Rules for annuitants under CSRS and CSRS-offset who return to federal service after retiring.
Edward A. Zurndorfer
A federal employee who retired under CSRS or CSRS-Offset may be reemployed in any appointive or elective position for which he or she is qualified. In general, the treatment of a CSRS or CSRS-Offset annuitant’s CSRS annuity and pay upon reemployment in the federal government depends upon whether he or she retired or the basis of a regular, involuntary or disability retirement. Potential benefits that may be earned as a result of the reemployment service depend primarily on the length of such service.
This column presents the reemployment of CSRS or CSRS-Offset annuitants who are not either ‘special provision” annuitants (retired as a law enforcement officer, firefighter, or an air-traffic controller) or CSRS disability annuitants who retire under the CSRS disability retirement rules. Among the topics to be presented:
- The eligibility requirements for reemployment of CSRS annuitants
- The treatment of the CSRS annuity and salary upon reemployment
- The computation of the amount offset from pay when the annuity continues
- The eligibility requirements for and computation of a supplement annuity and a redetermined annuity and
- The application procedures for a supplemental or a redetermined annuity.
Eligibility for Reemployment
An employee who retired under CSRS or CSRS-Offset may be reemployed in any appointive or elective position for which he or she is qualified.
Status of CSRS Annuity Upon Reemployment in Federal Service
When a CSRS or CSRS-Offset annuitant is reemployed, his or her CSRS annuity continues, and the amount of the annuity that applies to the period of reemployment is offset from the reemployed annuitant’s salary.
When the CSRS Annuity Terminates Upon Reemployment
A reemployed CSRS or CSRS-Offset annuitant’s CSRS annuity is terminated upon reemployment in federal service when:
- The annuity is based on an involuntary separation (other than a separation that was required by law based on age and length of service, or a separation for cause based on charges of misconduct or delinquency).
- The annuity is based on disability and OPM has found the annuitant recovered or restored to earning capacity prior to reemployment. Or the annuitant is under age 60 and is reemployed in a position equivalent in tenure and pay to the position from which he or she retired.
- The annuitant receives a Presidential appointment subject to CSRS retirement deductions.
When a CSRS annuity stops for either the first or second reason as stated above, the annuitant has the same status as any other CSRS or CSRS Offset employee currently employed in an equivalent position with a similar service history. However, the CSRS annuity will be reinstated after the retiree again leaves federal employment unless his or her right to receive that annuity has been terminated by another provision of law, or he or she is entitled to either a newly computed immediate or deferred CSRS or FERS annuity based on this new separation.
Eligibility of Transfer to FERS Upon Reemployment
In general, a reemployed CSRS annuitant’s status has no effect on an employee’s right to elect FERS coverage. A CSRS or CSRS-Offset reemployed annuitant may transfer to FERS if he or she: (1) Is reemployed after a break in service of more than 3 days, and (2) is reemployed under an appointment not excluded from FERS coverage.
Treatment of Salary Upon Reemployment
The salary of a reemployed CSRS or CSRS-Offset annuitant is subject to: (1) offset by the allocable amount of annuity during the period of reemployment; and (2) CSRS retirement deductions if elected. This assumes that the reemployed annuitant is under a temporary or permanent appointment (provided the appointment is not “intermittent”) and the reemployed annuitant is not covered by another retirement system covering federal employees such as FERS.
The following general rules apply to a CSRS (not a CSRS Offset) annuitant whose annuity continues upon reemployment:
- The salary received during reemployment is offset by the allocable amount of annuity (discussed in more detail below).
- CSRS retirement deductions (7 percent of salary) deducted from salary before any offset for annuity are optional; and
- Social Security (FICA) taxes are not withheld even when the reemployment appointment is temporary.
The following general rules apply to reemployed CSRS Offset annuitants:
- CSRS Offset retirement deductions apply instead of full CSRS deductions, 7 percent minus the Social Security (FICA) payroll tax withholding; and
- Social Security (FICA) payroll tax deductions (currently, 6.2%) withheld on the amount of salary after the reduction for the annuity payable
As pointed out above, a reemployed CSRS or CSRS-Offset annuitant with a full-time or part-time job may elect to have retirement deductions withheld from their salary during the period of reemployment. He or she must file a dated and signed letter or memorandum allowing retirement deduction withholding from his or her pay/salary.
