Say Good-Bye to the FERS Annuity Supplement

By on November 12, 2013 in News

The FERS annuity supplement will end.  We do not know when, we do not know whether existing employees will be “grandfathered,” and we have no real idea how much money will be saved by terminating this benefit. Nevertheless, we are fairly certain it will end. (See Cutting the Deficit By Altering Federal Retirement Contributions)

Given the uncertainties, compounded by the complexities of calculating the individual supplement, is it possible to make informed projections to be used for planning by individual employees?  Yes, but these projections are not definitive.  Projections must be taken with a grain of salt, as it were. (See FERS and the Special Retirement Supplement for more information on the FERS retirement supplement.)

For eligible employees, what factors determine the amount of the monthly supplement?

  • Age: The salary history runs from age 22 through the year before the  employee’s retirement.  Also, if the retiree retires on a VERA, he can be as young as 45 or so, and his supplement will not start until he reaches his MRA (Minimum Required Age).
  • Years: Must be FERS service, rounded to nearest whole number.  Used as numerator in (xx/40).  Example: employee with 23 FERS years would receive (23/40), or 57.5% of his calculated age 62 benefit.
  • Salary: In figuring the supplement, all basic salaries from age 22 through the last full, calendar year before retirement are used.  None of these salaries, however, can exceed the Social Security maximum for the applicable year.
  • Deeming: For any year where the employee was not on the payroll for the entire year his salary is “deemed.”  Deeming is multiplying the “average total wages” (ATW) for the year by the percent the employee’s first year salary differs from the average total wages for that specific year.
  • Indexing: All salaries through two years prior to retirement are indexed, to account for general wage increases over the years.
  • The lowest five salaries are dropped, the remaining salaries are totaled, and the total is then divided by number of months, in order to arrive at the Average Indexed Monthly Earnings, or AIME.
  • A three-tier formula is applied to the AIME and the result is the full retirement benefit, officially termed the “Primary Insurance Amount,” or PIA.  This is reduced by 76% in order to arrive at the age 62 benefit.
  • The supplement is (years of FERS service / 40) * the age 62 benefit.  Example:  the calculated age 62 benefit is $1,200 and years of FERS service are 27.  (27/40 = 0.675, or 67.5%.  Multiply 1,200 by 0.675 and the supplement, in this case, is $810.

According to the Social Security Administration, the maximum age 62 benefit in 2013 is $1,923.  A 61-year-old who was hired on January 1, 1982 and subsequently placed into FERS, and who earned the maximum every year from then until his 2013 retirement would have tenure of 31 years, which would entitle him to (31/40), or 77.5% of the age 62 benefit: $1,490.

So much for the high end.  For the low end, I am using 20 years FERS service, retirement (VERA) at age 57, and basic salary each year same as ATW for the year.  My computer tells me this person would have an age 62 benefit of $1,219 with a supplement of $609.

At this point, it is up to the individual employee to estimate where he might fall on the highest to lowest continuum.  Remember the range: $1,490 at the high end vs. $609 at the other end.  The midpoint of these two, for whatever it is worth, is $1,049.50.

Savings.  How much will the Government save by abolishing the supplement?  The only practical way that would yield a reasonable approximation would be to tally and analyze supplement determinations from the last year or so, and then project into the future.  But only the Office of Personnel Management (OPM) has the statistics necessary for such a task. So, at this point we simply have no idea how much the government will save.  But whatever the savings is, policy makers from both political parties are certain this initiative will be worthwhile

One incidental savings is noteworthy.  Our friends at the Office of Personnel Management will no longer have to spend three hours or so on each supplement calculation.  This will have a dramatic, positive effect on the OPM backlog! When the supplement is gone, those retiring will find their final annuity determination is considerably faster.  It is an ill wind that blows nobody good.

Cost.  What will the cost of terminating the supplement be?  This is just my opinion, but I believe Government employment will become significantly less attractive, particularly to the most skilled, who have little trouble finding work elsewhere.  This cost can hardly be measured but it will be felt within the government and the services that it provides.  Wait for it.

Chapter 51 of the CSRS & FERS Handbook is the basis for most of the above.

My website is here .

© 2016 Robert F. Benson. All rights reserved. This article may not be reproduced without express written consent from Robert F. Benson.

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About the Author

Robert Benson served 35 years in various Federal agencies, as both a management analyst and IT specialist. He is a graduate of Northwestern University.

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  1. Wilbert Morell says:

    I doubt this will happen to existing FERS employees, it is part of there pension in black and white. They may be able to pay you less via formula change because of same changes done to social security.

    They already cheat you by using 40 year average instead of 35 as done with social security. I pray every night that if a hurricane hits DC when congress is in session and not Boyerstown PA lol

  2. Wilbert Morell says:

    Dropping the supplement and stealing it from FERS employees will amount to at least 150 billion over the next 10 years

  3. busyguy says:

    I have been working since I was 10 years old, my family had a home building business that started in 1954. I have paid into Social Security and unemployment since I was 16, and I have never collected unemployment benefits since I started working at a legal age in 1971.

