Ed explains what CSRS Offset is, and the rules for survivor benefits and social security.
Edward A. Zurndorfer–
CSRS Offset is one of the more misunderstood types of federal retirement systems covering federal employees. Although there are not that many CSRS Offset employees and CSRS Offset annuitants, many of these employees and annuitants do not have a full understanding of how their retirement benefits work. Sadly, many CSRS Offset employees and annuitants have a difficult time getting answers to their questions. This column explains the various aspects of the CSRS Offset retirement including how a federal employee ending up in the CSRS Offset retirement system, how CSRS Offset retirement benefits are calculated, how CSRS Offset benefits coordinate with Social Security benefits, and how CSRS Offset survivor benefits are calculated.
How a Federal Employee Obtained CSRS Offset Employment Status
Any individual who entered federal service as a full-time or part-time permanent employee prior to Jan. 1, 1984 was placed in the Civil Service Retirement System (CSRS). By law, federal employees covered by CSRS are excluded from Social Security coverage and therefore do not pay Social Security Federal Insurance Contribution Act (FICA) payroll taxes.
Congress made several changes to the Social Security system in 1983. Among the most significant changes was effective Jan. 1, 1984, there was mandatory Social Security coverage for newly hired federal employees under the Federal Employees Retirement System (FERS). Also included in this group of federal employees now covered by Social Security were federal employees with at least five years of prior CSRS-covered service, who left federal service for at least one year, and who were rehired into federal service sometime after Dec. 31, 1983. These employees were placed in an “interim” retirement system that provided for full Social Security payroll (FICA) tax deductions and reduced CSRS payroll deductions, a precursor of the CSRS Offset retirement system.
On Jan. 1, 1987, the FERS retirement officially started. While most employees were at that time covered by either CSRS or FERS, Congress also established the CSRS Offset retirement system. The following categories of employees were classified as CSRS Offset employees; (1) Those employees with at least five years of federal service as of Jan. 1, 1987, who left federal service for at least one year and then returned to federal service. For example, a federal employee started service on June 22, 1975, worked 18 years and left federal service on July 1, 1993. The employee returned to federal service on August 1, 1994; and (2) Federal employees hired before Jan. 1, 1984, who acquired CSRS “interim coverage” between 1984 and 1987, and who had at least five years of creditable civilian service as of Jan. 1, 1987.
An employee who is classified as a CSRS Offset employee should confirm that classification by checking his or her SF-50 (Notice of Personnel Action) Box 30. Box 30 should be coded with a letter “C” or a letter “E”.
CSRS Offset employees contribute to both the CSRS retirement system and to the Social Security retirement and disability system, like FERS employees. In particular, a part of their paycheck is contributed every period to the Civil Service Retirement and Disability retirement system. Their wages are also subject to the FICA tax (6.2 percent of their wages) up to the annual maximum Social Security wage base. The rules with respect to retirement eligibility for a CSRS Offset employee are the same as for CSRS employees.
Since CSRS Offset employees are covered by Social Security and pay FICA taxes, they are eligible for Social Security retirement benefits starting as early as when they are age 62. Many CSRS Offset employees have worked in private industry, enhancing and increasing their future Social Security retirement benefits.
Retirement Eligibility Rules for CSRS Offset Employees
CSRS Offset employees retire under the same rules as do CSRS employees. A CSRS Offset employee can retire at age 55 with 30 years of federal service under CSRS/CSRS Offset service, at age 60 with 20 years of CSRS/CSRS Offset service, and at age 62 with five years of CSRS/CSRS Offset service.
