The procedure for calculating the supplement is clearly spelled out in Chapter 51 of the CSRS & FERS Handbook. However, the explanation and instructions are 40+ pages in length. Summarized, you must:
- Note the employee’s basic salary for each full year of FERS service (partial years do not count).
- For each salary, be sure not to exceed the Social Security maximum for the year.
- For each salary, whether deemed or actual, divide the average total wages for 2012 by the average total wages for the individual year, then multiply the result by the salary. This is known as the “indexed” salary. Note: maximum salaries and index numbers for all years are available from Social Security as well as average total wages.
- Deeming. For all years from the year in which the employee became 22 through the year prior to his first, full year of FERS employment, deem a salary. This is done by dividing the first-year salary by the average total wages for the first year, and then multiplying the resulting number by the average total wages for the year being deemed. This deeming multiplier is used for all years prior to year one, and for partial years
- Partial years. For each year where the employee did not earn a salary for the entire year, deem a salary for the year. Note: deeming of salaries takes place before indexing.
- Delete the lowest five indexed salaries. Total the remaining salaries.
- Divide the total by (years – 5) * 12, resulting in the AIME, or Average Indexed Monthly Earnings.
- Calculate the Primary Insurance Amount (PIA) by adding (90% of the first $816) to (32% of ( 4,917 – 816)) to (15% of (AIME – 2,046.72).
- To get the age 62 reduced benefit, multiply the PIA by 0.75. (Note: for persons born after 1954, the reduction is greater – check with Social Security on this.)
- Divide years of FERS service (rounded to nearest whole number) by 40, and multiply the result by the age 62 benefit. Done.
No doubt about it, this is a lengthy, intricate process, to be avoided at all costs. You could simply use the latest Social Security estimate of the employee’s age 62 benefit, multiplying this by the percent arrived at in the last step, above. But there are problems with this.
Aside from the dubious value of making an estimate based on an estimate, a real difficulty here is that Social Security does not break out the FERS earnings, meaning to the extent the employee has non-FERS earnings on his record, the resulting estimate will be incorrect. Another reason the Social Security estimate will be skewed is they do not use deemed earnings, while the FERS procedure does. Plus Social Security estimates future earnings, which is not allowed for the annuity supplement.
Still, the above short cut has the advantage of being fast and easy, even if is wrong.
Or you could use a commercial software package, which will be a great help. Contact the author at [email protected] for info regarding several vendors of this software.
Getting back to the original question, in 2014, for a FERS employee with the longest possible earnings history, who earned the maximum or more every year, the supplement is $1,593.
It is a cliché to refer to FERS as being a three-legged stool, with the annuity, Thrift Savings, and Social Security being the three legs. For Federal retirees 62 and over, this is accurate, but when retirees are under 62 the Social Security leg is displaced by the annuity supplement.