    I was forced to retire at age 57 under the FERS Law Enforcement Special category, I am in great health, exercise and am at my required weight. I walk, ride a bike, don’t smoke, I wanted to work until I was 62. Now I am forced out and getting 33 1/3 of my pay and a supplemental Social Security benefit. If I worked until I was 62 then the SSA could save $800 a month for 5 years for a savings of $48,000.

  4. Vee Dubbya says:

    I wonder why there is never a plan to take away the tax breaks from the large corporations that pay NO taxes? What did the bankers do that was worth the huge bonuses their CEO’s got after the bailout? Remember? THEY were the ones who trashed the economy with their toxic lending practices! Oh, that’s right! They DESERVE huge tax breaks because they are the “Job Creators”. That’s why they created 3 million jobs OVERSEAS!!! They NEED those huge profits so they can put their money in off-shore bank accounts where they don’t pay, wait for it…ANY TAXES! If Paul Ryan would find a plan to recover the $70 billion in taxes that the treasury loses every year from the “Job Creators” not paying taxes, maybe he wouldn’t have to beat up on middle class people who already pay 30% of their income in taxes.

    Tea Party people, you really confuse me. Why would you root for rich people unless YOU have $20 million in the bank? Or as one friend says, “If you vote for a Republican, you have to be either stupid or rich, because they don’t even try to HIDE the fact that they only have the best interests of the rich in mind.” So which one are YOU?

  5. suebrowcounty says:

    I am wondering if a person applies for widow/widowers SS benefit, if that will affect the fers supplement. Retirement has been a big disappointment for many retired fed workers. Forced to retire because of age and now not making enough to take care of sick family members so they’re back to work at a menial job just to put medicine and groceries in the house.

  6. M Wakefield says:

    Why does the budget have to be saved/balanced/reduced off the backs of Federal Employees.

    I do not see the banksters and Gordon Gekkos of Wall street having to give up one penny of their ill gotten gains! Explain to me why is any CEO worth millions in pay/stock option/bonuses and a Federal employee is not worth $1049.50 per month?

  7. lp says:

    If they’re going to eliminate the supplement then the “differential” earned in off tour hours and graveyard shifts should be used when computing the “hi three” for retirement. Right now it’s not being taking into consideration, but it is when we pay taxes.

  8. Rambo San Antonio says:

    The FERS Special Retirement Supplement should be grandfather for those workers that are 10 or 15 years out from retirement. They have no time to adjust for the shortfall in their retirement accounts. If this was part of the original deal of the package it should stay. It should affect the new employees coming in only. This way they can plan on not receiving this benefit.

  9. air13148 says:

    Thanks Robert. It’s exactly what I was looking for. However, it suggests the supplement would stop for future employees, not those currently employed. With less than 2 years to go I feel relieved, for now.

    • @gijanetexas says:

      Problem is that attitude is why everything is been gradually taken away from the workers. The almost retired and retired workers keep saying as long as they are not talking about me, I’m good with it. FERS was supposed to fix everything wrong with the old retirement system and we fell for it. TSP would have you retire taking more money than when you were working so we don’t need 50% of our wages to live on we were told.

      • air13148 says:

        No,that is your perception of it, and it is incorrect. My attitude is not destroying public service benefits. It is politicians, many from states like Texas who demean civil service workers as lazy and whose benefits are not in line with the private sector. I have been serving in both the military and federal workforce since Carter was president and I really don’t need a lecture from you about my attitude.

  10. air13148 says:

    A few observations: Obama’s proposal is to slightly raise FERS contributions and end the supplement for FUTURE employes. The proposed Senate budget for FY 2014 does not include any cuts in for the federal workforce stating federal workforce have contributed enough to deficit reduction. The Ryan budget for FY 2014 is short on specifics (what a surprise) but says federal workers should contribute more for FERS contributions. The increase that keeps coming up is 5 percent( if you currently contribute 0.8 percent that is a 525 per cent increase!). I can’t find any mention of ending the FERS supplement either in 2014 or for future employes in the House budget. Can someone please direct me to a source document where it specifically talks about the proposal to change the supplement as mentioned by Ryan? Please, no articles from fed week, etc. I want the actual in writing document from Ryan. Thank you.

    • Robert Benson says:

      Google: whitehouse budget 2014 . I believe it is page 32.

      • air13148 says:

        Thank you Robert. I have a written reference for Obama’s proposal. Do you know of written reference as a source document for Ryan’s I.e. House republicans on ending the supplement. The only written reference I have from them is to raise retirement contributions, nothing current on the supplement. Thanks.

    • Robert Benson says:

      http://www.gpo.gov/fdsys/pkg/C
      This is the Ryan budget document – see page 89.

  11. Vito says:

    I was forced to retire at age 57 under the FERS Special category. Ironically, i could have applied back for the job I had to retire from.
    But if Congress wants to help the save money, why don’t they start with their retirement plan? Just one congressional retirement would pay for three civil service retirees!

    • mandinka says:

      HUH???