CSRS Annuity Computation for CSRS Offset Employees Who Retire from Federal Service Before Age 62
Upon retiring from federal service, a CSRS Offset employee will have his or her CSRS annuity computed by OPM’s Retirement Office under the same rules that apply to CSRS-covered employees. If a CSRS Offset employee retires before age 62, then the retired employee will receive a CSRS annuity based on total years worked, including CSRS years and CSRS Offset years. When a CSRS Offset annuitant is within a few months of his or her 62nd birthday, the Office of Personnel Management (OPM) will contact the Social Security Administration (SSA) to find out what the CSRS Offset annuitant’s Social Security benefit is at age 62. OPM is contacting SSA in order to compute the amount of the reduction (“offset”) when the annuitant becomes age 62. The offset is applied when the basic requirements for Social Security are met, even if the annuitant does not apply for Social Security at age 62.
The amount of the offset is the lesser of:
- 1. The amount of the Social Security monthly retirement benefit attributable to the employee’s
service after December 31, 1983, covered under the interim CSRS
provisions or the CSRS Offset provisions; or - 2. The amount obtained by multiplying the following fraction by the Social
Security monthly retirement benefit to which the individual is entitled (or would be entitled
upon proper application) at the time the individual’s CSRS annuity
begins:
Total Years of CSRS Offset Service = 40
NOTE: Partial years of offset service are rounded to the nearest whole number, with one half being rounded to the next higher number
The following example illustrates:
Example 1. Joseph entered federal service initially on July 23, 1975. He remained in federal service under CSRS until July 22, 1987, at which time he left federal service to work in private industry. On July 23, 2000, Joseph returned to federal service as a CSRS Offset employee and retired from federal service on July 31,2019 at the age of 60 with a total of 31 years of combined CSRS/CSRS Offset service. To compute Joseph’s “offset amount,” OPM’s Retirement Office contacted the Social Security Administration (SSA) and was told by SSA:
- 1. Joseph’s calculated Social Security monthly retirement benefit at age 62: $2,500
- 2. Joseph’s calculated Social Security monthly benefit earned as a CSRS Offset employee (July 23, 2000, to July 31, 2019): $1,500
Number of years CSRS Offset service/40 x $2,500 = 19/40 x $2,500 = $1,188
Joseph’s CSRS Offset amount = smaller of $1,188 and $1,500 = $1,188.
Joseph will receive the full amount of his computed CSRS annuity starting the month after he retires from federal service his first CSRS annuity check was dated September 1, 2019) until the month before he becomes age 62. His CSRS annuity will receive cost-of-living adjustments (COLAs). But starting the month Joseph becomes age 62 and continuing throughout his retirement, Joseph’s CSRS monthly annuity will be reduced by $1,188.
CSRS Annuity Computation for CSRS Offset Employees Who Retire from Federal Service at or After Age 62
If a CSRS Offset employee retires at age 62 or older, then the timing of the “offset” calculation is different. OPM’s retirement office will simultaneously calculate the retiring employee’s CSRS annuity and the offset amount. OPM will contact the Social Security Administration to find out the retiring employee’s Social Security monthly retirement benefit on the day of the employee’s retirement and multiply that amount by the ratio:
Total Years of CSRS Offset Service = 40
Example 2. Sharon is a CSRS Offset employee with 40 years of federal service. She has 20 years of CSRS Offset service and retires at age 65. Her calculated CSRS annuity is $75,000 ($6,250 per month) and her monthly Social Security retirement benefit at age 65 is $2,500 per month.
CSRS annuity before CSRS offset = $75,000
- 1. Divide the total years of “offset” service by 40: 20/40 = 0.50
- 2. Multiply the result in Step 1 by the Social Security benefit at age 65: 0.50 x $2,500 = $1,250 or $15,000 per year.
- 3. Subtract the result in Step 2 from Sharon’s CSRS gross annuity = $75,000 – $15,000 = $60,000 (the net CSRS annuity after subtracting the offset amount).
Can a CSRS Offset Annuitant Apply for the Amount of Their CSRS Annuity “Offsetted”?
