FERS Annuity Supplement Reductions

 

“… I recently went over the max earnings on my supplement and when I filled the form out in early June it is expected I was appx 2,500 over. Two questions: 1. If I go over again is it subtracted from the original amount of the supplement or the adjusted amount? 2. How do I get it readjusted back to the original amount? Thx Kevin”

What if your FERS Supplement was taken away because you earned too much money?

Can you restart your FERS Supplement if it was taken away because you earned too much money?

In this article, we are going to discuss what the FERS Supplement is and how it is calculated. Next, we will dive into more complex questions like what happens if that supplement stops because you exceeded the earnings limitations when you retired from Federal Service.

What is the FERS Supplement

The FERS Annuity Supplement is a benefit for Federal Employees to supplement their income until they are eligible for social security benefits.

As a FERS Employee, you may be eligible to receive the FERS Supplement. The Supplement is additional, monthly, fixed income. It begins at your retirement and lasts until you have reached age 62.

At age 62 you first become eligible to receive social security benefits so the Supplement will stop.  However, just because you are eligible to receive your social security benefits when your Supplement stops, that does not necessarily mean that you should apply for social security at age 62.

If you start social security at age 62 you will do so at a permanently reduced rate versus if you had waited until you reached your Full Retirement Age (FRA) or older.

To determine if you are eligible for the FERS Supplement as a FERS Employee you need to:

• Have reached your minimum retirement age (MRA) and have at least 30 years of creditable service or,
• Have reached your minimum retirement age, are age 60+ and have 20 years of creditable service

You are eligible for the FERS Supplement if you retire with an immediate, unreduced pension under before you reach age 62.

Keep in mind that your FERS retirement system was based on three “legs”:

Social Security benefits are a crucial component of your retirement from Federal Service. However, the first date that are eligible to draw social security benefits is age 62. Many Federal Employees are eligible to retire from Federal Service before they reach the minimum age to draw Social Security.

Who is eligible for the FERS Annuity Supplement?

FERS employees who retire before age 62 and who are entitled to an immediate annuity are eligible to receive the FERS Supplement.

You are NOT eligible to receive the FERS Supplement if you fall into one of these categories:

Retirees in the following categories are not eligible for the retiree annuity supplement at any time:

• Disability retirees;
• Individuals retiring under the MRA + 10 provision;
• Individuals who are eligible only for a deferred annuity; and
• Individuals retiring at age 62 or later.

How to Calculate FERS Supplement

You can calculate what your FERS Supplement by The formula used by:

Step 1: , create a “full career” earnings history using the employee’s basic pay during civilian service that is creditable under FERS and deemed wages for years after the employee turned 21 and before the first full year of FERS service.

Step 2: Second, update the earnings history for inflation.

Step 3: Third, compute the supplement, using the same formula that would be used by the Social Security Administration to compute a Social Security benefit, including the maximum reduction for early retirement under Social Security.

Step 4: Fourth, multiply the result of the third step by a fraction to approximate the proportion of a full career Social Security benefit earned under FERS. (opm.gov)

The retiree FERS Annuity Supplement is not increased by cost-of-living adjustments (COLA’s).

Is the FERS Supplement the same as my Social Security benefit?

No, your FERS Supplement is not the same amount as what you may receive from Social Security. The formula is derived from social security administration laws but isn’t always dollar for dollar the same.

The formula used to calculate your FERS Supplement is different than that used for calculating Social Security Benefits. The main differences between Social Security rules and the pension computation formulas generally used by the Office of Personnel Management (OPM) are that Social Security uses earnings during a worker’s full career, updates these earnings for inflation, and applies a very different computation formula that uses these updated earnings from a full career.

Keep in mind that just because you are eligible to first receive social security benefits at age 62 does not mean that you necessarily should apply for them.

Learn more about the financial consequences of starting social security at age 62 here.

How to apply for your FERS Supplement

There is no website or online application to apply for the FERS Supplement.

