Ask The Experts: Retirement

By Reg Jones

New year, same COLA

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For employees, 2010 is a mixed year for benefits. For retirees, it’s pretty much a bust.

General Schedule employees received a 2 percent pay increase, with 1.5 percent going to all employees and the remainder being distributed through locality pay. If you want to compare how you made out against employees in other areas, go to the Salaries and Wages page on the Office of Personnel Management Web site.

The maximum taxable earnings for Social Security withholding stay at the 2009 level — $106,800. So, if you are a Federal Employees Retirement System or Civil Service Retirement System Offset employee, any amount you earn above that amount won’t be subject to the 6.2 percent Social Security deduction. However, the 1.45 percent of salary that goes to pay for your eventual coverage under Medicare Part A will continue to be deducted.

Of course, depending on which Federal Employees Health Benefits Program plan you are enrolled in, a substantial bite may have been taken out of your pay increase. The same is true if you are enrolled in the Federal Long Term Care Insurance Program, where premium increases triggered a loud and anguished cry from affected enrollees.

If you are a retiree, you have the same concerns about increases in health insurance and long-term care insurance premiums. But you also have a bigger problem. For the first time in decades, you won’t receive a cost-of-living adjustment in your annuity. If you receive a Social Security benefit, you won’t get an increase in that, either.

COLAs for retirees and Social Security beneficiaries are determined by changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers from the third quarter of one year to the third quarter of the following one. Not surprisingly, considering the tumble the economy took, the CPI-W dropped. The good news is that there’s a “hold harmless” provision in the law: It prevents benefit recipients from having their annuities and Social Security benefits reduced, and it means most Medicare beneficiaries who are enrolled in Part B won’t see an increase in their monthly premiums. In fact, the Centers for Medicare and Medicaid Services said 73 percent of beneficiaries will be protected.

However, about 27 percent of Medicare beneficiaries will see increases because they are new enrollees, are subject to the income-related additional premium or don’t have their Part B premiums withheld from Social Security benefit payments.

If you receive a Social Security benefit, the Social Security exempt amount — the amount you can earn from another job or self-employment without causing that benefit to be reduced — is the same as it was in 2009: $14,160 for an individual or $37,680 for a couple.

If you are under full retirement age, $1 in benefits will be deducted for every $2 you earn above the limit. In the year in which you reach full retirement age, benefits will be reduced by $1 for every $3 you earn above the limit. There isn’t any limit beginning with the month in which you reach full retirement age.

While there’s been talk in Congress about giving all Social Security recipients a $250 payment to compensate for their loss of a COLA in 2010, and there have been finger-pointing hearings about the increases in premiums for health benefits and long-term care insurance, I wouldn’t hold my breath waiting for something positive to happen.

While things look bleak for retirees in 2010, they won’t be any better next year. According to those who crank out the numbers at the Social Security Administration, there won’t be any COLA increase for 2011 either. Sad to say, it’s just the way the numbers crunch in a downturn that hasn’t yet turned up.

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Does death before retirement affect survivor annuity?

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Q: I am a federal employee under the Civil Service Retirement System with 35 years of service, and I am 60 years old. I plan on working another two to five years. If I die before I retire, will my wife automatically receive a full CSRS survivorship annuity? I plan on selecting a full survivorship annuity when I do retire but was wondering what happens if I don’t make it.

A: Yes, if you were to die before retiring, your widow would automatically receive a full survivor annuity. The only exception to this rule is if there is a court order for a former spouse that would result in part or all of that benefit going to her.

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When is unused sick leave credited?

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Q: I will be 63 years old at the end of this year. I anticipate retiring under the Civil Service Retirement System on Dec. 31, 2010, with a Service Computation Date of March 1977. If I have 800 hours of unused sick leave by then, at what point this year can I start terminal leave from work and have these 800 hours calculated into my annuity payments?

A: Unused sick leave is credited on the day you retire and used in the calculation of an annuity. Note: I’m unaware of any provision in law that would provide terminal leave for civilian employees of the federal government.

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CSRS and annuities

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Q: I’m under the Civil Service Retirement System plan. I would like to know if the retirement contributions, taken out of our checks every payday, have anything to do with the amount of money we will receive when we retire, or is it based on our high-3 and the number of years we have in, including military time?

A: CSRS and Federal Employees Retirement System annuities are defined benefit plans. As such, they are not based on the amount employees and agencies contribute to the retirement fund. Instead, they are based on formulas that include a multiplier (or multipliers), the highest three years of average salary, and years and full months of creditable service, including any active-duty military service for which a deposit has been made.

