Reg Jones Expert's View

Last week I told you how to calculate a CSRS annuity. This time, I want to explain how the annuities of CSRS Offset employees are calculated. CSRS Offset is a hybrid system.

In 1984, all new hires were designated as being covered by a new retirement category called “CSRS Interim.” The same was done to former CSRS employees who had at least 5 years of creditable service, were rehired after December 31, 1983, and had a break in service of more than one year.

When the new FERS system came on line on January 1, 1987, any CSRS Interim employee who had fewer than five years of CSRS service was automatically converted to FERS. The retirement system designation of those who had five years or more was changed from CSRS Interim to CSRS Offset. (CSRS Interim meanwhile was carted off to the dustbin of history.)

Thus, CSRS Offset mainly applies to employees who were rehired after December 31, 1983, had a break in service of more than one year, and who had at least five years of CSRS creditable service when they left.

If you are a CSRS Offset employee, you are covered both by CSRS and Social Security and are eligible for retirement benefits under both systems. However, those benefits are coordinated so that you will receive the same amount money for your federal service as you would if you had been covered exclusively by CSRS. The only difference is that the money will come from two different places, OPM and the Social Security Administration.

When you retire your annuity will be calculated the same as it would for any regular CSRS employee. If you retire before age 62, you’ll receive a pure CSRS annuity. Then if you are eligible for a Social Security benefit at age 62, OPM will reduce, or “offset,” your CSRS benefit by an amount equal to the Social Security benefit you earned as a CSRS Offset employee. If you retire at or after age 62, and are eligible for a Social Security benefit, the adjustment will be made when you retire. Note: The offset is automatic and will be made even if you don’t apply for a Social Security benefit, so it’s in your interest to apply for Social Security at 62 or immediately upon retiring, if after.

If you retire from CSRS Offset before you are 62, you should apply for a Social Security benefit a few months before you reach your 62nd birthday. That will give SSA time to process your case and avoid any interruption in the combined benefits you are entitled to receive. If you forget to do that, your CSRS annuity will still be offset; however, once you apply for a Social Security benefit, you’ll get all the money you are owed in a retroactive payment from the Social Security Administration. You’ll also receive any additional Social Security benefit you earned while working somewhere else.

FYI, your Social Security benefit will be subject to the windfall elimination provision if you have fewer than 30 years of substantial earnings under Social Security. That benefit will also be reduced if you are under full retirement age (currently 66) when you accept it. And it will be reduced further still if you have earnings from wages or self employment that exceed the annual Social Security earnings limitation. In 2016 that limit is $15,720.

On the other hand, unlike regular CSRS retirees, you won’t be subject to the government pension offset provision, which reduces or eliminates any spousal Social Security benefit to which you might be entitled based on your spouse’s Social Security-covered work record. However, you’ll only be entitled to receive the larger of the two Social Security benefits, your own earned benefit or the spousal benefit, not both.

Finally, once you retire you’ll be entitled to receive a cost-of-living adjustment (COLA) to your CSRS annuity. But only if one is authorized, which it wasn’t this year. Assuming that one is authorized, the amount of your COLA will depend on the number of months you were on the annuity roll. For example, if you retire no later than December 3, 2016, you’d receive a full COLA in January 2018. If you retire later than that, your 2018 COLA would be reduced by 1/12th.