Whether or not to elect a survivor benefit for a spouse is a decision faced by retiring federal employees. It’s not something to worry about if you are many years away from retirement.
This article will provide general information on survivor benefits. A follow-up article will take a look at the question “Should I elect a survivor benefit or not?” An earlier article dealt with survivor benefits if you died while still working (See If You Die Before You Retire, What Happens to Your Benefits? Response to Readers’ Questions.
You must pay for survivor benefits out of your annuity.
Both CSRS and FERS employees who are considering retiring should be aware that the law (the Spouse Equity Act of 1986) gives their spouse a right to a full survivor annuity. For any choice other than a full survivor annuity, the spouse’s signed, notarized consent is required.
Another fact to keep in mind has to do with health insurance. In order to ensure that a spouse has access to FEHB coverage after an annuitant’s death, a survivor annuity of some level must be chosen. In addition, the spouse would have to have been covered on a self and family policy as of the date of the annuitant’s death. This is something of which financial planners need to be made aware.
The rules for CSRS and FERS differ somewhat on survivor benefits. An employee who transferred from CSRS to FERS during an open season, or who chose FERS when returning to work after a break in service of over 365 days, would be governed by FERS rules.
For CSRS purposes, a full survivor annuity represents 55% of the annuitant’s full and unreduced annuity. The cost is 2.5% of the first $3,600 of the annuity and 10% of the rest. Here’s an example that uses an unreduced annuity of $45,000.
| Unreduced Annuity | $45,000 | |
|
2.5% of first $3,600 10% of remaining $41,400 |
$ 90 $ 4,140 |
$ 4,230 |
| Reduced Annuity | $40,770 | |
| Survivor annuity amount | $24,750 |
Under CSRS rules, a less than full survivor annuity is 55% of any base amount of the full annuity that the retiring employee chooses. This example assumes that the annuitant chooses (and the spouse agrees) a base amount of $35,000 from the above $45,000 full and unreducedannuity.
| Base Amount Chosen | $35,000 | |
|
2.5% of first $3,600 10% of remaining $31,400 |
$ 90 $ 3,140 |
$ 3,230 |
| Reduced Annuity | $31,770 | |
| Survivor annuity amount | $19,250 |
There is no restriction as to how small a base amount can be chosen, as long as spousal consent is given.
FERS is less generous than CSRS and gives less flexibility as well. A full survivor annuity under FERS is 50% of the annuitant’s full and unreduced annuity and the cost is 10% of the annuity.
| Unreduced Annuity | $45,000 |
| 10% of unreduced annuity | $ 4,500 |
| Reduced Annuity | $40,000 |
| Survivor annuity amount | $22,500 |
A less than full survivor annuity under FERS is 25% of the annuitant’s full and unreduced annuity and the cost is 5%.
| Unreduced Annuity | $45,000 |
| 5% of unreduced annuity | $ 2,250 |
| Reduced Annuity | $42,750 |
| Survivor annuity amount | $11,250 |
Under both CSRS and FERS there is an option called an Insurable Interest Survivor Annuity that allows a retiree to choose a survivor annuity for someone who has a reasonable expectation of financial benefit from the continued life of the retiree. An insurable interest survivor annuity is a full survivor annuity; there is no less than full option. In addition, the cost of the annuity is based on the difference in age between the annuitant and the individual with the insurable interest. The lowest cost is 10% of the full and unreduced annuity for someone who is older, the same age or less than five years younger than the annuitant. The highest cost is 40% of the full and unreduced annuity for someone who is 30 or more years younger than the annuitant.
In order to have an insurable interest annuity approved, the retiree must be in good health and must not be retiring on disability. The Office of Personnel Management (OPM) has presumed an insurable interest for several relationships, thereby obviating the need to prove expectation of financial benefit. Those relationships are:
- Spouse
- Former spouse
- Common law spouse
- Engaged to be married
- Blood or adoptive relative closer than first cousin
A former spouse can also be entitled to a survivor annuity. An annuitant could choose to elect a survivor annuity for a former spouse, or a valid court order could require it. For a court order to be considered valid:
- It must be issued by a US Court; and
- It must be both reviewed and approved by OPM; and
- For CSRS the divorce must have taken place after 5/7/85;and
- The former spouse must not have remarried before the age of 55 (unless the marriage lasted 30 years of longer; and
- The marriage to the federal employee must have lasted at least nine months.
Hopefully this article covered the basics of survivor annuities. A forthcoming article will look at whether or not survivor annuities make sense.