If you are eligible to receive the FERS Supplement in retirement then you will receive the allotment automatically. You do not have to “apply”.

Likewise, you do not have to cancel or stop your FERS Supplement at age 62. That will cease when you reach age 62 automatically as well.

However, once you retire you may want to confirm that OPM has your particular file flagged as eligible for the FERS Supplement.

This covers how you can start your FERS Supplement. How to stop your FERS Supplement happens automatically. Trust me, the government won’t forget that they are paying you a little extra. 🙂

Earnings Limitations on FERS Supplement

If you chose to work after you retire from Federal Service and are receiving the FERS Supplement, your earnings from that employment are subject to the social security administrations earning limitations.

Each year, the earnings limitations are published (See 42 U.S.C. 403.) In 2020 that earnings limitation was $18,240. 

OPM will reduce $1 from your benefits for each $2 you earn above $18,240.

A reduction in the retiree pension supplement in a given year is based on excess earnings in the previous year.

If the following year you are not eligible any longer to receive the supplement because you turn age 63+, the rules are:

“the supplement is payable in the year following a year in which the retiree’s earnings exceeded the exempt amount (that is, the annuity the supplement was terminated during the previous year due to the attainment of age 62), there is no reduction for excess earnings since the reduction can only be applied to the retiree annuity supplement.” (opm.gov)

How to report earnings for FERS Annuity Supplement

Each year that you work once you retire from Federal Service under FERS, before you reach age 63, you will need to complete an Annuity Supplement Earnings Report.

Form RI92-22 is the Annuity Supplement Earnings Report.

 

“The annuity supplement part of your FERS benefit is subject to an earnings test similar to the one applied to Social Security Benefits and uses the same exempt amount, as required by law in 5 U.S.C. Section 8421a. Your annuity supplement will be reduced $1.00 for every $2.00 by which you exceed the exempt amount ($17,040 for 2018). By law, this reduction is effective July 1, 2019. We apply the test only to earnings you received in 2018 after retirement and after you reach the Minimum Retirement Age (MRA). Full-Time Air Traffic Controller (ATC) Instructors are excluded.” (Form RI92-22)

You will complete this form on an annual basis.

What qualifies as earnings for FERS Annuity Supplement limits?

Include as earnings:

• All wages from employment covered by social security.
• All cash payments for agricultural work, domestic work in a private home, service not in the course of your employer’s trade or business.
• All pay, cash or non-cash, for work as a home worker for a non-profit organization, no matter the amount. (The Social Security $100.00 tax test does not apply.)
• All pay for work not covered by Social Security, if the work is done in the United States, including pay for:
• Family employment,
• Work as a student, student nurse, intern, newspaper and magazine vendor,
• Work for States or foreign governments or instrumentalities, and
• Work covered by the Railroad Retirement Act. Regardless of what income is called or who receives it, if it is actually wages for services you performed or net earnings from self-employment you secured, it must be included in applying the earnings test.

Earnings EXCLUDE:

• ATC Full-time Contracted Instructor pay excluded
• as of 1/1/2018 through 12/30/2018.
• Pensions or annuities paid as retirement income, including your FERS benefit or any benefits received as a survivor.
• Monies that you earned before entitlement for annuity supplement and/or received for annual leave upon retirement. This includes separation incentives.
• Unemployment compensation.
• Gifts, insurance proceeds, inheritances, scholarships, alimony, capital gains, net business losses, prize winnings.
• Payments-in-kind for domestic service in the employer’s private home, for agricultural labor, for work not in the course of the employer’s trade or business, or the value of meals and lodging.
• Rentals from real estate which cannot count in earnings from self-employment because, for instance, you were not a real estate dealer.
• Interest and dividends not resulting from trade or business.
• Pay for Veteran’s training and for jury duty.
• Payments by an employer which are reimbursement specifically for your travel expenses and which are so identified by the employer at the time of payment and/or reimbursement or allowance for moving expenses, if they are not counted as wages for Social Security purposes. (Form RI92-22)