Expert's View

Representative Paul Ryan’s budget proposal for fiscal year 2014 passed the House on March 21. It includes a provision that would end the special retirement supplement which FERS employees receive if they retire before age 62, effective for those who retire in calendar year 2014 and later. Like the Chained CPI, it’s yet another effort to cut the cost of government at the expense of beneficiaries.

To show you what eliminating the special retirement supplement would mean, I need to tell you what the SRS is and what it does.

What it is is a supplement to a FERS retiree’s earned annuity. What it does is bridge the gap between when that employee retirees on an immediate, unreduced annuity and age 62, when he becomes eligible for a Social Security benefit. As such, it’s unique to the federal system.

In this context, the term "immediate, unreduced annuity" applies to any FERS employee who retires at age 60 with 20 years of service or at his minimum retirement age with 30 years of service. It also applies to FERS employees who retire under the Voluntary Early Retirement Authority when they have reached their MRA. MRAs range between 55 and 57 depending on your year of birth.

The money to pay the SRS comes from the Civil Service Retirement and Disability Fund. However, just like a Social Security benefit, it’s subject to the annual earnings limit. As a rule, if you have earnings from wages or self employment that exceed that limit, your SRS will be reduced by $1 for every $2 that exceed the limit. In 2012 that limit was $14,640. In 2013 it’s $15,120.

However, there’s an exception to the annual earnings limit. If you are a law enforcement officer, firefighter or air traffic controller and you retire before your MRA, you can earn as much as you want without your SRS being reduced. However, when you reach your MRA, you’ll be subject to the earnings limit, just like any other FERS retiree.

Note: As a rule, the SRS isn’t increased by cost-of-living adjustments, nor are FERS annuities increased by COLAs until age 62. However, once again there’s an exception. Law enforcement officers, firefighters and air traffic controllers will receive COLAs on both benefits regardless of the age at which they retire.

It’s easy to see that the SRS makes it easier for FERS employees to retire before age 62. If it were eliminated, fewer FERS employees would have the financial wherewithal to retire, and even fewer would be comfortable taking early retirement when it’s offered to them.

Note: The Obama administration also has proposed abolishing the supplement, although only for those hired after a future unspecified date—again, probably starting with those hired next year, the way budgeting works.

If you have an opinion about this proposed change, let your members of Congress know what it is. Constituent opinions – especially in large numbers – can have a significant effect on how a member votes.