FERS Supplement – The Little-Understood Benefit That You Should Know About

fers supplement

The FERS supplement is one retirement benefit that you may have a federal employee covered under the Federal Employees Retirement System (FERS). But there are a few nuances to how it works, and when you might be eligible for it, among other things.

Here’s a quick look at what to know about your FERS Supplement benefit — and how it fits into your overall federal employee benefits picture.

What Is FERS?

Since January 1, 1987, the Federal Employees Retirement System (FERS) has covered all new federal civilian employees with retirement coverage. FERS offers federal employees benefits from the Basic Benefit Plan, Social Security, and the Thrift Savings Plan (TSP).

Social Security and the TSP can go with you to your next job if you leave the federal government. The TSP, similar to a private-sector 401(k), is an account into which a federal employee’s agency deposits 1% of the employee’s basic pay each month.

The employee can also contribute to the TSP, and the agency will match it. These contributions are tax-deferred, meaning that they grow without any taxes being due until money is taken out of the TSP account.

FERS itself is a complex system with many benefits rules, provisions, and exclusions. A financial professional well-versed in the inner-workings of FERS can help you navigate your different benefits options and coordinate them with your retirement planning.

What Is the FERS Supplement?

The FERS Supplement, or Special Retirement Supplement (SRS), is an annuity for certain federal employees under the FERS system. It’s designed to bridge the gap between retirement and the minimum Social Security age (62) for eligible federal employees who retire before 62.

If you are eligible, it will help replace your Social Security income until you reach 62. But not every federal employee is eligible for the Supplement.

Who Is Eligible for the FERS Supplement?

First, to be eligible for the FERS Supplement, you must be in FERS. Further, the Supplement is only for FERS.

It isn’t available in any form in the Civil Service Retirement System (CSRS). Then, to qualify, you must choose a normal immediate retirement, which means you have:

  • 30 years of creditable service and be at your minimum retirement age (MRA)
  • 20 years of creditable service and be age 60
  • 5 years of creditable service and be age 62 – technically eligible, but the Supplement ceases payments at 62, so you won’t receive any payments.

Note that reaching MRA with ten years of creditable service doesn’t make someone qualify for the Supplement.

How Can You Estimate Your FERS Supplement?

How do you compute your retirement supplement if you’re not a Special Provision FERS employee? Here is a simple formula that you can use to come up with an estimate.

Basic FERS Supplement Formula:

Years of Creditable Services ÷ 40 x Your Age 62 Social Security Benefit = Monthly FERS Supplement

You can find your age 62 Social Security Benefit on page two of your Social Security statement. If you don’t have one, you can request one from the Social Security Administration or by establishing a My Social Security account page.

FERS Supplement Calculation Example:

30 Service Years ÷ 40 X $2,000 SS = FERS Supplement

.75 X 2000 = $1,500 FERS Supplement (before any applicable reductions)

Minding the Reduction in FERS Supplement

But what are these reductions we just hinted at in the parentheses? First, if your tax withholding rate is, as an example, 20%, you will lose one-first of the FERS Supplement, which is now down to $1,200. Remember, you funded your FERS Supplement with pre-tax dollars, meaning your benefits were only tax-deferred, not tax-free.

You aren’t, however, finished with potential reductions. If you have too much “earned income,” your FERS Supplement can be reduced or eliminated.

Fortunately, most retirement income doesn’t qualify as earned income for this rule. Your pension or TSP distributions don’t count as earning income. According to the OPM:

“Your Federal Employees Retirement System (FERS) basic benefit is not considered earnings. Your earnings for any year will consist of the sum of wages for services performed in the year, plus all net earnings from self-employment for the year, minus any net loss from self-employment for the year.”

In effect, this is the same kind of reduction that you would see on Social Security benefits. So, what is the impact on your FERS supplement?

For every $2 you make over the annual income limit (which changes every year), your FERS Supplement is reduced by $1. In 2022, this limit is $19,560. As you can see, the limit is so low that even a part-time job can significantly reduce your FERS Supplement.

FERS Supplement Reduction Example

Say that you earned income of $30,000 from net self-employment income and are currently receiving the FERS Supplement. Your $30,000 (30,000 minus 19,560 equals 10,440) is $10,440 over the limit.

So, your Supplement will be reduced by $10,440 divided by 2 or $5,220, which is about $100 per week or $435 per month. So, if your benefit had been $1,200 after taxes, it would now be $765.

Common FERS Supplement FAQs

Q: How do I apply for the Supplement?

A: You don’t. OPM will automatically include it in your pension if you are eligible.

Q: How do I receive the Supplement?

A: It will come in the same payment as your FERS pension.

Q: How long do I get the Supplement?

A: OPM can take months to process your retirement. You will get interim payments of 60 to 70 percent of your full pension until they finish. Only when this process is complete will you get back pay on the missing pension amounts and your Supplement payments. This process can take up to 6 to 12 months. Don’t forget that the Supplement is only available until you reach 62.

Q: When do I find out about and get hit by my FERS earned income reduction?

A: OPM sends you an earnings survey if you are receiving the FERS Supplement in the spring. Based on your numbers, your reduced benefit will start the following July. In other words, income for one year impacts your benefits six months into the next year and lasts until June. For instance, you had the excess in the example above in 2020. Your FERS will be reduced in July 2021, and the reduction will continue until June 2022. This is a rolling cycle based on each year’s excess income.

Q: What is earned income?

A: Includes income from employment, if includable in gross income, such as wages, salaries, tips, and other taxable employee compensation. It also includes net earnings from self-employment.

Finding the Right Financial Advisor to Help with Your FERS Retirement

As you undoubtedly knew before you started reading this, FERS can be maddeningly complicated for figuring out your federal employee benefits. However, some financial retirement professionals specialize in assisting federal employees with their benefits. But not all financial professionals are equal in the guidance they can offer on this.

If you are looking for someone that understands your federal benefits and how they fit into your financial picture, see how we can help. Our Federal Employee Benefits USA team can connect you with an experienced benefits counselor to walk through a personal federal benefits analysis for you.

Call us today to request your personal federal benefits analysis, or ask us about another question that is on your mind. We look forward to helping you navigate the system and serving you!