Why would a reemployed CSRS or CSRS-Offset annuitant want to have CSRS retirement deductions withheld from his or her pay/salary? Answer: in order to be eligible for an additional (supplemental) CSRS annuity or a recomputed CSRS annuity that is recomputed based on additional years of service and a larger high-three average salary. Both the supplemental and recomputed CSRS annuity are discussed below.
CSRS retirement deductions are prospective only meaning that the deductions are withheld starting with the first pay period of reemployed annuitant’s service following receipt by the employing office of the notice of request to have CSRS retirement deduction withheld.
In exceptional circumstances, upon reemployment in federal service, a retiree’s CSRS annuity may continue, and he or she may receive full salary without offset when the retiree has been approved the waiver of offset under the Federal Employees Pay Comparability Act. If the reemployment service is performed with no offset, then the additional reemployment service is not creditable for retirement purposes.
Amount Offset from Pay
The gross amount of the CSRS annuity that is allocable to the period of reemployment must be offset from a reemployed annuitant’s salary. The amount offset from salary is paid into the Civil Service Retirement and Disability Fund.
The formula for computing the amount of the offset is as follows:
Gross Monthly Annuity x 12/ 2087 (number of hours per work year) = Hourly rate of annuity
Hourly rate of annuity x Hours of basic pay = Amount of Per Pay Period Offset for the Pay Period
The following example illustrates: Gross monthly annuity = $6,000 and Hours of basic pay = 80 hours
$6,000 x 12/2087 = $72,000/2087 = $34.50 (Hourly rate of annuity)
$34.50 x 80 = $2,760 (Amount of offset for pay period)
Note the following:
- 1. If the full-time work year for the reemployment position is other than 2087 hours, use that figure instead of 2087 hours in the above equation.
- 2. If offset is equal to or greater than basic pay, the net basic pay is $0.00
- 3. In this example, if the reemployed CSRS annuitant’s salary is $5,000 every two weeks, the net salary after the offset will be $5,000 less $2,760, or $2,240.
CSRS Supplemental Annuity
A supplemental CSRS annuity is payable to a reemployed CSRS or CSRS Offset annuitant’s annuity only If the final period of reemployment contains at least one year of actual continuous (not intermittent) full-time and/or part-time (equivalent to at least a year of full-time employment) service.
The following service is excluded from supplemental annuity credit:
- 1. Service under another retirement system for Federal or District of Columbia employees
- 2. Service in a non-pay status
- 3. Service as a Federal judge
- 4. Service as President of the United States
- 5. Service credited in a prior supplemental annuity and
- 6. Service already credited in original retirement.
The final period of reemployment is the period immediately prior to the separation on which the title to the supplemental annuity is based. A separation for title purposes, exists when:
- 1. There has been a break in service for more than 3 calendar days
- 2. Employment changes from full-time to part-time to intermittent, or
- 3. The annuitant is reemployed in a position excluded from supplemental annuity credit.
Computation of CSRS Supplemental Annuity
The supplemental CSRS annuity is computed using one or more parts of the general formula that is used in the computation of the CSRS annuity under the general formula. The general formula depends on the retired CSRS or CSRS-Offset employee’s total length of service.
To compute the supplemental CSRS annuity, one needs to know two factors, namely: (1) average salary; and (2) creditable service. Both factors are now discussed.
• Average salary. The average salary is the average of the full rates basic pay in effect during all periods of reemployment credited in the computation with each rate weighted by the time it was in effect. Note the following: (1) the high-three average salary used in the computation of the original CSRS annuity, when the CSRS annuitant originally retired, does not apply even if the annuitant works three or more years; (2) full rates of basic pay are used in the computation even though the annuitant was not receiving the full rate because of the amount of offset of the annuity; (3) full credit is used in the computation for the time spent in part-time employment from the date of appointment to the date of separation. But the salary is prorated between the part-time tour of duty and a full-time tour of duty as the following example illustrates.
