FEDweek

Potential Retirement Mistakes on Benefits

Last week I wrote about two possible mistakes you could make on your way to retirement: not getting credit for service where you’d need to make a deposit and credit for service where you got a refund of your retirement contributions and would need to make a redeposit. This time I want to highlight another mistake you should avoid, and three pitfalls you may not be able to avoid.

FEHB or FEGLI

One of the prized benefits of government employment is the ability to enroll in the Federal Employees Health Benefits program. And you can carry that coverage into retirement if you have been enrolled in it for the five consecutive years before you retire (or from your first opportunity to enroll). If you don’t meet that requirement, you’ll be out in the cold unless you are offered an early retirement opportunity and were enrolled in the FEHB program before the latest early retirement authority was approved for your agency.

To carry your Federal Employees’ Group Life Insurance coverage into retirement, you must have been enrolled in the program for the five consecutive years before you retire (or from your first opportunity to enroll). However, if you don’t meet that requirement, your FEGLI coverage will end. And, unlike the FEHB program, the law doesn’t provide for a waiver.

Penalties

Age reduction. The penalties facing you if you are offered early retirement are controlled by the retirement system you are in. If you are a CSRS employee, your annuity will be reduced by 2 percent for every year you are under age 55 (1/6 percent per month). There isn’t any penalty if you are a FERS early retiree who retires under a VERA or if you are given a specific RIF notice, and are at least age 50 with 20 years of service or any age with 25. However, if you retire under the MRA+10 Provision (minimum retirement age with at least 10 but fewer than 30 years of service), your annuity will be reduced by 5 percent for every year you are under age 62.

Windfall elimination provision. If you are covered by CSRS (or FERS and will have a CSRS component in your annuity) and have enough credits to be eligible for a Social Security benefit, you’ll be subject to the windfall elimination provision. The WEP will reduce your Social Security benefit if you receive an annuity – in whole or part – from CSRS, a retirement system where you didn’t pay Social Security taxes and have fewer than 30 years of substantial earnings under Social Security.

Government pension offset. If you are (or will be) receiving an annuity from a system where you didn’t pay Social Security taxes, such as CSRS, and your spouse is entitled to a Social Security benefit based on his or her own earnings, the GPO will cause your Social Security spousal benefit to be reduced by $1 for every $3 in your CSRS annuity. As a rule, the GPO wipes out that spousal Social Security benefit.