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What’s up with FERS Redeposit?

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Q: I’ve been trying to find details on the new Federal Employees Retirement System Redeposit, but have had no luck. Do you have any details?

A: The Office of Personnel Management is still working up guidance and revising the application form. If you are retiring in the near future, OPM will tell you now how much you owe and let you make the redeposit before they finish processing your retirement application. If you aren’t retiring soon and are simply eager to get the paperwork moving, you can fill out a copy of the current Standard Form 3107, Application for Immediate Retirement, and send it to OPM. Your personnel office has copies, or you can download one by going to http://www.opm.gov and clicking on Forms.

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Military service credit

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Q: I have 20 years of military service as an Air Force reservist.  I plan to accept a federal GS-14 position and make a deposit into the Federal Employees Retirement System to get credit for my military service in my federal retirement calculation. Then I will retire from the reserves and receive reserve retirement pay.  Under FERS, will I be forced to waive my reserve retirement pay?

A: Making a deposit to get credit for any active duty service in the military won’t have any effect on your reserve retired pay. You will not have to waive it. That requirement only applies to those who are retiring from active duty in the armed forces.

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The effect of remarrying on annuities

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Q: I have a friend who retired from the Civil Service Retirement System in 2002 and was divorced at the time. His ex-wife will not receive a survivor annuity per his divorce decree. He is going to get remarried this summer and will elect full survivor annuity for his new wife. He knows his monthly annuity will be reduced but he is curious to know if the reduction would be the same as if he had been married all these years, or will there be an additional amount deducted to make up for the years since he retired?  I hope I am making sense because it took me a while to figure out what he was asking.

A: If your retired friend marries and elects to provide a survivor for his wife, there will be two reductions in his annuity. The first will be to provide the survivor benefit. This will be the same reduction that would have occurred if he had elected a survivor annuity for a current spouse when he retired. The second reduction will be a permanent actuarial reduction. This will require a deposit that equals the difference between the new annuity rate and the annuity paid to him for each month since he retired, plus six percent interest. The reduction is calculated by dividing the amount of the deposit by an actuarial factor based on his age on the day his annuity is reduced to provide the survivor benefit. Note: As a CSRS retiree, he has the option of electing a survivor annuity that ranges between $1 per year and 55 percent of his unreduced annuity.

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Is buying back military time a good idea?

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Q: I am a Federal Employees Retirement System employee who started as a civilian federal employee in 1989 after 5½ years of active-duty military service. I am 49 years old. I am trying to figure out if it would make sense to buy back my military time. Is there a retirement age gap between when it would be a good idea and when it would not be? I am currently a GS-11 and the buy-back amount would be a little under $6,000. I also retired from the Army Reserve back in 2000.

A: I can’t tell you whether you should make a deposit to get credit for your period of active-duty service. What I can tell you is what it would get you. Assuming that you now have 21 years of civilian service, if you made the deposit you’d have 26.5 years of service; when you retire, your annuity would be 5.5 percent higher than it otherwise would be. Note: Making a deposit for that period of military service would have no effect on your reserve retired pay.

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USPS buyout plans

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Q: Do you think the Postal Service will offer another buyout anytime soon? I have 31 years, with military time.

A: I haven’t heard anything that would suggest that the Postal Service plans to do that and, unfortunately, I can’t predict what it might do in the future.

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CSRS, sick leave and taxes

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Q: When I retire, I will have 2,203 hours of sick leave. I am under Civil Service Retirement System Offset. I believe 2,087 hours is the equivalent of one year of service when I retire. So when I retire at age 58, — at 30 years, 6 months of service — I will get an extra year added to my time, so I will have 31 years, 6 months of service that will apply for purposes of calculating my retirement annuity. Is this correct? My husband works a nine-hour schedule that gives him one day off every week. Does the same 2,087 number apply to him, or is it different? He will retire under CSRS with 36 years of service this year and 2,805 hours of sick leave. We want to know how many years/months will be apply to his retirement, as well. My next question: I am under CSRS Offset. When I get my lump-sum payment for annual leave, will I have to pay Social Security tax on that money? I plan to retire on Jan. 1, 2011, so I will not receive the money until 2011. I understood that people under CSRS would not pay Social Security tax under any circumstances. Is that true?

