When The 62nd Birthday Blows Up In Your Face.
(last updated 11 March 2017)
What on earth can you mean by this headline, Dave? On birthdays you typically blow out candles, things don’t usually blow up?
Things Can Blowup
Well, if you’re a US military veteran who is now working under the CSRS retirement system … or if you already retired under the CSRS, and you still don’t know the significance of the 62nd birthday, then you might want to read this article:
Some military veterans who went on to civilian careers in government are getting a nasty surprise when they turn 62. Their pensions are being cut.
The Catch-62, as veterans call it, affects people who served in the military after 1956 and then were hired as civilian employees under the Civil Service Retirement System (CSRS) before Oct. 1, 1982, and who also are eligible for Social Security benefits.
Veterans under CSRS who want their military service to count toward their civilian retirement benefits must make a deposit to the Civil Service Retirement fund amounting to 7 percent of their military earnings. They have to hand over the money before they retire. Veterans hired under the Federal Employees Retirement System must make a deposit worth 3 percent of their military earnings. Veterans make interest-free deposits during the first three years of employment as civilians. After the first three years of employment are over, they must pay the deposits plus interest… Read Much More Here:
The Tone Of Brian’s article almost sounds like this Catch 62 issue is Anti-Veteran
An occupational hazard anyone in any technically challenging field has to guard against is to make too many assumptions about the basic knowledge of folks who are affected by, but not totally interested in the field itself.
I received a very troubling email a few days ago from a gentleman with both active duty military times and CSRS (Civil Service Retirement System) credit who had retired and was suddenly slammed with a huge reduction in his CSRS annuity at age 62. The old Catch 62 rule strikes again.
Surely the word has been out on that long enough, everyone should know, yes?
Well, based on personal experience and this excellent Government Executive article. This is something that anyone retiring or someday planning to retire from Federal Service using time served in the military needs to carefully consider.
Also, for attorneys with clients who may be relying on Federal annuities, this can not be ignored.
Catch 62 Basics
The basics are simple. If a Federal employee has time served in the military which s/he intends to get credit for in computing their pension, the time in the military has to be “paid” for under either the CSRS or the FERS (Federal Employee Retirement System).
FERS Is Simple
Employees with military service who came aboard after 1982 (who are under the FERS retirement system) have a simple choice. They can pay the “contribution” due and get credit for the time upon retirement, or they can chose to not pay, and not get credit.
This, of course, will affect estate planning and divorce valuation of assets, but it’s somewhat straight forward … the bill is paid or it isn’t and the employee will get an annuity that includes their military service time, or not. And both partiest can readily determine what the annuity should be.
CSRS Is NOT So Simple
For those employees (Mostly under CSRS) who came aboard before 1982, there is often a huge, hidden, “Ticking Time Bomb”. How huge? Oh easily $1,000 a month or $2000 a month or even more.
Believe me, you don’t want to be advising clients or signing up to settlements when your estimates of monthly income are off by that much …or at least in my totally lay opinion you don’t.
The Complicated Part
The complicated issue is this. If an employee has time served in the military and s/he retires before age 62, the OPM (Office of Personnel Management) gives that employee free credit for the military time served just as if s/he had been a civil service employee during those years.
A person retiring then at say age 50 with 10 years military service and 20 government service will be automatically credited with 30 years service, earning an annuity (in the cases of CSRS) of roughly 60 percent of his or her top 3 salary. So, no problem, just value and divide the pension based on the needs of the parties and Bob’s your Uncle.
Not so fast. That employee may owe 7% of his or her total military compensation, (plus interest) on those years of military service.
If not paid, at age 62, the annuitant’s benefit will be recalculated and he or she will only get an annuity based on 10 years of Federal Service … roughly a 20% pension. Not many retirees can suffer a 40% reduction in their annuity, and a divorcee receiving a percentage of that annuity is going to see a big change in their check as well.
In most cases the Catch 62 contributions can not be made after retirement takes place … so if you have clients who might be affected, better make sure the teeth are removed from the Catch 62 jaws in advance.
Stay tuned and we’ll talk more about When The 62nd Birthday Blows Up In Your Face.