With bills being introduced on the Hill to eliminate the special retirement supplement (SRS) for future Federal Employees Retirement System (FERS) retirees, I thought it would be a good idea to explain what the special retirement supplement (SRS) is, why it is, and how the amount is figured.
What is the SRS and why is it provided?
The SRS approximates the Social Security benefit you earned while a FERS employee. It’s designed to bridge the gap between the time you retire and age 62, when you’ll be eligible for a Social Security benefit.
Notice the words “bridge the gap”? The FERS retirement system stands on three legs: a defined annuity benefit, the special retirement supplement, and the Thrift Savings Plan. Take away any one of those legs and the system collapses. If the SRS were eliminated, most FERS employees couldn’t afford to retire before age 62.
Now, notice the word “eligible”? The SRS ends at age 62, whether or not you apply for a Social Security benefit.
What is it based on?
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 any period(s) of active duty service in the armed forces, even if you made a deposit to the retirement system to get credit for that time in determining your eligibility to retire and to have it used in your annuity computation. That’s because the SRS is paid out of Office of Personnel Management’s Civil Service Retirement and Disability Fund, not the Social Security Administration’s Old-Age and Survivors Insurance Trust Fund.
Who is eligible for the SRS?
To receive the SRS, you must be under age 62, eligible for an immediate annuity, and retire at your minimum retirement age (MRA) with at least 30 years of service; at age 60 with at least 20 years of service; under one of the special provisions for law enforcement officers, firefighters, air traffic controllers or military reserve technicians; or 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 for the SRS, it is automatically added to your FERS annuity.
The following categories of FERS retirees aren’t eligible for the SRS: disability retirees; anyone retiring under the MRA+10 provision; anyone who is only eligible for a deferred annuity; or anyone retiring at age 62 or later.
How is the SRS calculated?
The calculation begins with your total earnings from which Social Security taxes were deducted. It doesn’t include any earnings not covered by Social Security or any that exceeded the Social Security contribution rate limit for a given year. In 2015, the maximum amount of earnings from which those taxes can be taken is $118,500.
Your SRS will be computed using the same formula that the Social Security Administration uses to determine what your Social Security benefit will be when you reach age 62. The product is then multiplied by a fraction, which approximates the portion of your Social Security benefit that was earned while you were a FERS employee.
There’s a simple formula you can use to estimate what your SRS would be. Take your estimated Social Security benefit at age 62, divide it by 40, and multiply the product by the number of years you’ve been a FERS employee, rounded to the nearest whole number. For example, if your estimated annual Social Security benefit at age 62 is $18,000 and you have 20 years of FERS service, your SRS would be $9,000 ($18,000 ÷ 40 x 20) or $750 per month.
Because this is only an estimate, you may get more or less than that amount. That’s because in percentage terms, low income workers receive a greater return on their contributions than do higher paid workers.
Clearly, the closer you are to retirement the more dependable the SRS estimate will be. If you aren’t retiring in the near future, you’ll need to update that figure each time you get a benefit statement from the Social Security Administration.
P.S. If you want to see the official way your SRS will be calculated, and learn why you can’t do it yourself, go to opm.gov/retire/pubs/handbook/C051.pdf and scroll down to Part 51A2. Don’t blame me if you fall into a coma after reading it.
Two little known facts about the SRS
First, the SRS isn’t increased by cost-of-living adjustments (COLAs). Just as true of the annuities of non-special category retirees, it won’t budge from the amount you get when you first begin receiving it until your SRS ends at age 62. Then from that point forward, your FERS annuity will receive annual 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 $22,050. If you exceed the limit, your SRS will be reduced by $1 for every $2 you earn above that amount. Note: The earnings limit doesn’t apply to other sources of income, such as your annuity or investments.
Here’s the exception I mentioned above. The earnings limit doesn’t apply to special category employees, such as law enforcement officers, firefighters or air traffic controllers who retire before reaching their MRA. If you fit into one of these job categories, you’ll receive the SRS regardless of your age. Further, you can earn as much as you want until you reach your MRA without it’s affecting your SRS. However, once you reach your MRA, the earning limit will apply and you’ll be treated the same as any other FERS retiree.