Myth Busting

At any given moment, there are many different myths floating around about federal retirement planning. One of the things I like about doing this column is having the opportunity to set the record straight. So this week I thought I'd do a little myth-busting.

Myth: The age of your spouse will determine the amount of reduction to your retirement benefit under the Civil Service Retirement System or the Federal Employees Retirement System when choosing survivor benefits.

Fact: The age of your spouse doesn't make any difference to the reduction. Under FERS, your retirement is reduced by 10 percent (regardless of any age difference) to provide the maximum survivor annuity of 50 percent of the FERS basic benefit. Under CSRS, the reduction to the annuity is a little less than 10 percent (2.5 percent of the first $3,600 and 10 percent of the remainder) to provide 55 percent of the unreduced CSRS retirement to your surviving spouse. With your spouse's consent, you can choose to provide a partial spousal survivor's benefit or none.

There is another survivor benefit option, known as "insurable interest," that does take into account the age difference between the retiree and the named survivor. The Office of Personnel Management has more information on this option.

Myth: If an employee dies before retirement, the benefits available to his or her survivors come only in the form of lump-sum payments.

Fact: Actually, there are a couple of forms of annuities available to survivors under these circumstances. First, both CSRS and FERS include children's survivor annuities. Currently this benefit is about $500 per month per child. (The actual amount varies depending on how many children are surviving and whether the other parent is living.)

Second, if the employee is survived by a current or former spouse with court-ordered benefits, then spousal survivor annuity benefits are payable as long as the employee had at least 18 months of federal civilian service and was married to his or her spouse for at least nine months prior to death. Here is a column I recently wrote on this subject: Supporting Your Survivors (April 18, 2008).

If an employee dies in the course of performing job duties, benefits may be payable under the Federal Employees Compensation Act. Here are some frequently asked questions about FECA.

Myth: The government contribution toward health insurance premiums changes after retirement.

Fact: If an employee meets the requirements to carry federal health benefits into retirement, the division of premiums between government and the beneficiary remains the same. This also is true for survivor annuitants who were covered under an employee or retiree's self and family coverage and are entitled to receive a survivor annuity or the FERS basic employee death benefit -- even if those benefits are reduced to nothing because of a previous court order for a former spouse. It only looks like retirees pay more, because they are paid 12 times per year, while employees get their paychecks 26 times a year.

Myth: Nonfederal spouses are affected by the Windfall Elimination Provision and the Government Pension Offset.

Fact: These two provisions affect only the ability of CSRS retirees (or others who receive a pension from work that was not covered by Social Security) to receive their own earned Social Security benefit or spousal or widow's benefits that their spouses earned for them. Here are two columns I've written on the provisions: Offsetting Penalty (June 9, 2006) and Gone With the Windfall (Sept. 1, 2006).

Myth: Federal retirees cannot receive Social Security spousal or widow's benefits.

Fact: Usually, if your spouse's Social Security benefit is larger than the benefit that you've earned for yourself, you can receive the larger of the two benefits (or at least a supplement to your own that will equal the larger spousal benefit).

A CSRS retiree is affected, however, by the Government Pension Offset that reduces and often eliminates this spousal benefit by offsetting the amount by two thirds of the CSRS retirement. There are some exceptions -- see this Social Security Administration fact sheet.

Tammy Flanagan is the senior benefits director for the National Institute of Transition Planning Inc., which conducts federal retirement planning workshops and seminars. She has spent 25 years helping federal employees take charge of their retirement by understanding their benefits.