A New Tool for the Annuity Supplement

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By on September 5, 2018 in Retirement with 0 Comments

Calculator sitting on a piece of paper with a pie chart

There is strong interest in the Federal community, especially among older employees, in the annuity supplement. Probably most interesting of all is the actual amount an individual is going to receive.

Unfortunately, calculation of the supplement is a nightmare. There are so many steps involved, of such intricacy, only a person with a high degree of dedication would voluntarily perform the full calculation more than once. Really.

The Office of Personnel Management (OPM) has no computer program for calculating the supplement. This is why it takes an average of three hours for them to do just one case. This is why – despite large staffing increases and mandatory overtime – their backlog of unworked annuities/supplements has burgeoned over the years. The backlog, in turn, has caused financial inconvenience, even distress, for many retirees.

For most Federal benefits, you can get some kind of adequate projection of what the benefit will be by using a short cut of some kind. This is not possible with the supplement. 

Example: say you know the person’s high-three and his years of service. This will give you the annuity in seconds, but for estimating the supplement, these numbers are woefully inadequate.  

Why? Because there are so many variables involved, varying in so many ways.  

All salaries – not to exceed the annual maximum – in full years of FERS service must be counted (with salary deeming for less than full years), then “indexed” to make them comparable to the age 60 earnings level, then the five lowest must be dropped, then you add the remaining and calculate the AIME (average indexed monthly earnings), then the hypothetical Primary Insurance Amount (PIA) at full retirement age (FRA). Then prorate for years under the FRA, and prorate again for total years of FERS service. 

At this point, you can see the high-three and years of service cannot do for the annuity supplement what they do for the annuity!  

So, to estimate the supplement there is no computer program and there is no worthwhile short cut. Is there something else that would help? Yes, there is.

Start with OPM’s input data for all the completed supplement calculations for the last 90 days or so. This should be approximately 23,000 cases. Use this data and a mini computer program, sometimes called macro. Select the sort you want, and enter the input.

Sort by Displayed
High-three High-three, FERS years, retire age, supplement
Years FERS service Years, high-three, retire age, supplement
Retire age Retire age, years, high-three, supplement
Supplement Supplement, retire age, high-three, FERS years

In each of the above selections, the individual records will be sorted from highest to lowest by the variable selected and input entered, and displayed.

Other permutations could be added, but the above, in and of themselves, should be extremely useful. 

A “quick and dirty” macro, or computer program, for the above can be developed, tested, and made available in just a few days. The records used can be refreshed regularly with the latest data. Note: no Privacy Act information will be involved.  

Best of all – from OPM’s point view – is the current staff doing the calculations will be unaffected. There will be no reductions. Instead, older employees throughout the Federal establishment will have a new, valuable tool for helping to plan their retirements.  

© 2019 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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