 military service, and

• Completed deposits for psot-1956 military service when the military service is not used to compute the survivor benefit.

A CSRS lump-sum credit payment is subject to any properly certified and timely request for recovery of a valid debt due to the United States government.

When a CSRS/CSRS Offset employee or former employee dies, the amount of a lump-sum payment representing the employee’s actual contributions (including partial deposits and redeposits) is not subject to federal and state income taxes. However, any interest paid on those contributions is considered taxable income in the year in which the refund is paid.

Applying for the CSRS Lump-Sum Credit

Applicants for the CSRS lump-sum credit must do the following:

1. Complete form SF 2800 (Application for Death Benefits) (https://www.opm.gov/forms/pdf_fill/sf-2800.pdf) and attach any other forms and/or evidence as the application or circumstances require

2. Attach a certified copy of the deceased’s death certificate, and

3. Send the completed application to:

a. The employing agency if the agency has not yet forwarded the employee’s records to OPM; or

b. Directly to OPM if the employing agency has already forwarded the employee’s records to OPM. The address is:

Office of Personnel Management
P.O. Box 45
Boyars, PA 16017-0045

Payment of Lump-Sum Credit for Former FERS Employees

This section outlines the circumstances under which a lump-sum credit may be paid under the Federal Employees Retirement Systems (FERS) to an eligible survivor upon the death of a FERS-covered employee.

FERS Lump-Sum Credit

The lump-sum credit under FERS consists of the unrefunded amount of one or more of the following:

• FERS retirement deductions (generally 0.8 percent of employee’s bi-weekly salary) withheld bi-weekly from the employee’s salary. This also includes CSRS Interim and CSRS Offset plan deductions

• Deposits for temporary, temporary (non-deduction) service prior to Jan. 1, 1989

• Redeposits, made since Oct. 28,2009 of refunds previously paid

• The balance after the return of excess deductions, civilian and military, and

• The variable rate of interest on deductions and deposits if the service covered totals at least one year.

Payment of Lump-Sum Credit for Former FERS Employees

If a FERS employee dies while in federal service and no survivor is entitled to a FERS survivor annuity (in general, a spouse or a former spouse), then the lump-sum credit is paid to individuals entitled under the order of precedence (see above).

Note that the FERS Basic Employee Death Benefit (BEDB) is not a FERS survivor annuity. A surviving spouse can therefore be paid both the BEDB and the FERS lump-sum credit under the order of precedence.

When a separated FERS employee dies, the FERS lump-sum credit is paid in the order of precedence. Note that the surviving spouse of a deceased former employee may be entitled to a FERS survivor annuity. In such cases, the surviving spouse may choose either to receive that survivor annuity or the FERS lump-sum credit, unless some other individual is the designated beneficiary of the FERS lump-sum credit.

Applying for the FERS Lump-Sum Credit

Applicants for the FERS lump-sum credit must do the following:

1. Complete form SF 3104 (Application for Death Benefits) and attach any other forms and/or evidence as the application or circumstances require

2. Attach a certified copy of the deceased’s death certificate, and

3. Send the completed application to:

a. The employing agency if the agency has not yet forwarded the employee’s records to OPM; or

b. Directly to OPM if the employing agency has already forwarded the employee’s records to OPM. The address is:

Office of Personnel Management
P.O. Box 45
Boyars, PA 16017-0045

A FERS lump-sum credit payment is subject to any properly certified and timely request for recovery of a valid debt due to the United States government.

When a FERS employee or former employee dies, the amount of a lump-sum payment representing the employee’s actual contributions (including deposits and post Oct. 28,2009 redeposits) is not subject to federal and state income taxes. However, any interest paid on those contributions is considered taxable income in the year in which the interest is paid.

OPM’s Responsibility

For both the CSRS and the FERS lump-sum credit, OPM determines which benefits are payable and depending upon the type of benefit and the circumstances in a particular case, OPM may request the applicant to submit additional evidence.

Applying for Public Safety Officers’ Benefits

The Public Safety Officers’ Benefits Act of 1976 authorizes the Bureau of Justice Assistance (not OPM) to pay a lump-sum death benefit to specified survivors of public safety officers who died as a direct and proximate result of a personal traumatic injury involving external force sustained in the line of duty. The death benefit is payable (tax-free) in a lump-sum payment made to the surviving spouse and eligible children of a deceased public safety officer. One-half of the benefit is paid to the surviving spouse and one-half of the benefit is paid in equal amounts to the eligible children. The benefit will be paid to a deceased public safety officer’s parent(s) if the deceased public safety officer had no surviving spouse or children.

More information concerning this lump sum payment can be obtained by going to the website. An application for the public safety officer’s program benefits may be found here.

Note that the amount of the public safety officers’ lump-sum death benefit for eligible deaths occurring on or after Oct. 1,2021 and through Sept. 30,2022 is $389,825.00. Each year the amount of the benefit is subject to a cost-of-living adjustment (COLA) taking effect on October 1 of the new fiscal year. The amount of the current lump-sum death benefit of $389,825 will increase by a COLA effective Oct. 1, 2022.