A: If you retired with exactly 30 years and six months of service — not an hour more or less — your 2,203 hours of unused sick leave would add another one year (2,087 hours) and one month (174 hours) and be used in the computation of your annuity. The remaining 42 hours of unused sick leave would be dropped. However, if you didn’t retire with exactly 30 years and six months of service, any days in excess of that would be converted to sick leave days, which are approximately 5.797 hours long, and added to the leftover sick leave days. If the combination totaled at least 174 hours, you’d receive credit for one more month in your annuity computation. The same rules will apply to your husband’s unused sick leave. In his case, 2,805 hours would give him one year (2,087) and four months (696) of additional credit, with 22 hours dropped. The fact that he is on a modified work schedule is irrelevant.
As to your second question, federal, state (where applicable) and Social Security taxes will be deducted from your lump-sum annual leave payment. While employees who are covered solely by CSRS don’t have Social Security taxes deducted fro their salaries or lump-sum annual leave payments, those covered by CSRS Offset do have them deducted. CSRS Offset employees have full Social Security deductions taken out of their pay. Only a small portion goes to pay for their CSRS benefits. If they retire before age 62, their CSRS annuities are offset by the amount of Social Security benefit they earned while covered by CSRS Offset. If they retire at age 62 or later, the offset occurs on the day they retire.

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Paying back buyout money

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Q: I recently retired from the Postal Service under the incentive/buyout offer. If I seek another government position, will I be required to pay back the buyout money I received?

A: Yes. If you received a buyout and later accept a paying job with the federal government within 5 years of the date of the separation on which that buyout is based, including work under a personal services contract or other direct contract, you must repay the entire amount of the buyout to the agency that paid it to you before your first day of re-employment.

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Military service and retirement credit

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Q: Did I overpay to get credit for my military service? According to a Government Executive newsletter article (Jan. 15, 2010, issue), Federal Employees Retirement System employees were supposed to pay 3 percent of the base pay they earned during military service in order to get retirement credit for that service, while Civil Service Retirement System employees were to pay 7 percent. I paid at the 7 percent rate in 2002 although I was a FERS employee at the time. Specifically, although I began as a federal employee under CSRS in 1976 after my military service, I voluntarily switched to FERS in January 1988. Should I have only paid 3 percent? If so, what should I do now?

A: No, you shouldn’t have paid 3 percent. Active-duty military service performed before or during employment under CSRS will be credited to the CSRS component of your annuity. Therefore, to get that credit you had to pay the deposit associated with that retirement system. The fact that you are now covered by FERS is irrelevant.

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No short-term disability benefit

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Q: I was told by my physician that I will probably have to go on temporary disability. Is this allowed as a Federal Employees Retirement System employee? If this happens, will I have to use leave during this time, and if not, would I still get my regular wage?

A: The federal government doesn’t have a short-term disability benefit. To be eligible for disability retirement, you would need to have a disabling condition that 1) prevented you from performing useful and efficient service in your current position or another position at the same pay level in your commuting area, and 2) was expected to last for at least one year. If you don’t meet these criteria, you could use any accumulated sick or annual leave you have during your absence from work. If that wasn’t sufficient, you could be placed on leave without pay. Regardless of whether you were using your own leave or went on LWOP, you’d need to first work out the arrangement with your supervisor. Note: Most agencies have a leave-sharing program, whereby employees can donate annual leave to help fellow employees. Check with your agency to find out if you would qualify.

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Retiring early without penalty

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Q: I am a federal employee covered under the Federal Employees Retirement System, and at age 49 will have just over 30 years of service with my military time that I bought back. Can I retire without penalty by postponing or deferring my annuity until my minimum retirement age of 56 years and 2 months, and reapply for the Federal Employees Health Benefits plan for my spouse, and draw on my Thrift Savings Plan, as well? Do I defer my annuity or postpone my annuity under this scenario? What is the better of the two options, or should I not pursue either of them?

A: Because you haven’t reached your minimum retirement age but have 30 years of service, your only option, if you want to leave now, would be to resign from the government and apply for a deferred annuity when you reach your MRA. Unfortunately, deferred retirees aren’t eligible to re-enroll in the Federal Employees Health Benefits program.

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DoD guidance applies for rehired annuitant

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Q: Please clarify/elaborate on your response concerning a lifetime limit of 3,120 hours for rehired annuitants working without an offset in annuity payments. I am employed by the Defense Intelligence Agency, under the Federal Employees Retirement System as a contract specialist (GG-1102). DIA’s human resources department has informed me that I can continue to work as a rehired annuitant for up to five years without any offset in my annuity. I have had this same information provided by the Air Force human resources department. Is there a special exemption for GG-1102 positions, given that there is an accurate shortage of experienced GG-1102 personnel and the lengthy time it takes to become proficient in this career field? My “lifetime limit of 3,120 hours” will reached in March 2010, and I don’t want to be in the position of having to repay any salary at a later date. I tried to research the answer in PL 111-94, but found it too lengthy and confusing.