      • Mit Yerf says:

        Mandika, maybe you can’t add? let me explain it to you very slowly…one congressman’s retirement canceled is = to 3 government workers retirement. SOOOOOO….that = one congressman’s retirement is = to 3 civil services retirement. SOOOOO….get rid of one congressman’s retirement and you get 3 civil service retirements in exchange…..

  12. Johnson says:

    I am a Fed Employee under the FERS retirement plan, Age 52 with 27 years of service. My MRA is 56. The group I fall in is DOD dual status technician. Since we are required to maintain military membership in the National Guard or Reserves, we are forced to retire at age 60. Since this is before I am Social Security eligible the annuity supplement plays an important role in my retirement financial planning. I was planning to retire at my MRA, but if this supplement goes away for all employees I may have to consider working until 60 to add 4% to my regular FERS retirement annuity. I don’t expect my high three will change much since we have been under a pay freeze for three years now and future pay raises will likely be small.

    • ned says:

      the proposal exempts those subject to mandatory retirement so you probably don’t need to worry.

    • mandinka says:

      Why should the taxpayers be on the hook so you can retire early?? You haven’t paid a dime into FERs or the Supplement

      • ned says:

        uh, maybe because Feds were enticed into employment decades ago based on promised benefits including the modest annuity and Special Supplement? it sure wasn’t the starting salary or stock options.
        and yes, FERS employees DO pay for their annuity.
        i’m retiring in my early 50s within a few months. locking in the Supplement i richly deserve, getting full credit for unused sick leave and, of course, VSIP. and the FERS matching is incredible!
        and yes, life choices do have serious consequences!

      • Denise Arbuckle says:

        Where do you receive your information, mandinka? FERS employees most certainly DO pay into FERS.

  13. mandinka says:

    Long long over due. Feds can retire at 55.. what other business allows that to happen and they pay a premium allowing them to go out early… Utter nonsense

    • elmikimbin says:

      Actually some can retire at 50, like I did; and even a few could retire in their 40s. Lifetime pension and most of my health insurance paid by the govt. POW! SLAM!

    • Observer says:

      You are a funny person, appear to be mostly a BSer. Good at stirring things up though, better than dull!

    • ned says:

      is it true locality pay is being increased?

    • nightstalker says:

      ford, general motors, Dodge. and most of the countries like germany, France, Greece and other UK countries have varies ages for retirement and we are working ourselves to death. Now what type of work are you doing and how are you making a differents serving the country you sound like another leech on the system.

    • 1uniquemonique says:

      You don’t know what the $#!! you’re talking about. You should go to opm. gov and “read” the difference between Civil Service Retirement (CSRS) and Federal Employee Retirement Plans (FERS). They are different and this article refers to Federal Employees Retirement Plan (FERS). You are very, very confused. Because you’re so jealous of government employees and their retirement, get a JOB with the government!!!

    • ned says:

      i’m retiring at 52 due to BRAC and a RIF. so much for bullet-proof Fed job security.

    • Denise Arbuckle says:

      Not all Federal employees can retire when they turn 55, regardless of how many years they have in when they turn 55. You don’t know what you’re talking about. My MRA is NOT 55, and I’ve been working here since I was 20 years old. My MRA is 57, and that will give me 37 years of service.

    • @gijanetexas says:

      The military, for one. They can retire after 20 years. Also It costs less to pay a retiree than a worker.

  14. Steve Neal says:

    OK, now I get it. The federal gov’t’s 1983/4 “promise” of FERS replacing CSRS was only possible if the three legs of the FERS plan were available upon the member’s retirement. But because SS is not even partially available until 62 and not fully available until 67, there’s a “gap-filler” supplement to keep their FERS retirement “stool” up on all three legs. So far it has worked that way; a promise partially kept…

    The supplement is calculated to end at age 62, even if the member elects to hold out to 67 for their full SS pension. That’s the plan’s first mistake… Either forcing the retiree into a permanently reduced SS payout or suffer that five year gap where they have to find another source of income or get along with less, after a lifetime of gov’t service. Nice…

    Icing on the cake would be to remove the supplement totally, as if there was never a need for it or a promise made to gov’t workers who devote their lives to public service. That’s mistake #2 and I think we FEDS should all take giant #2 on those who vote for this cost-cutting measure.

  15. matt nova says:

    this change would force people to work longer increasing their salary either by more promotions or higher steps. The net effect might be the govt is going to have to pay higher salaries and pensions because of the reduced turn over. wouldnt they be doing the reverse of the private sector. get the higher salaried employess off the books and then hire a younger person making less money. I must be missing something

    • Scott says:

      This is exactly what I said in my comment. The Supplement is actually cheaper for the Government to pay than to revoke it and have the employee work until 62 or 67 as a result.

      • mandinka says:

        HUH??? I take it mathematics isn’t your friend

      • A Guest says:

        That’s because Congress is trying to fool the American people into believing that their way will have the “taxpayers” money, when in fact it will cost more in the long run. Finance 101: Future money always cost more. Your point is well taken. That why you have to look at the whole picture and not the bites & pieces they are feeding the public.

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