Note that a CSRS Offset annuitant’s monthly offset amount is a portion of the annuitant’s Social Security monthly retirement benefit that the annuitant earned as a CSRS Offset employee. As such, the annuitant can receive that offset amount but only when the annuitant formerly applies for his or her monthly Social Security retirement benefit. Individuals eligible for Social Security retirement benefits can apply for these benefits no earlier than the month they become age 62. If they apply for their benefit at age 62, their monthly benefit will be reduced as much as 25 to 30 percent. The earliest age an individual can apply for their Social Security monthly benefit and not be subject to any reduction in their monthly benefit is their full retirement age (FRA), (age 65 to 67 depending on the year they were born). If they wait past their FRA to start receiving their Social Security monthly retirement benefit, their monthly benefit will increase by 8 percent per year for every year they wait past their FRA, until age 70 (“delayed retirement credits”). It is therefore in the CSRS Offset annuitant’s best interest to wait as long as possible to start receiving their monthly Social Security benefits.
Are CSRS Offset Annuitants Subject to the Social Security Offsets – the WEP or the GPO?
CSRS annuitants are potentially subject to two Social Security offsets: the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO). the WEP applies to any type of government employee (federal, state or local) who is covered by a government (guaranteed) pension (a defined benefit plan) and who was not covered by Social Security (did not pay FICA taxes) during their government service time. These individuals may have earned their Social Security credits while working for a few years in private industry service, serving in the US military, and/or were self-employed. They earned at least 40 credits of Social Security to become what the Social Security Administration calls “fully-insured” and thus become eligible for Social Security monthly retirement benefits. But most of these individuals, while “fully-insured,” did not have at least 30 years’ worth of what the Social Security Administration calls “substantial” Social Security earnings. The result is that their Social Security monthly benefit will be reduced (not eliminated) by as much as 55 percent through an “offset” (reduction) called the WEP. Note that if an individual receiving any type of government guaranteed pension (who was not covered by Social Security while in government service) and has accumulated during his or her working years at least 30 years of “substantial” Social Security earnings (each year the SSA defines what a “substantial” year of earnings is for that year) will not be subject to the WEP.
The question is: Is a CSRS Offset annuitant subject to the WEP? Note that a CSRS Offset annuitant is somewhat of a “mixed bag” in the sense that the annuitant is receiving a federal government pension in which the individual did not pay into Social Security for many years (the years in which the individual was a CSRS employee) but at the same time the individual was also paying into Social Security while a CSRS Offset employee as well as while working in private industry. The answer is that a CSRS Offset annuitant will not be subject to the WEP if when adding the years of service as a CSRS Offset employee and years of service working in private industry the annuitant has accumulated at least 30 years of “substantial” Social Security earnings. If the CSRS Offset annuitant had accumulated between 20 and 30 years of “substantial” Social Security earnings, then the annuitant’s Social Security monthly benefit will be partially subject to the WEP. If the annuitant has less than 20 years of “substantial” Social Security earnings, then the annuitant’s Social Security monthly benefit will be subject to the full WEP reduction.
The GPO applies to a Social Security family benefit of a government employee (federal, state or local) who is married (or previously married and divorced) who is eligible for a spousal Social Security family benefit or widow/widower Social Security death benefit. Benefits paid to spouses (or to former spouses) are dependent’s benefits. The law requires that a pension from a federal, state or local government based on work not subject to FICA taxes (such as CSRS-covered employment) will reduce and most likely eliminate a spouse’s, a former spouse’s or a widow(er)’s Social Security benefits.
