Some CSRS Offset Employees Will Receive Extra Money (and Interest)

By on July 16, 2015 in Pay & Benefits, Retirement with 10 Comments

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Are you a CSRS offset retiree? Do you know what a CSRS offset retiree is? If you are in this category, you will probably well aware of your status. For those who may not sure of which retirement system you are in, additional information is provided below.

If you are in this group of federal employees, a letter coming from the Defense Finance and Accounting Service (DFAS) may interest you as you may be in for at least a small, surprising financial gain.

DFAS is advising CSRS Offset employees serviced by their payroll system and who were in the CSRS Offset retirement system between February 5, 2006 and December 14, 2013 that a programming error led to taking too much out of their check in retirement contributions. The miscalculation occurred when an employee’s pay reached the maximum Social Security contrition and benefit base amount. “The payroll system prematurely increased the employee’s CSRS-Offset contributions to the full withholding rate.” (emphasis supplied)

The complete letter is at the end of this article. Our thanks to one of our users for sharing a copy of this letter with us.

The error was corrected as of the pay period ending on December 28, 2013 and subsequent contributions have been correctly deducted according to the agency. If you are owed a refund, you will receive the amount that was incorrectly deducted along with an interest payment. The letter does not indicate when the refund will be issued.

DFAS plans to correct affected retirement records with the Office of Personnel Management (OPM). If you are already receiving your monthly retirement annuity benefit, OPM will recalculate your annuity and provide those who are affected with information concerning the adjustments to your annuity payment, if any.

Are You a CSRS Offset Employee?

Being in the CSRS offset program is generally restricted to those who were in the “old” CSRS for five or more years prior to 1987, who resigned, and who were re-hired after an absence of at least one year. Under these conditions the employee can choose to become a member of FERS or return to CSRS, as an offset employee. (If the absence was less than one year, the employee is returned to CSRS.)

CSRS Offset retirement usually applies to employees who had a break in service that exceeded 1 year and ended after 1983, and had 5 years of creditable civilian service as of January 1, 1987. For example, if you left Federal service on May 15, 1992, with 18 years of CSRS-covered service and were reinstated under a career appoint­ment on November 1, 1993, you would have CSRS Offset coverage.

CSRS Offset also includes employ­ees hired before January 1, 1984, who acquired CSRS interim coverage between 1984 and 1987, and had at least 5 years of credit­able civilian service by January 1, 1987. For exam­ple, an employee that had a cumulative total of 4 years of temporary service and obtained a career appointment on June 1, 1984. Upon enter­ing the career appointment, the employee would have been placed under the interim plan, which became the CSRS Offset plan on January 1, 1987.

How CSRS Offset Works

Here is how the CSRS offset program came into existence. On January 1, 1987, the Federal Employees Retirement System (FERS) was initiated. Most federal employees are covered by the older CSRS or the newer FERS. In the legislation that created FERS, Congress also created the CSRS Offset plan to assist some federal employees impacted by the change.

When you retire, your annuity will be computed under the same rules that apply to other CSRS retirees. But, when you become eligible for Social Security benefits, your annuity will be reduced, or offset, by the value of the Social Security benefit you earned during your CSRS Offset service.

Information on deductions for CSRS offset employee deductions is available from OPM. Regardless of whether a CSRS employee has retired, at age 62 the offset against the annuity is calculated.

If you retire at age 62 or later and already are enti­tled to Social Security benefits, the offset in your annuity will be made at retirement. If you never become eligible for Social Security benefits based on your own employment, there is no offset.

When Can You Retire?

The age and service requirements for retirement as a CSRS Offset employee are the same as those for a regular CSRS employee. You may retire under the CSRS Offset at the following ages, and receive an immediate annuity, if you have at least the amount of Federal service shown:

Type of Retirement Minimum Age Minimum Service (Years)
Also See The Special Requirements on The Next Page
Optional 62 5
60 20
55 30
Special Optional 50 20
Early Optional Any age* 25
50* 20
Discontinued Service Any age* 25
50* 20
Disability Any age 5

*Annuity is reduced 2% for each year you are under age 55.

The letter below is being distributed to impacted CSRS-Offset employees. It includes where to go for additional information.

Letter from DFAS to Affected CSRS-Offset Employees

June 30, 2015

Subject: CSRS Withholdings for CSRS-Offset Employees

Our records indicate that you are currently, or were previously, a federal employee who participated in the Civil Service Retirement System Offset (CSRS-Offset) program during all or part of the period between February 5, 2006 and December 14, 2013.

In February of 2012, DFAS determined that the civilian automated payroll system had been over-deducting retirement contributions from CSRS-Offset employees due to a programming error. The miscalculation occurred only when a CSRS-Offset employee’s pay reached the maximum Social Security contribution and benefit base amount. When an employee’s pay reached this maximum amount, the payroll system prematurely increased the employee’s CSRS-Offset contributions to the full withholding rate. As a result, CSRS-Offset contributions were over-deducted between the date the employee’s pay reached the maximum Social Security amount and the date the employee’s basic pay reached the full CSRS-Offset withholding rate. The error was corrected as of pay period ending December 28, 2013, and all subsequent CSRS-Offset contributions have been corrected.

Refunds will be made to employees for any CSRS-Offset over-deductions that occurred between the pay periods ending February 18, 2006, through the pay period ending December 14, 2013. Under 5 U.S.C. 5596, the payment of back pay with interest may be made for a period of no more than 6 years prior to the date of the determination of the over-deduction on February 18, 2012.

Our records indicate that you were an employee during part of all of the period between February 5, 2006, and December 14, 2013. As a result, you are owed a refund, with interest, in the amount that was over-deducted from your pay and submitted to the CSRS Retirement Fund.

DFAS will correct your retirement record with the Office of Personnel Management (OPM). OPM has advised that if you are already receiving your monthly retirement annuity benefit, OPM will recalculate your annuity. OPM will provide you with information concerning the necessary adjustments to your annuity payment, if any.

If you are no longer a Federal employee or are currently a Federal employee who works for an agency not serviced by DFAS, you must complete and return the enclosed Address Update Request in order to obtain your refund. Refunds will be issued approximately 90 days after the receipt of your updated information. An IRS Form 1099-INT for the interest portion of your refund will be issued to you at the end of the calendar year for filing with your 2015 tax returns.

For additional information, please call 1-800-729-3277.

Marcia A.R. Hawkins
Director, Civilian Pay Functional Area
Enterprise Solutions and Standards
Defense Finance and Accounting Service

© 2016 Ralph R. Smith. All rights reserved. This article may not be reproduced without express written consent from Ralph R. Smith.

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About the Author

Ralph Smith has several decades of experience working with federal human resources issues. He has written extensively on a full range of human resources topics in books and newsletters and is a co-founder of two companies and several newsletters on federal human resources.

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