Ask The Experts: Retirement

By Reg Jones

CSRS survivor annuity withholding and taxes

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Q. I will be retiring in June and am trying to compute the number of federal tax exemptions, etc., that I take.  I looked through my notes from my last federal retirement planning class and saw that I jotted down that the amount withheld for survivor annuity from one’s monthly pension is a pretax item.  I thought it would be smart to obtain verification or validation rather than assume I heard and recorded this correctly.

If the survivor annuity withheld is subject to federal income tax at the time of withholding, then the portion withheld should be nontaxable when the survivor annuity gets paid out (sort of like the tax-free portion of one’s CSRS 7 percent contribution). Surely, CSRS pensioners and their survivors aren’t taxed twice on this income.

A. You’ll find out how your annuity and that of a survivor are treated in Internal Revenue Service Publication 721, Tax Guide for U.S. Civil Service Retiree Benefits, available at www.irs.gov/pub/irs-pub/p721.pdf.

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FERCCA

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Q. My agency committed an error by moving me from CSRS to FERS. After 18 months and senatorial support, it was finally resolved; the agency satisfied the debt; and I retired Dec. 29. I have since received W2-Cs for past three years. I am looking at a decrease of approximately $17,000 in Social Security taxes withheld for those three years. Those monies were pulled back and put into my CSRS account. If the Internal Revenue Service determines that there is now a tax liability after filing my amended returns, can I make an appeal to the Office of Personnel Management (under the provisions of Federal Erroneous Retirement Coverage Correction Act) to reimburse me for that liability?

A. No.

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Withheld pay

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Q. I retired from the USG (CSRS) on March 31. I began receiving an interim payment May 1. The Office of Personnel Management issued my retirement packet to a claims analyst July 24. So I assume I have a ways to go before finalization. When I receive my official retirement packet from OPM, will my withheld pay (difference in interim amount vs. full) be paid with interest?

A. No.

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WEP

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Q. I have been told that my Social Security benefits may be reduced under the windfall elimination provision. Why would this apply to a British-born citizen who worked and contributed to the government retirement benefit program there and now receives a small pension there? I did not become an American citizen until 1999, although I worked and paid Social Security until 2001 and have earned enough credits to quality for benefits here. The amounts of both pensions are too small to live on and I am wondering how the government can justify what, in effect, amounts to withholding money from a fund that I paid into all these years.

A. Go to to www.ssa.gov/pubs/10045.html for an explanation of why the law was enacted and how it is applied.

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Survivor benefit refund?

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Q. When I retired, I selected a full survivor annuity for my spouse. She recently passed away. What happens to those funds that were withheld from my annuity to provide her survivor annuity?

A. If you are asking if you are due a refund, the answer is no. However, once you have notified the Office of Personnel Management of your spouse’s death, your annuity will be increased to the level it would have been had you not elected a survivor annuity.

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Reinstatement

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Q. I am considering reinstatement. I was with the Treasury Department for seven years and nine months, and left in January 1981 as Grade 12, Step 1. I received a refund of retirement contributions of approximately $6,000 when I left. How can I approximate what my pension will be if I return to the Treasury Department at a Grade 13, Step 1 and work for 5½ years. How would this calculation work if I wanted to calculate the pension at different dates?

At the time I left, I was not required to make Social Security withholdings. I have made Social Security deposits in private industry jobs for the past 32 years. Will I be required to have Social Security withheld?

A. Because you took a refund of your CSRS retirement contributions before Feb. 28, 1991, you’ll receive credit for that time in determining your total years of service. If you redeposit the amount you owe, plus accrued interest, you’ll also get credit for that time in your annuity computation. If you don’t, your annuity will be actuarially reduced based on the amount you owe and your age when you retire.

If you return to work for the government, you will be placed in CSRS Offset (CSRS and Social Security) with the option of transferring to FERS. In either case, Social Security deductions will be taken from your pay. Because of the variables involved, it’s impossible to tell you what your annuity would be. All I can do is provide you with the formulas for CSRS and FERS:

CSRS: 0.015 x your highest three consecutive years of average salary x five years of service, plus

0.0175 x your high-3 x five years of service, plus

0.02 x your high-3 x all remaining years and full months of service

FERS: 0.01 x your high-3 x all years of service, unless you retire at age 60 or older with at least 20 years of service. In that case, the multiplier would be increased to 0.011.

Note: If you elect to stay in CSRS Offset, at age 62, if you are retired, or when you retire if it’s after age 62, your CSRS annuity will be offset by the amount of Social Security benefit you earned while covered by CSRS Offset. If you elect to be covered by FERS, you’ll have a CSRS component in your annuity.

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Money from retirement system conversion

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Q: My question is about the original conversion of retirement withholding, which was converted to Federal Employees Retirement System. I began working for the government in October 1984. So, I was hired as a FERS employee. In 1987, when FERS was officially set up and the money that had been withheld from our paychecks was placed in our FERS accounts, I had $660, which stayed in a Civil Service Retirement System marked account. It stayed there for many years until I switched agencies, and it was no longer listed on my Leave and Earnings Statement. My question is, what exactly is that money? I have asked this question many times over the years and no one has been able to answer it. Was it excess that should have been returned to me? Will it be credited interest if finally transferred into my FERS account? Did it just disappear into thin air? I hope to retire in the next two years and I’m hoping to have this figured out prior to leaving the government, or it probably will end up disappearing. Any ideas?

A: Because you were hired after Dec. 31, 1983, the deductions from your salary for coverage under CSRS were the same as those deducted when you were covered by FERS in 1987: 1.3 percent. Because you had fewer than five years of service under CSRS, you were automatically covered by FERS. Your CSRS time became FERS time, with your prior CSRS deductions being transferred to your FERS account. The financial outcome was a wash.

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