My Feb. 22 column explaining the difference between deferred and postponed annuities generated a lot of questions from former employees, some of whom are just realizing they might be eligible for a deferred annuity.
They should also pay attention to the increased benefits that would become available if a recently introduced bill becomes law.
A deferred annuity is one that is payable to a former employee who left service before being eligible for an immediate annuity and who didn’t take a refund of his retirement contributions. If you are a former Civil Service Retirement System employee who had at least five years of service, you are eligible for a deferred annuity at age 62. If you are a former Federal Employees Retirement System employee, you are eligible at age 62 with five years of service, at age 60 with 20 years, and at your minimum retirement age with 30 years. Former FERS employees are also eligible at their minimum retirement age with at least 10 years of service, but if you retire under the MRA+10 provision, your annuity will be reduced by 5 percent for every year you are under age 62. MRA ranges from 55 for those born before 1948 to 57 for those born in 1970 or later.
Your deferred annuity is based on your years and full months of creditable service and the average of your highest three consecutive years of salary on the day you left. The more time that has elapsed between the time you left government and the time you are eligible for a deferred annuity, the greater the erosion of your benefit. That’s because in every year since you left, salaries have increased.
For example, if you resigned from the government in 2005, your colleagues who continued working received average raises under the General Schedule of 2.1 percent in 2006, 1.7 percent in 2007, 2.5 percent in 2008, 3.9 percent in 2009 and 2.0 percent in 2010.
But now there is hope for those who leave government, don’t take a refund of their contributions and have the right combination of age and service for a deferred annuity.
On March 25, Rep. James Moran, D-Va., introduced HR 4979, which would provide for the indexation of deferred annuities. In other words, a deferred annuity would be increased by the average GS pay increases that occurred between the day you left government and the day before your deferred annuity began.
Using the example above, if you left with eligibility for a deferred annuity of $20,000, under the current law your annuity would still be $20,000 no matter how great the distance between your leaving government and your annuity start date. If the Moran bill were to become law, during the same five-year period cited above, your annuity’s value would grow to $20,420 with a 2.1 percent raise in 2006, to $21,286 with a 1.7 percent raise in 2007 and to $22,558 in 2010. And it would continue to grow with each year, as long as it didn’t exceed the rate of basic pay you would be receiving if you were still employed.
The Moran bill has other features, too. If you are eligible for deferred annuity, it would assure that your widow’s or widower’s survivor annuity would be calculated using all the GS increases that took place between the date on which you left service and day you died.
And, finally, it would extend to the widows and widowers of former CSRS employees a benefit that has been available to those of former FERS employees who die before being able to file a claim for a deferred annuity. It would assure that a survivor spouse who was married to the former employee on the day he or she left government would be entitled to a survivor annuity that equals 55 percent of the deferred annuity, beginning on the day after the former employee dies and continuing until the survivor dies. Further, it would offer the survivor spouse the option of receiving a lump-sum payment of the former employee’s retirement contributions in lieu of a survivor annuity.
Whether this bill will become law remains to be seen. The only action taken so far is to refer it to the House Oversight and Government Reform Committee.