Federal Employee's CSRS & FERS Survivor Annuity Options & Concerns
One key point to consider is the election of a survivor annuity for your spouse. If you elect a full survivor's annuity under CSRS your spouse will receive 55% of your annuity when you die. FERS employees can elect to provide their spouse with an annuity of either 25% or 50% of their annuity upon the death of the annuitant. The cost for this is just under 10% of your annuity for CSRS retirees and either 5% or 10% for FERS retirees.
Some retirees consider alternatives such as a large insurance policy. There are risks to that approach. If you were enrolled in a self and family plan at the time of your death and a monthly survivor benefit is payable, then your spouse and eligible dependents can continue your health insurance. If a monthly benefit is not payable, your spouse and eligible family members will have a one-time opportunity to enroll in private health coverage with the insurance provider. Also learn about what happens to your annuity if the survivor predeceases the retiree. Read on for complete information.
Many approaching retirement debate whether or not to take a full survivor’s annuity – which reduces their annuity by close to 10% for CSRS and a full 10% for FERS employees – or to simply purchase a large insurance policy, at less cost, instead. There are a number of options for you to consider and each option has its own potential risks that need to be evaluated.
Retirees can take a full or partial survivor annuity depending on their personal situation and how much they saved through prudent investing. Regardless of what you decide you need to know several key facts. Your spouse MUST agree to a reduced annuity and sign the waiver form included with your retirement application. Also – and this is a critical issue – if you and your spouse elect NO survivor’s annuity your spouse will not be covered under your federal health insurance coverage when you die. You MUST elect a minimum annuity as described on your retirement application for your spouse to be covered under your Federal Group Health Insurance program after your death. OPM states, "If you were enrolled in a self and family plan at the time of your death and a monthly survivor benefit is payable, then your spouse and eligible dependents can continue your health insurance. If a monthly benefit is not payable, your spouse and eligible family members will have a one-time opportunity to enroll in private health coverage with the insurance provider." View the CSRS and FERS minimums before electing your survivors benefits if you want your spouse to be covered by the FEHB program after your death.
I consider the insurance option too great a risk for most spouses. The survivor's annuity is backed by the federal government. There isn't any third party involved. If you and your spouse choose an insurance policy rather than have your annuity reduced research the insurance company thoroughly before making this decision. Insurance companies can go bankrupt and your spouse could be left with nothing. I'm not saying that insurance should not be considered at all, what I'm saying is that you must be very careful. If you decide to buy insurance instead of electing a survivor's annuity you can check the insurer's financial stability with several rating services. Make sure that the company you intend to work with is rated high on their lists. A.M. Best ratings are free as long as you register on-line and they are very easy to use. They rate the financial strength of Insurance companies from A++, Superior to S (Rating Suspended) and everything in between. Several services such as Weiss Ratings charge a small fee for a comprehensive rating. I found the A.M. Best site very easy to use and all that I had to do was register to obtain unlimited ratings.
Tammy Flanagan wrote an excellent article on this subject recently with succinct examples that you will find very helpful. If you are considering replacing all or a part of your spouse's survivor annuity with insurance read this first:A.M. Best Ratings
NOTE: Your spouse will receive 55% of $40,000 for CSRS annuitants when you die and a FERS spouse would receive 50% of $40,000. However, the benefit amount increases each year a COLA is provided.
The annual Notice of Annuity Adjustment statement that all federal retirees receive each January lists the survivor annuity benefit on the form, just below the table on the first page. I keep a copy of this statement in my estate file.
If the survivor predeceases the retiree, the survivor deduction to the annuity stops. There is no reimbursement for prior deductions. The prior deductions from the retiree’s monthly annuity for the survivor benefit are very similar to payments made for a life insurance policy that was never used and canceled because it was no longer needed. More information is available from OPM.
A spouse is eligible for a reduced annuity after the death of a annuitant if the annuitant elected a spousal benefit when he/she retired. Typically, the spouse MUST sign the retirement forms concurring with a "No Spousal Annuity Election."
If a spousal annuity is elected; when the annuitant's death is reported to OPM, the annuity will be adjusted to the reduced amount and sent to the spouse of record. A surviving spouse can call OPM to find our if a spousal annuity was elected. There number is 1-888-767-6738. The spouse will need the annuitant's SSN and/or CSA retirement account number. Call early in the morning, otherwise you will get a busy signal. This information will also be on the original retirement application that the annuitant should have a copy of with their estate paperwork.
Another issue to consider is when an annuitant married their current spouse after they retired. If the annuitant married after retirement they can elect a survivor's benefit for their new spouse if desired; this election must be made within two years of the date of marriage. Retirees that remarry and make this election will see their annuity reduced by 10% to cover the spousal election.
If you get married after retirement, you can elect a reduced annuity to provide a survivor annuity for your spouse. You must make this election within 2 years of the date of your marriage.
Under the Civil Service Retirement System (CSRS), you can elect any portion of your annuity (from 55 percent of $22.00, which results in a $1.00 per month survivor annuity, up to 55 percent of your unreduced annuity) as a basis for the survivor benefit payable in the event of your death.
Under the Federal Employees Retirement System (FERS), a full benefit is 50 percent of your unreduced annual basic annuity and a partial benefit is 25 percent of your unreduced annual basic annuity.
If you remarry the same person to whom you were married at retirement, you cannot elect a survivor annuity greater than the one you elected at retirement.
A post-retirement marriage will result in two reductions in your annuity if you elect to provide the survivor benefit. One will be the reduction to provide the survivor benefit. The first reduction depends on the amount you elect for the survivor annuity.
Your annuity is also reduced by a permanent actuarial reduction equal to the difference between the new annuity rate with the survivor benefit and the old one without the survivor benefit since your retirement, plus 6 percent interest. In most cases, the actuarial reduction amount is less than 5 percent of your annuity. The actuarial reduction continues even if the marriage ends.
When you contact OPM, they will send you a statement describing the cost of the election and ask you to confirm your election.