When The 62nd Birthday Blows Up In Your Face
|27/12/2018||Posted by RP under Retirement Planning|
When The 62nd Birthday Blows Up In Your Face
- 0.1 Making Assumptions Is NOT Retirement Planning
- 0.2 The old Catch 62 rule.
- 0.3 If If You Are An Attorney Handling Divorces Of Federal Employees ….
- 0.4 But For CSRS Employees It Is More Tricky
- 0.5 The Operative Issue
- 1 2 Responses to When The 62nd Birthday Blows Up In Your Face
(Updated 27 December 2018)
If “Catch 62” Is Not Familiar To You, better read on.
By Brian Friel
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:
Making Assumptions Is NOT Retirement Planning
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.
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 considers.
If If You Are An Attorney Handling Divorces Of Federal Employees ….
For attorneys with clients who may be relying on Federal annuities, this can not be ignored.
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).
Employees who came aboard after 1982 have a simple choice. They can pay the “contributions” due and get credit for the time upon retirement, or they can choose to not pay, and not get credit.
This, of course, will affect estate planning and divorce valuation of assets, but it’s somewhat straightforward … the bill is paid or it isn’t and the employee will get an annuity that both parties can readily determine.
But For CSRS Employees It Is More Tricky
But for those employees (Mostly under CSRS) who came aboard before 1982, there is often a huge, hidden, “Ticking Time Bomb”.
Oh easily $1,000 a month or more.
Believe me, you don’t want to be advising clients or letting your client sign up to a settlement when your estimates of monthly income are off by that much … or at least in my totally layman’s opinion you don’t.
The Operative Issue
The 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 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, before retirement, 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 divorced former spouse 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 cannot 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.
2 Responses to When The 62nd Birthday Blows Up In Your Face
My spouse worked for VA Hosp. Adm. from 1981 to 1997 and she paid Civil Service Retirement System (CSRS) deductions from 1981 to some year in mid-1980′s and from mid-1980′s to 1997, she paid FERS (similar to SSA) deductions. She was bought out in 1997. She was too young for collecting CSRS at that time. Now she is 62. She has been collecting SSDI for a long time. We have no idea how much she would have collected CSRS pension per month and also would it be better off if she withdraws the whole CSRS amount she paid for in early years. How will we find out which way is better for her and where to contact for that info? Hope you can help us? Thank you.
@Paul: Hmm, let’s see what we can do with your questions here, Paul.
As usually happens with these sorts of queries though, I am probably going to ask more than I answer .. at least to get the facts of the case established.
So the first matter of business is, what happened to her CSRS contributions?
Based on the (at times confusing) research, she had the option to retain CSRS … which obviously she did not avail of, or to roll her CSRS into FERS … which might be what she has done.
It doesn’t appear she would be in one of the unique CSRS Offset programs, as she did not have five years or more CSRS before FERS conversion.
So my guess is she has no CSRS “pension potential” left … either she took that money out upon transfer or it was rolled into her FERS … but I certainly can’t tell for sure.
Worth investigating though. Especially since these years will affect her FERS pension.
The next big question is, what was the nature of the “buy out” you mentioned in 1997?
Normally the people who get “bought out” have eligibility for retirement (early retirement under certain RIF or buy out conditions).
If she did not meet this criterion, then what happened to her FERS time?
Did she take a”deferred FERS annuity”, which means she would be able to start receiving it upon reaching her FERS MRA (Minimum Retirement Age?
I mean _something_ had to happen … people get laid off from the Federal service just like from other type jobs, but she had a lot of time (and contributions already in FERS and something had to have been done with it.
So, have I helped or hindered here? So many parts of this question that are unclear because of the different courses of action that might have occurred at the changeover from CSRS to FERS and also at the time of buyout.
Let me know if I can help in any other way.
A last comment.
You say she is on SSDI. This does not affect her FERS or and (potential) CSRS benefits. Social Security Disability status has nothing to do with potential OPM retirement benefits (FERS or CSRS).
Assuming the disability continues, the SSDI continues until she reaches her Social Security Full RetirementAge … 66 in her case, when the SSDI conversts to Social Security Retirement Benefits.
Her SF Form 50′s
(the records of personnel changes for this time period would be very important … actually only they can tell the true tale).
OK, so first of all we have a CSRS employee with about 16 years total service, approximately 4 or 5 under CSRS and 11 or 12 under FERS?
Apparently, your wife chose to switch to FERS in the mid-80s … or was there a change of jobs which forced her to make the switch?
FERS became mandatory for new hires in 1986, but those already under the CSRS system (like me) were allowed to retain it.
Sadly I Never Heard Back From Paul
What we can learn is this:
Always keep a copy of every SF Form 50. All employees get one with every personnel staus change.
Always keep copies of pay stubs. …even for years back. These may be the only proof you have of contributions made to the retirement funds.
Pay close attention to your possible military by back status and “pay up” before retirement.
Don;r let The 62nd Birthday Blows Up In Your Face.