A CSRS Offset annuitant is not subject to the GPO. This means that a CSRS Offset annuitant who is married or who was married, and half of the CSRS Offset annuitant’s current spouse’s or former spouse’s (from whom the annuitant was married for at least 10 years a divorced from at least two years) Social Security benefits are more than their own Social Security benefit, then they are eligible to receive half of their spouse’s (or former spouse’s) benefits because there is no GPO. The following example illustrates:
Example 3. Peter, age 62, retired from federal service at age 56 as a CSRS Offset employee which included 20 years of CSRS Offset service. His current CSRS annuity is $60,000. Now that he is age 62, OPM calculates the CSRS Offset annual amount to be $5,000. Peter’s CSRS retirement benefit is summarized as follows:
- CSRS annuity: $55,000
- CSRS Offset amount: $5,000
- Total: $60,000
Peter is married to Alice, also age 62. Alice continues to work and retires at age 66. At age 66, Alice immediately applies for her Social Security retirement benefit which is $22,000 per year. Peter is entitled to half of Alice’s Social Security benefit ($11,000). Since Peter’s spousal benefit of $11,000 exceeds his own Social Security of $2,000 (subject to the WEP) earned outside of federal service, he will be better off receiving half of his wife’s Social Security. Peter’s Social Security annual retirement benefit will be $11,000. This is in addition to his CSRS annuity of $55,000 per year. Note that Peter would have to contact SSA to receive half of Alice’s Social Security benefit at the time Alice applies for her benefit. Peter’s total annual retirement benefit would be $55,000 (CSRS annuity) and $11,000 (spousal Social Security). If Alice were to pre-decease Peter, then Peter would be eligible to a full widower Social Security benefit of $22,000, plus the CSRS annuity of $55,000. Note that the CSRS annuity and Social Security retirement benefits are eligible for the same annual COLA.
Cost-of-Living Adjustments (COLAs) and CSRS Offset
Upon retiring from federal service, a CSRS Offset employee is eligible for his or her first cost-of-living adjustment (COLA) effective January 1st of the year following the month of the previous year the employee retired. Note that CSRS annuitants and Social Security retirement benefits recipients receive the same COLA. This means if a CSRS Offset annuitant has elected to start receiving his or her Social Security monthly retirement benefit, then the same COLA will apply to the CSRS annuity and to the Social Security monthly retirement benefit. However, there is never any type of COLA applied to the CSRS Offset amount. Once OPM has determined the CSRS Offset amount, the amount never changes, even with COLAs being applied to the CSRS annuity and to Social Security benefits.
Spousal Survivor Annuity Paid to a Surviving Spousal of a CSRS Offset Annuity
A survivor annuity payable to the spouse of a deceased CSRS Offset annuitant is computed in the same manner as a survivor annuity payable to the spouse of a deceased annuitant with full CSRS coverage.
However, the amount of a survivor annuity payable for the surviving spouse of a deceased CSRS Offset annuitant may be reduced if the surviving spouse is eligible for Social Security survivor benefits based on the deceased’s Federal service covered by Social Security. If a surviving spouse is not entitled to a Social Security survivor benefit, then the surviving spouse is paid the full CSRS survivor annuity benefit.
Social Security Survivor Benefit Payable
If Social Security survivor benefits (based on the deceased annuitant’s Federal service under Social Security) are payable:
- 1. The surviving spouse receives full CSRS survivor benefits until he or she becomes entitled to Social Security survivor benefits. This normally occurs at age 60. However, such benefits may begin before age 60 if the surviving spouse is disabled or has a minor child (child under the age of 16) in care.
- 2. When the spouse becomes entitled to Social Security survivor benefits, the CSRS survivor annuity is reduced (offset) by the amount of the survivor’s Social Security benefit attributable to the period the deceased annuitant was under CSRS Offset.
The reduction (offset) of a CSRS survivor annuity ceases on the date the surviving spouse loses eligibility for Social Security survivor benefits due to any one of the following reasons: (1) The surviving spouse becomes eligible for a Social Security benefit based on his or her own earnings under Social Security and the benefit exceeds the spousal Social Security survivor benefit; (2) the surviving spouse remarries before age 60; or (3) the Social Security (mother or father) benefit stops because a minor child reaches age 16 and the surviving spouse is under age 60. Note that entitlement to a Social Security survivor benefit is not considered terminated when the benefit payable is reduced to zero due to the application of the Social Security “earnings” test. Once the offset ceases, the surviving spouse receives the full CSRS spousal survivor annuity benefit.