A: Apparently, you were hired under a special authority granted to the Defense Department. Your personnel office has already told you how long you can remain on the rolls. The other authority to which you referred was prospective and applies only to annuitants who are hired after it was enacted.

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Annuity depends on covered service

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Q: I’m 48 years old, with prior active-duty military service of six years, as well as 7.5 years of prior FLES Federal Employees Retirement System service. I have been out of the federal workforce for several years and have a recent offer to return to the federal government. The personnel specialist at the VA facility, where the job offer has been extended, could not tell me if my prior 7.5 years of federal LE retirement service would be credited at the special LE calculation rate (1.7%) per year (x high 3) in the event of my future retirement from said VA job. If part of one’s total federal service time is spent in a special-rate, LE retirement-covered position, and another part is in a non-special retirement LE position, are the separate percentages applied to the different times in each occupation? I assume the military time, if bought back, would be at a non-LE special retirement percentage calculation rate, as well? Do I have this estimated correctly: 6 years active military = 6%; 7.5 years special FERS LE = 12.75%; estimated 12 years (to age 60) = 12%; Total 30.75% for high-3 retirement annuity calculation? I really need an answer as I need to consider these questions for my decision, and the personnel specialist did not know.

A: The enhanced formula for computing the annuities of law enforcement officers is only applied if you have 20 years of covered service. Because you don’t, your entire annuity will be calculated using the standard formula.

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Two disability annuities at once

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Q: I retired on Federal Employees Retirement System disability about 5 years ago. I then went to work part-time for a private company and have been there for 3 years. I have ALS, a neurological disease that is progressive, and I will die from it within the next couple of years. I can no longer work at my private company. My private company is encouraging me to use their long-term disability insurance and retire. I feel a bit strange about taking advantage of the private insurance when I already receive FERS disability. Is there anything illegal about taking two disability retirements? Is FERS negatively impacted if I accept the second disability retirement?

A: There is no impediment, legal or otherwise, to accepting your company’s long-term disability insurance even though you are a disability retiree. Doing so wouldn’t affect your FERS disability annuity.

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Receiving lump sum payment for unused leave

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Q: I plan on retiring on Jan. 1, 2011. I am eligible to retire on Oct. 1, 2010. I am a Civil Service Retirement System Offset employee. I will have 30 years, 3 months of civil service and will be 60 years, 3 months of age. I have 240 hours of use-or-lose annual leave, and I will also have gained another 200 hours for the year. If I retire on Jan. 1, 2011, can I receive payment for my unused annual leave? I believe by doing this, I will receive a large lump sum payment and won’t be taxed until 2011.

A: Since Jan. 1, 2011, is the end of the leave year, you would receive a lump sum payment for any and all unused annual leave you had to your credit when you retired. When you receive that payment, all federal and, in some cases, state, taxes will have already been deducted from it. You’ll find out what your tax liability is in 2012 when you file your income tax statement(s) for 2011.

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Annuity based on high-3, length of service

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Q: I am a federal employee under the Civil Service Retirement System. My wife was a Federal Employees Retirement System employee who left the government after 10 years (1985 to 1995). Is she eligible for a pension, and, if so, at what age? Should I leave her contributions in the retirement system or withdraw them?

A: Because your wife had at least five years of creditable service and left her contributions in the retirement fund, she will be eligible for a deferred annuity at age 62. That annuity will be based on her length of service and her highest three years of average salary on the day she left government. You can estimate what it would be using this formula: 0.01 x high-3 x all years and full months of service. Or you can go to www.fedbens.us and use the handy software there. Whether she should ask for a refund of her contributions or leave them in the fund is a matter for her to decide. One thing to consider is this: If she applies for an annuity at age 62, she will continue to receive it for the rest of her life.

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Is there a cap on sick leave?

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Q: Is there a cap on how much sick leave can be applied to calculating a pension? Is there a 2,087-hour limit?

A: No, there isn’t any cap on how many hours of unused sick leave can be applied when calculating an annuity. However, for the time being, Federal Employees Retirement System employees will only get credit for one-half of their total hours, while Civil Service Retirement System employees will continue to get full credit.

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