Pension Envy & Offset Feds

Most active duty feds are under the Federal Employees Retirement System. Many feel that their longer-service colleagues, under the older Civil Service Retirement System, have it made. Many CSRS employees envy the 5 percent government match FERS employees can get to their Thrift Savings Plan account.

But the best of all worlds may be the Civil Service Offset plan. It covers a small number of workers who either fell between the cracks during the period when FERS replaced CSRS, or who carefully timed their entry into government to ensure they were placed in offset.

So what is it and how does it work? For an expert analysis we borrowed this December 2009 article written by benefits specialsit Vanessa Craddock. She’s a trainer with the National Institute of Transition Planning. She wrote:

    “Is the CSRS Offset your retirement system? If so, do you know what it means to be a CSRS Offset employee? Have you heard that it’s a better program than CSRS? Or are you still unsure about what it is and how it affects your retirement benefits?

    The CSRS Offset retirement system was created following passage of The Social Security Amendments of 1983. The Social Security Amendments of 1983 provided Social Security coverage for all newly hired Federal employees on or after January 1, 1984. Additionally, for a Federal employee rehired on or after January 1, 1984 with a break in service in excess of one year, and at least five years of creditable service at separation, the Social Security amendments made Social Security retirement contributions mandatory.

    CSRS Offset employees contribute 7% of their salary to the retirement system, except for special provisions employees, who contribute slightly more. Of the 7% deducted, 6.2% is transferred to Social Security until the total earnings subject to the social security tax is reached for the year: $106,800 for the year 2009. When the maximum wages taxable has been reached, the social security tax will no longer take place until the next calendar year, and the full 7% reduction will be paid to the CSRS retirement system. Thrift Savings Plan contribution rules for the CSRS Offset employee are the same as those for a CSRS employee.

    One of the confusing aspects of the CSRS Offset system is the CSRS Offset itself. An employee who retires before age 62 will receive a full CSRS annuity at retirement, computed under the CSRS rules using average salary and years of service. However, the retirement annuity will be reduced later if the employee becomes eligible for Social Security retirement benefits. Most CSRS-Offset retirees are first eligible for Social Security at age 62.

    The CSRS Offset annuity is reduced by the portion of the total Social Security benefit that is payable based on Federal service performed after 1983 while covered by both the CSRS and Social Security. The CSRS annuity will not be reduced by any portion of the employee’s Social Security benefit that is based on service other than CSRS Offset employment. For many CSRS-Offset retirees their actual Social Security benefit will be greater than the offset amount, it cannot be less. This means you cannot do worse under CSRS-Offset, and will do better if you have Social Security earnings in addition to those earned while employed under CSRS-Offset.

    OPM will contact Social Security when the Federal retiree is close to age 62 to find out how much, if any, Social Security benefit he or she is entitled to receive. Social Security will provide information on the amount of the Social Security benefit to which the Federal retiree is entitled. The reduction itself is taken as of the first month the individual is entitled to both the CSRS and the Social Security retirement benefits. Even if the Federal retiree does not apply for Social Security benefits, the reduction will be made. When the reduction is made, the Social Security benefit does not automatically begin. This benefit begins only when the Federal retiree chooses to apply for it. If the Federal employee retires at age 62 or later, the offset in the annuity will be made at retirement, if one is applicable. If the Offset employee never becomes eligible for Social Security benefits based on his own employment, there is no offset.

    Once the offset amount is established, it is set. Additional earnings under social security by the offset retiree may continue to increase the social security benefit portion of the retirement. Should the offset retiree become entitled to a larger social security benefit as a spouse, the offset amount itself remains the amount based on the Federal employment and not the new spousal amount.

    Overall, the CSRS Offset employee retains the same benefits of the CSRS retirement system, and in addition, he or she gains advantages as a result of contributing into Social Security retirement. CSRS Offset employees can look forward to a fully rewarding retirement as well as CSRS employees.”

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