With agencies already taking budget hits and expecting even harder ones to come, employees have been hurriedly doing the math to find out what their annuities would be if they are given either an opportunity to retire early or are shoved out the door by a reduction in force.
Figuring out the basic annuity is easy enough. But some employees covered by the Federal Employees Retirement System are scratching their heads trying to calculate a unique feature of FERS: the special retirement supplement (SRS).
The SRS approximates the Social Security benefit you earned while covered by FERS. It’s intended to supplement the FERS annuity and bridge the gap between retirement and age 62, when you’ll be eligible to receive a Social Security benefit. It ends at age 62, whether or not you apply for a Social Security benefit.
The SRS is based solely on your years of FERS service. It doesn’t include any other Social Security-covered employment, such as work in the private sector. Nor does it include periods of active-duty service in the armed forces, even if you made a deposit to the retirement fund to get credit for that time in determining your eligibility to retire and in your annuity computation.
To receive the SRS, you must be under age 62 and eligible for an immediate annuity, and you must retire in one of the following ways:
• At your minimum retirement age (MRA) with at least 30 years of service.
• At age 60 with at least 20 years of service.
• Under special provisions for law enforcement officers, firefighters, air traffic controllers or military reserve technicians.
• At your MRA under one of the early retirement or buyout provisions, whether the retirement is voluntary or involuntary.
If you meet the eligibility criteria, the SRS is automatically added to your FERS annuity.
Ineligible for the SRS are: disability retirees; anyone retiring under the FERS provision allowing retirement at minimum retirement age with 10 years of service; anyone who is only eligible for a deferred annuity; and anyone retiring at age 62 or later.
The SRS calculation begins with your earnings from which Social Security taxes were deducted. It doesn’t include untaxed earnings. The maximum earnings from which those taxes can be taken in 2011 is $106,800.
Once your earnings history has been created, each year’s earnings are updated to account for inflation. Because the value of the dollar changes over time, it’s important that your earnings be expressed in constant dollars.
Your SRS is computed using the same formula the Social Security Administration uses to determine what your Social Security benefit will be when you reach age 62. The result is then multiplied by a fraction that approximates the portion of your Social Security benefit that was earned while you were employed under FERS.
To estimate what your SRS would be, use this formula developed by the Office of Personnel Management:
Take your estimated Social Security benefit at age 62, which is sent to you each year by the Social Security Administration, divide that number by 40 and multiply the result by the number of years you’ve been employed under FERS, rounded up to the next full year.
For example, if your estimated annual Social Security benefit at age 62 is $12,000 and you have 20 years of FERS service, your SRS would be $6,000 — $12,000 divided by 40 is 300; 300 multiplied by 20 is $6,000. The SRS would be $500 per month.
Two more facts about the SRS: First, it isn’t increased by cost-of-living adjustments (COLAs). Second, with one exception, if you have earnings from wages or self-employment that exceed the Social Security annual earnings limit, your SRS will be reduced or stopped until your earnings fall below the limit. This year, the limit is $14,160. If you exceed the limit, your SRS would be reduced by $1 for every $2 you earn above that figure.
Here’s the exception: The earnings limit doesn’t apply to special category employees, such as law enforcement officers, firefighters and air traffic controllers, or to those who take early voluntary or involuntary retirement, before they reach their MRA.
If you fit into one of these categories, you can earn as much as you want until you reach your minimum retirement age without reducing your SRS. However, once you reach your MRA, the earnings limit will apply and you’ll be treated the same as any other FERS retiree.
