Thousands of FERS employees will be retiring or leaving federal service over the next few months. They are retiring under several types of retirement including immediate retirement, Voluntary Early Retirement Arrangement (VERA), Voluntary Separation Incentive Payment (VSIP), Discontinued Service Retirement (DSR) and deferred retirement.
No matter which type of retirement a federal employee chooses and is eligible for, an employee has the option of offering a survivor annuity to one individual. That individual has to have an “insurable interest” in the retiring employee. An insurable interest is defined as a relative closer in relationship to the retiring employee than a first cousin. This would include a child, a sibling or a spouse. The most logical individual to receive a survivor annuity is a spouse. This column discusses FERS spousal survivor benefits and their importance for married employees.
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Definition of a FERS retiree (annuitant)
The definition of a FERS retiree for the purpose of determining of an individual’s status at the time of death means that the individual had been separated from federal service and had met all of the requirements to receive a FERS annuity (including having filed or being “deemed” to have filed under the “MRA+10” postponed retirement option) for the FERS annuity prior to his or her death.
A FERS employee who retires under any type of retirement (early, immediate and discontinued service) can elect to give a spouse a survivor annuity benefit. A FERS employee who leaves federal service and is ineligible for an immediate retirement may be eligible for a deferred retirement. Deferred retirement means that the departed employee left federal service with at least five years of creditable FERS service and is eligible to receive his or her FERS annuity at a later date. That date depends on how many years of service the employee had at the time when the employee left federal service, as summarized in the following table:
Survivor annuity to a spouse (deceased non-disability annuitant)
A retiring FERS employee elects to give a survivor annuity when filling out the FERS retirement application form, Form SF 3107 (Application for Immediate Retirement). There are two choices the retiring employee as far as the amount of the spousal survivor annuity. The maximum FERS survivor annuity is equal to 50 percent of the annuitant’s annuity before it is reduced by the cost of the survivor benefit. The “less than maximum” survivor annuity is equal to 25 percent of the annuitant’s unreduced annuity. The surviving spouse may receive a FERS survivor annuity in an amount other than 50 percent, or 25 percent of the annuitant’s unreduced annuity only if a former spouse is receiving the remaining portion of the survivor annuity based on a court order.
Note the following:
(1) An important reason that a retired federal employee wants to give a spouse a FERS survivor annuity is in order for the surviving spouse to retain Federal Employee Health Benefits (FEHB) program health benefits. An employee who has been enrolled in the FEHB program for at least the last five years of service ending on his or her retirement date is eligible to retain FEHB program health insurance benefits in retirement for themself and family members. But in order for a surviving spouse to retain FEHB program health insurance benefits in the event the annuitant predeceases the spouse, the surviving spouse must receive some amount of a survivor annuity (maximum 50 percent, or less than maximum 25 percent).
(2) Cost-of-living adjustments given an annuitant increase the survivor annuity by the same percentage. Upon the death of the annuitant, the initial annuity paid to the survivor will include all the previous COLAs that had been granted the annuitant. The survivor annuity will also be increased in all future COLAs.
Survivor annuity to a spouse of deceased disability annuitant
When a FERS disability annuitant dies, the amount of a FERS spousal survivor annuity depends on what age (before or after age 62 the disability annuitant dies:
• After age 62. The computation of a FERS survivor annuity is the same as a decreased non-disability annuitant, as discussed above.
• Before age 62. The amount of the survivor annuity is 50 percent of an earned annuity computation with the time base increased by the amount of time between retirement and the annuitant’s 62nd birthday and the average salary increased by the COLAs the annuitant received. This is also true for a 25 percent survivor benefit, if the annuitant and the spouse jointly elected a partial survivor benefit.
Survivor annuity to a spouse of a deceased former employee
A FERS employee who leaves federal service as a result of a reduction -in-force, job elimination or firing, and who is ineligible for an immediate retirement may be eligible for a deferred retirement. Deferred retirement means that the departing individual will be eligible to receive his or her FERS annuity at a later date upon applying for the annuity. That application date depends on how many years of creditable service the employee had upon leaving federal service. Those dates are shown in the table above. The question becomes: If the former employee dies before reaching the deferred annuity starting date, a surviving spouse is eligible to receive a survivor annuity, as explained here.
Amount of the spousal survivor annuity of a deceased former employee
The spousal survivor annuity is equal to 50 percent of the deceased former employee’s basic annuity. This is the case if the surviving spouse elects to begin receiving the surviving annuity on the date the deceased former employee would have met the age and service requirements for an unreduced annuity. The amount of the survivor annuity is reduced if the surviving spouse elects to receive the annuity beginning the day after death if the employees died before the starting date of the deferred annuity .
• Unreduced FERS spousal survivor annuity formula. The deceased former employee’s annual basic FERS annuity and unreduced for survivor benefits. The deceased former employee’s FERS annuity is reduced by 50 percent to obtain the unreduced annual spousal survivor annuity.
• Reduced FERS spousal annuity formula. IF the survivor spouse elects to have the survivor annuity begin on the day after the former employee’s death, the spousal survivor annuity is actuarially reduced as follows:
(1) Compute the deceased former employee’s annual basic annuity, unreduced for survivor benefits as if the former employe had become entitled to receive an unreduced deferred annuity.
(2) Multiply the former employee’s basic annuity by 50 percent to obtain the unreduced annual survivor benefit, and
(3) Multiply by the appropriate Present Value Conversion Factor (the Present Value Conversion Factors can be obtained on the OPM website by the unreduced annual survivor benefit.
Note the following:
(1) Unlike surviving spouses of deceased FERS annuitants who were eligible to retain FEHB program benefits, a former employee loses FEHB program benefits when he or she leaves federal service. Therefore, the surviving spouse of a deceased former employee is not entitled to enroll in the FEHB program when he or she starts receiving a spousal survivor FERS annuity; and
(2) Cost-of-living adjustments (COLAs) are made to a spousal survivor FERS annuity of a deceased former employee only until the survivor annuity is being paid.