Ask The Experts: Retirement

By Reg Jones

Treasury’s contribution to annuity

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Q. What is the percentage paid by the U.S. Treasury toward our monthly annuity account when we retire under CSRS?

A. It’s not surprising that no one could answer the question, because there isn’t any one answer. It all depends. If an employee retired before June 2, 1986, all of his annuity payments were considered to be a return of his retirement contributions and weren’t taxable, since they had already been taxed as income while he was working. When the amount in his account ran out, all of the annuity payments he received were from the government and, as such, 100 percent taxable. If he retired after that date, the amount he received in each annuity payment depended on two things: first, if he was filing under the general rule or the simplified rule; second, his age at retirement. A third factor was added shortly thereafter: whether he re-elected a survivor annuity and in what amount. To learn more about this mare’s nest of rules, go to www.irs.gov and download a copy of IRS Publication 721, Tax Guide to U.S. Civil Service Retirement benefits.

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Annuity/Survivorship

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Q. I am looking at my Federal Employee Benefits Statement. Can you tell me what the difference is between the estimated annuity without survivorship, with max survivorship, and annuity to survivor?

A. If you are unmarried, you would receive the full benefit to which you are entitled based on your years of service, high-3 and the formula used to calculate an annuity (either CSRS or FERS). If you are married, you are required by law to provide a full survivor annuity to your spouse (55 percent for CSRS; 50 percent for FERS). Under CSRS, you could provide any amount of survivor annuity from $1 up or none at all with the written consent of your spouse; for FERS, the choice is either 25 percent or none. It is also possible for qualified retirees to provide an insurable interest annuity to someone who has a financial interest in their continuing well-being. Since there’s such range of possible arrangements for a reduced insurable interest annuity, you’ll have to check with your payroll office to learn what they mean when they say annuity to survivor.

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Annuity payments made after death

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Q. My wife was a retired federal employee under CSRS. She received her last pension payment two days after she died. The same day, they withdrew the same amount electronically. I always assumed that the annuity payments made sometime the first few days of the month were actually for the previous month. In other words, if the person was alive the entire month, they would receive that payment. What happens for the month before she died? Will there eventually be a payment as part of the final accounting?

A. According to the Office of Personnel Management, “The accrued annuity is annuity due the annuitant but not paid before death. It includes uncashed checks received before death and annuity accrued during the month of death through the day the annuitant died.”

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Parent’s annuity

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Q. I was told that I may be eligible for part of my father’s CSRS pension now that he is deceased and I have become disabled and cannot work. If so, where do I fill out the paperwork and who do I contact about this?

A. You were misinformed. Children are never entitled to a portion of their parent’s annuity. You would only have been eligible for a children’s benefit if, while you father was living, you were unmarried, disabled before age 18, incapable of self-support, and financially dependent on him.

 

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Minimum survivor benefit

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Q: I am a CSRS employee. What is the minimum survivor benefit I need to select if I want my wife covered under health insurance? Can I select $1?

A: Yes, but if you elect something other than a full survivor benefit, your spouse will have to agree to it in writing.

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Survivor benefits for dual-federal couples

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Q: My husband retired under the Civil Service Retirement System Offset program and had a 55 percent survivor benefit for me. I am Federal Employees Retirement System employee, and I will be retiring in three years with the maximum survivor benefit for him. Whoever dies first, will the other one receive survivor benefits and will the survivor’s other federal benefits be reduced by how much they receive from the deceased?

A: There wouldn’t be any reduction. You would be able to receive both your own annuity and the survivor benefit provided by your deceased spouse.

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Setting up a survivor annuity

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Q: My 76-year-old mother got married last year to a 76-year-old man. After they got married, they were getting about $5,000 a month from his Civil Service Retirement System annuity and about $1,500 a month from her Social Security. Sadly, he had a massive heart attack two weeks ago and passed away. They had been married 11 months.

This gentleman had told my mother that he had named her as the beneficiary of his survivor annuity and that she would receive about $3,000 a month if he died first. Will my mother’s $1,500-per-month Social Security be affected by this annuity? Basically, will she receive $4,500 per month, or something less?

A: Your mother would only be eligible for a survivor annuity if her late husband elected to provide one for her and accepted two reductions in his annuity. The first reduction would be to pay for the benefit; the second would pay for a deposit that equals the difference between the new annuity and the annuity he received each month after he retired, plus 6 percent interest. Simply naming her as his beneficiary in a will wouldn’t entitle her to a survivor benefit. To find out if he took the right steps to provide her with one, call the U.S. Office of Personnel Management at 888-767-6738. After reporting his death, ask whether you mother is entitled to a survivor annuity.

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Survivor benefits and annuities

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Q: For my spouse to continue to be covered under the Federal Employees Health Benefits program after I retire from federal service and after my death, which type of annuity should I select? My spouse does not want to receive a survivor annuity and will consent to sign an attachment to SF 2801-2, Spouse’s Consent to Survivor Election, but he needs the FEHB coverage.

A: He can’t be covered under the FEHB program unless he is receiving a survivor annuity. However, as a Civil Service Retirement System employee, with your husband’s written consent, you could elect to give him any amount of annuity from $1 up. Many retirees in your situation elect a survivor annuity amount that is sufficient to cover the premiums. If it isn’t sufficient, he would be able to pay the premiums directly.

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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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