Robert, a reemployed CSRS annuitant is reemployed for 10 months at a salary of $100,000. After that time, he continues working half-time for five months. His part-time salary is one-half of $100,000 or $50,000. His average salary for his supplement CSRS annuity is computed as follows:
$100,000 for 10 months = $100,000 x 10/12 = $83,333.33
$50,000 for 4 months = $50,000 x 4/12 = $16,666.67
Total Salary = $100,000.00
Divided by service factor (15 months) 1.50
Average Salary = $100,000/1.50 = $66,666.67
• Creditable service for computational purposes. The service includes all periods of actual, full-time, part-time (not intermittent) service performed subsequently to retirement, plus the length of service represented by any unused sick leave to the reemployed annuitant’s credit earned during reemployment.
The supplemental annuity is calculated by using the general formula, which for CSRS is:
- 1. First five years of service: 1.5% x average salary per year of service for the first five years
- 2. Second five years of service: 1.75% x average salary per year of service for the second five years
- 3. More than 10 years of service: 2.00% x average salary per year of service
The following examples illustrate:
Example 1. Catherine had 9 years of service when she retired at age 62 in 1992. She had 3 years of reemployed service from 1995 to 1997, including six months of unused sick leave. Her average salary during her reemployment was $100,000.
Since Catherine’s length of service during her initial was more than 5 years but less than 10 years, the formula to calculate Catherine’s supplement CSRS annuity is:
1.75% x $100,000 for one year of service
+ 2.00% x $100,000 for two years of service
= $1,750 + $2,000 = $3,750
The $3,750 is the amount of Catherine’s supplemental CSRS annuity (in addition to her CSRS annuity, which was computed when Catherine originally retired in 1992, and which has received cost-of-living adjustments).
Example 2. William had 30 years of service when he retired at age 55 in 2011. William had 6 years of reemployed service including six months of unused sick leave. His average salary during his reemployment was $150,000. William’s supplemental annuity is:
2.00% x $150,000 for 6 years of service = $18,000
This is the amount of William’s supplemental CSRS annuity.
CSRS Survivor Supplemental Annuity
A reemployed annuitant must have elected a reduced CSRS annuity to provide survivor benefits in order to elect an additional survivor annuity.
CSRS Redetermined CSRS Annuity
A reemployed CSRS or CSRS-Offset annuitant who completes at least 5 years of actual continuous full-time service and/or part-time service that is equivalent to at least 5 years full-time service may elect to have his or her existing CSRS annuity redetermined under the law in effect at the time of separation from reemployment in lieu of a supplemental annuity.
Note that in addition to having performed the required five years of actual continuous full-time service, the reemployed CSRS annuitant must also meet the minimum requirements for a new retirement right. The following example illustrates.
Howard retired under a Voluntary Early Retirement Authority (VERA) at age 47 with 25 years of federal service. He was reemployed a year later and works full-time for five years until he is age 52. He is not eligible for a redetermined annuity because he does not meet the requirement of age 55 with 30 years of service (he is age 53). Therefore, he is only eligible for a supplemental annuity.
Some Advice and Recommendations to CSRS or CSRS-Offset Annuitants Considering Reemployment
- 1. CSRS/CSRS-Offset annuitants with questions regarding their retirement status should include these questions on the application/resume for federal service reemployment.
- 2. An annuitant is required as a condition of reemployment to advise the agency whether he or she is in receipt of a CSRS annuity and the gross amount of that annuity, and whether he or she is receiving an annuity based on an involuntary separation.
- 3. If eligible upon separation from reemployment, a reemployed annuitant may apply for a supplemental or redetermined annuity. To do so, the reemployed annuitant must complete Form SF 2801 (Application for immediate Retirement) and file the application with the employing agency within 31 days of the day of separation, or with OPM if the application is filed more than 31 days after the date of separation.
Edward A. Zurndorfer is a CERTIFIED FINANCIAL PLANNER™ professional, Chartered Life Underwriter, Chartered Financial Consultant, Chartered Federal Employee Benefits Consultant, Certified Employees Benefits Specialist and IRS Enrolled Agent in Silver Spring, MD. Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, and EZ Federal Benefits Seminars, located at 833 Bromley Street – Suite A, Silver Spring, MD 20902-3019 and telephone number 301-681-1652. Raymond James is not affiliated with and does not endorse the opinions or services of Edward A. Zurndorfer or EZ Accounting and Financial Services. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.
