By: Reg Jones
Last week I wrote about the financial difference between having your annuity calculated under the current high-3 formula or the threatened high-5. This week I want to focus on what would happen if the special retirement supplement (SRS) were to be eliminated, another frequently-arising legislative proposal.
Here’s what the policy is today:
First let’s take a look at what the supplement is. If you are a FERS employee and you retire on an immediate, unreduced annuity before reaching age 62, you will not only receive your basic annuity but an additional payment that represents the amount of Social Security benefit you earned while a FERS employee. It is designed to largely replace the value of that portion of your retirement income until you can begin drawing it at age 62.
To be entitled to an immediate, unreduced annuity you must retire:
• at age 60 with 20 years of service,
• at your minimum retirement age (MRA; currently at 57) with 30 years of service,
• at your MRA, if involuntarily retiring, for example during a RIF, or
• at your MRA, if retiring under the voluntary early retirement authority (VERA)
Employees who retire under the MRA+10 provision, deferred retirees and disability retirees are never eligible for the SRS.
The amount of the SRS is determined using a complicated formula that relies on data that isn’t available to you. Fortunately, OPM has provided a simple formula you can use to get a rough estimate. Take your Social Security benefit estimate provided by the Social Security Administration, multiply it by your total years of FERS service, rounded to the nearest whole number, and divide the product by 40.
The SRS is a fixed amount that’s established on the day you retire. It isn’t increased by any cost-of-living adjustments (COLAs). And it ends when you reach age 62 and become eligible for a Social Security benefit.
The money used to pay the SRS comes from the Civil Service Retirement and Disability Fund and is based solely on your actual FERS service. However, like a Social Security benefit, it is subject to the annual earnings limit. As a rule, if you have earnings from wages or self employment that exceed the limit, your SRS will be reduced by $1 for every $2 over that limit. In 2018 that limit is $17,040.
Note: There is an exception to the earnings limit. If you were employed under the special provision for law enforcement officers, firefighters and air traffic controllers and you retired before your minimum retirement age, you can earn any amount without your SRS being reduced. However, once you reach your MRA, you’ll be subject to the earnings limit just like any other FERS retiree.
Here’s what the world would look like if the SRS was abolished:
If you retired before age 62, until you hit that age and Social Security kicks in you’d be receiving only the FERS civil service annuity (1 percent per year of service times your high-3 salary; see last week’s column for the potential impact of changing that to high-5).
The income gap wouldn’t be filled by the government, leaving it up to you to decide how to cope. This could mean taking another job, living more frugally than you had hoped, or drawing down your TSP and/or other investments faster than you had hoped.
Or not retiring as early as you had hoped; clearly this would be a disincentive to retiring before you are eligible for a Social Security benefit.
Will the SRS be eliminated? It’s too early to tell. While waiting for the shoe to drop, it might be a good idea to let your members of Congress know where you stand.
Next week I’ll write about retiree cost-of-living adjustments and what affect altering the current formula would have on your annuity.
Ed. Note: Other cuts to retirement benefits were proposed in the House last October but eventually dropped ahead of a budget resolution. The House version of that bill called on the Oversight and Government Reform Committee to find $32 billion in savings over 10 years in programs under its control (essentially, federal retirement and health insurance).
At the time the House measure considered – but did not explicitly mandate:
- increasing required contributions toward retirement benefits
- eliminating the retirement supplement
- limiting the increase of the government share toward FEHB premiums for retirees that had shorter working careers
- decreasing the rate of return in the TSP G Fund
- reinstating a partial hiring freeze to cut employment by 10 percent
- reductions for future retirees toward a defined benefit annuity (albeit with a possible increase to the government’s TSP contribution)
All these measures are still under consideration and almost certain to come up again soon, though the extent to which any will pass is uncertain.