What federal employees need to know about what happens to their benefits after death.
Welcome to part nine of our series of “listicles.” We’ll be going over 5 key points to remember for several areas of retirement planning and employee benefits for members of the Federal Workforce. The first eight topics we covered were FERS, CSRS, the TSP, FEHB, FEGLI, social security, tax planning, and FLTCIP. Now we’ll be covering Survivor Benefits.
Attend our next no-cost webinar to learn more about survivor’s benefits for federal employees and retirees
1. What are Survivor Benefits?
Survivor Benefits are provided to beneficiaries after a federal employee or retiree has passed away. In this article, we’ll take a look at what a widow(er) or non-spouse beneficiaries can expect from the various federal benefits available to US government workers. This is a topic that Serving Those Who Serve Advisor. Jennifer Meyer, has touched on recently, so please check out that article for more information. We’ve also got a few FEDLIFE podcast episodes on survivor benefits for feds:
2. FERS and CSRS Pension
For a FERS annuitant who passes in retirement, a survivor benefit can be 25% or 50% of the pension, depending on what reduction the federal retiree chose upon applying for retirement. For CSRS, any amount over $22, up to 55% of the unreduced pension, can be selected for the survivor’s benefit. This is where those selling life insurance products will be suggest a “pension max” strategy that includes no FERS/CSRS survivor benefit, but it is supplemented by a life insurance policy. Federal retirees need to remember that if they select no survivor benefits, when they die, their surviving spouse will not be eligible for FEHB participation. A survivor benefit might be payable to an ex-spouse if decreed by a court order. For non-spouse beneficiaries, children/dependents of the deceased might be eligible for a survivor benefit if they are unmarried and under the age of 18 (or over 18 if they became completely disabled before turning that age).
3. The TSP and Social Security
For the TSP, a surviving spouse basically has the same withdrawal options as a newly retired fed. They can take regular installment payments, one-time partial withdrawals (as long as they are at least $1000), or purchase a TSP annuity, provided by MetLife. But other than required minimum distributions, a TSP beneficiary doesn’t need to make a any withdrawals. They can keep their money in the TSP account or move it to an outside inherited IRA. For Social Security, a fully insured individual’s survivor might be entitled to their social security benefits. Fully insured means they’ve earned 40 or more credits. Monthly insurance benefits would be available to eligible family members, including a spouse, surviving child, or surviving parent. Alternatively, a lump-sum death payment can be selected by the beneficiary.
4. FEHB, FEGLI, and FLTCIP
Regarding the other federal benefits, Federal Employee Health Benefits (FEHB) are the most affected. As mentioned earlier, if a survivor’s benefit isn’t selected when applying for a FERS or CSRS annuity, a widow or widower won’t be eligible for FEHB participation. For Federal Employee Group Life Insurance (FEGLI), as long as the deceased federal employee had at least basic coverage (which they should’ve at least partially kept in retirement), then death benefits will be paid (tax-free) to the designated beneficiaries. And lastly, for Federal Long-Term Care Insurance Policies (FLTCIP), some portion of premiums paid might be refunded to a surviving spouse, but this only possible with a “FLTCIP 3.0” policy (coverage purchased in October 2019 or later) and only under certain conditions.
5. Basic Employee Death Benefit
For federal workers who pass away while still working, a surviving spouse can receive a basic employee death benefit (BEDB) and/or a survivor’s annuity. Should a federal retiree pass away, and they were married to their spouse for at least 9 months, or if the two had a child together, the survivor may be entitled to these benefits. The employee must’ve garnered at least 10 years of creditable service to be eligible for a survivor’s annuity. The BEDB is available to surviving spouses of federal employee who worked at least 18 months of creditable service. The BEDB can be taken as a lump-sum, in monthly payments, or even rolled into a TSP account or IRA. The amount of the benefit is calculated by taking a base amount provided by OPM ($37,000 in 2022) plus half of the federal worker’s SF-50 salary.
Next Steps
If you’d like to dive into more detail about survivor benefits for feds, check out this page. On that page, you can also register for the next Survivor Benefits webinar with Ed Zurndorfer. It’s never too early (or too late) to learn about your retirement benefits and start making a plan! For an even deeper dive into your retirement planning as a federal employee, check out our entire (no-cost) webinar series.
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Until Next Time,
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**Written by Benjamin Derge, Financial Planner, ChFEBC℠ The information has been obtained from sources considered reliable but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Benjamin Derge and not necessarily those of RJFS or Raymond James. Links are being provided for information purposes only. Expressions of opinion are as of this date and are subject to change without notice. Raymond James is not affiliated with and does not endorse, authorize, or sponsor any of the listed websites or their respective sponsors.
