FSPS Annuity Supplement

Q

What is the annuity supplement?

A

The annuity supplement is a benefit paid until age 62 to Foreign Service Pension System (FSPS) employees who retire before age 62 and who are entitled to an immediate annuity. The annuity supplement approximates the value of their FSPS service in calculating their Social Security benefits and is calculated as if they were entitled to receive SSA benefits on the day of actual retirement. (The supplement is usually between $35 and $40 a month for each full year of FSPS service.) The purpose of the supplement is to provide a level of income before age 62 similar to that one would receive at age 62 as part of a Social Security benefit.

Q

Who is eligible for an annuity supplement?

A

An employee who has at least one year of FSPS service and who voluntarily or involuntarily retires with entitlement to an immediate annuity is eligible. This does not include employees who retire at the Minimum Retirement Age (MRA) with ten years of service or employees who retire on disability or deferred retirement. The annuity supplement is payable from the date of retirement until the month prior to the month in which the annuitant reaches age 62.

Q

How is the value of FSPS supplement calculated?

A

The supplement is computed as if an employee were age 62 and fully eligible for Social Security benefits when the supplement begins. The department first estimates what the full Social Security benefits for the employee would be. Then it calculates the amount of service under the FSPS and reduces the estimated full Social Security benefits accordingly. (If an estimated Social Security benefit at age 62 is $20,000 and the number of years under the FSPS is 20 years, the formula would be $20,000 divided by 40 times 20, or $10,000.)

Q

Is there an income limitation?

A

Yes. Like Social Security benefits, the annuity supplement is subject to an earnings test. It is reduced if one earns more than the exempt amount of earnings (the minimum level of earnings) in the preceding year. The supplement is reduced by $1 for every $2 of earnings over a set level ($12,000 in 2005). The income limitation does not apply until after the first calendar year in which one receives an annuity supplement. Earnings include income from employment and do not include annuity income, Social Security benefits or investment income.

Q

How is the income limitation applied after the first year of retirement?

A

At the end of each calendar year, the department asks FSPS annuitants to submit a statement (DS-5026) declaring earned income for that year in order to show continuing eligibility for the annuity supplement. The department then determines whether the annuity supplement should be reduced or terminated. If an annuitant receives excess funds before a reduction or termination goes into effect the following year, the department will ask for repayment of this overpayment.

Q

Is there any way to avoid overpayments?

A

Yes. If an annuitant submits a statement of entitlement to an annuity supplement by January 10, the department will make every effort to assure that no overpayment is included in the February annuity payment. This early submission should avoid overpayment since the February payment is for the month of January. (The deadline for submitting the statement is February 15.)

Q

Are annuity supplements for retirees increased by cost-of-living adjustments (COLAs)?

A

No, The supplement is not increased by COLAs. The COLA does apply to the supplements of survivors, however.