A Common Misconception about the FERS Annuity Supplement
by Robert F. Benson |
The FERS annuity supplement is commonly believed to be linked to the Social Security Administration (SSA), even to the point where some believe the benefit is actually administered by SSA rather than the Office of Personnel Management (OPM). This seems to be plausible, because the supplement is a quasi-Social Security payment prior to the start of the actual Social Security benefit at age 62. Another reason some think this is true is it would account for the months of delay until the supplement finally starts – OPM is waiting to hear from Social Security, right?
The truth is that OPM calculates the supplement independently, without using any data from Social Security. The SSA earnings figures are not the same as FERS earnings per se. There are three reasons for this:
- Social Security counts income earned before age 22 and it counts income from non-Government sources. Neither is included in computation of the supplement, and both are commingled by SSA with federal pay so they cannot be distinguished from each other.
- Social Security does not count income unless it is earned. In contrast to this, the calculation of the supplement does, in fact, count non-earned income. This is called “deeming.”
- The Social Security annual statement projects what might be the age-62 benefit, if the future is like the past, while the calculation of the supplement uses figures from the past, only, to arrive at a current benefit.
The above means the Social Security data cannot be used in calculating the FERS annuity supplement. The data is not really satisfactory even for making a credible estimate.
The interim payment to new retirees includes a percentage of whatever the annuity is going to be, but $0.0 for the annuity supplement. Retirees must wait for months before they start receiving anything at all for the supplement. This is despite the fact that the same documentation establishing title to the annuity also establishes title to the annuity supplement. And the information needed regarding service time and salaries is also available at the outset for both benefits, but is used only for the annuity and not for the supplement.
Why do they withhold the retiree’s money in this way? How much money is involved? The money involved in most cases is from $700 to $1,100 monthly; thus, if OPM does not start paying the supplement until, say, six months after retirement, the shortfall for one retiree is from $4,200 to $6,600.
Why does OPM do this? Well, one of the reasons offered is that the supplement calculation is quite complex and lengthy, and they want to start paying something as soon as possible. Well, this logic glosses over the simple fact that the interim payment is an estimate, for crying out loud! An estimate, by definition, is not precise – that is why they call it an estimate! OPM could easily pay, say, 60-70% of what the supplement is going to be, just as they are already doing with the annuity itself.
As for the “complex and lengthy” argument, why on earth doesn’t OPM get software for this data-intense task? They do not hesitate to ask for money for hiring 40 extra employees – why don’t they get the software instead? (By the way, we should all be thankful congress refused the latest OPM request for additional staff.)
With regret, I have given up on the Office of Personnel Management. For years, they have stubbornly persisted in their thick-headed policies, hurting many thousands in the process. This deplorable situation will be remedied only when new management takes over – “new” means non-OPM people. Until then, there is no hope.
Readers are cordially invited to my website.
Editor’s note: The opinions expressed herein are those of the author do not necessarily reflect the views of FedSmith.com
© 2014 Robert F. Benson. All rights reserved. This article may not be reproduced without express written consent from Robert F. Benson.