A Retiring Employee’s Planning for Survivor Benefits

An important part of a retiring federal employee’s retirement plan is understanding and planning for survivor benefits when the federal retiree dies. This column discusses and explains the choices that federal employees have with respect to survivor benefits for eligible family members when the federal retiree dies.

Survivor Annuity Elections

If a retiring federal employee (covered by CSRS/CSRS Offset or FERS) is married at the time of retirement, the retiring federal employee must provide the maximum  survivor annuity benefit to their spouse. The choice of a maximum spousal survivor annuity is mandatory unless their spouse consents in writing to an election of less than a maximum survivor annuity. A retiring employee elects a survivor annuity for a spouse at retirement on the retirement application. For CSRS/CSRS Offset employees,  the retirement application form is Standard Form (SF) 2801; for retiring FERS employees the retirement application form is  Standard Form (SF) 3107. The election to give a spousal survivor annuity  results in a reduction to the retiring employee’s monthly CSRS annuity or FERS annuity. The reduction to the retiree’s annuity is the cost of the spousal survivor annuity amount elected.

Under FERS, a retiring employee has two choices as to the amount of a spousal survivor annuity:

• Maximum spousal survivor annuity. If a retiring FERS employee elects this option, the retiree’s FERS annuity will be reduced by 10 percent.  Upon the FERS annuitant’s death the spouse’s survivor annuity will be equal to 50 percent of the deceased annuitant’s unreduced FERS annuity.
• Less than maximum spousal survivor annuity. If a retiring FERS employee chooses this option, the FERS annuity will be reduced by 5 percent. Upon the FERS annuitant’s death, the spouse’s survivor annuity will be equal to 25 percent of the  deceased annuitant’s unreduced FERS annuity. A retiring FERS employee who is married at retirement must have their spouse’s written consent to elect less than a maximum survivor annuity benefit.
• No survivor annuity. If a retiring FERS employee elects this option, there will be no reduction to the retired employee’s FERS annuity. In that case, no survivor annuity will be paid to a surviving spouse upon the FERS annuitant’s death. Any Federal Employee Health Benefits (FEHB program) health benefits for the spouse will also cease if there is no FERS spousal survivor annuity. A retiring married FERS employee must have their spouse’s written consent in order to elect less than a maximum survivor annuity benefit.

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Note that a retiring CSRS/CSRS Offset has more choices as to what they can elect to give their spouses  in the form of a CSRS survivor annuity benefit. But just like a retiring married FERS employee, a retiring CSRS/CSRS Offset employee must have their spouse’s written consent in order to elect less than a maximum survivor annuity benefit.

• Insurable Interest Annuity. A retiring FERS employee may elect an insurable interest annuity on behalf of anyone who can show they have a financial interest in the retiring employee’s life. Someone who has a “financial interest” in the retiring employee is defined as a relative of the retiring employee closer in relationship than a first cousin. If a retiring FERS employee chooses this option, the retiring employee must be healthy and willing to provide medical evidence if required.
  • FERS disability annuitants cannot choose to give an insurable interest survivor annuity. The FERS annuity will be reduced based on the age difference between the FERS annuitant and the person who has an insurable interest in the FERS annuitant – anywhere from 10 to 40 percent. Upon the FERS annuitant’s death, the person with the insurable interest in the FERS annuitant will receive 55 percent of the reduced FERS annuity.
• Former Spouse Survivor Annuity. A retiring FERS employee may have to (through a court order or a divorce settlement) give a  full or reduced survivor annuity. Depending on what the court order or divorce settlement states, the retiring FERS may have to elect either 25 percent or 50 percent of the FERS annuitant’s self only FERS annuity. The FERS annuitant’s annuity would be reduced accordingly to pay for the cost of this benefit.
• Survivor Annuity for a New Spouse (post-retirement). If a FERS annuitant gets married in retirement and has been married for at least nine months, the annuitant can elect a reduced annuity to provide a survivor annuity for the new spouse. The FERS annuitant must make this election within two years of the date of the marriage.
  • The election of a survivor annuity for a post-retirement spouse will result in two reductions in the FERS annuitant’s annuity. One reduction will be the regular reduction to the FERS annuity to pay for the cost of the survivor benefit after the annuitant’s election becomes effective. The other reduction is the deposit the FERS annuitant must also make to generate this election. The deposit represents the amount the FERS annuity would have been reduced had the survivor election been in place from the retiring FERS employee’s commencing date to the date the survivor annuity election becomes effective, plus interest. The law requires OPM to collect the deposit by applying a permanent actuarial reduction to the FERS annuitant’s annuity. OPM will send the FESR annuitant a statement describing these costs.

Time Limits for Changing a FERS Survivor Annuity Election Made at Retirement

A FERS annuitant may request in writing to OPM to change their current spouse survivor annuity election made at retirement no later than 18 months from the annuitant’s FERS annuity starting date. Note the following options for changing a spousal survivor annuity: (1) A FERS annuitant may change their election not to provide a survivor annuity to their spouse at the time the FERS annuitant retired; (2) A FERS annuitant may increase their election of less than maximum FERS survivor annuity (25 percent) to a maximum FERS survivor annuity (50 percent); and (3) A FERS annuitant may not reduce amount of the spousal survivor annuity elected at retirement.

If a retiring FERS employee marries after retiring from federal service, then the FERS annuitant must be married for a minimum of nine months before the spouse is eligible for a survivor annuity benefit, or the annuitant must have children born of the marriage. The FERS annuitant has two years after the marriage date to elect a spousal survivor annuity benefit.

Designation of Beneficiary Forms

FERS annuitants are advised to keep their designation of beneficiary forms up to date. This will ensure the proper receipt of the annuitant’s benefits. Completed Designation of Beneficiary forms should be mailed to:

Office of Personnel Management

Retirement Operations Center

P.O. Box 45

Boyers, PA 16017

The following are the applicable Designation of Beneficiary forms:

Standard Form 3102: Designation of Beneficiary form for the Federal Employees Retirement System

Standard Form 2808: Designation of Beneficiary form for the Civil Service Retirement System

Standard Form 2823: Designation of Beneficiary form for the Federal Employees Group Life  Insurance Program

Standard Form 3102, Standard Form 2808 and Standard Form 2823 can be downloaded at www.opm.gov/forms.

TSP-3:  Designation of Beneficiary Form for the Thrift Savings Plan. TSP-3 can be completed online at www.tsp.gov. This is assuming the annuitant has a TSP online account.

A Retiring Employee’s Planning for Survivor Benefits

Note that any individual (spouse, adult child, adult sibling, or a charitable organization can be named as a beneficiary on Standard Form 3102, Standard Form 2808, and Standard Form 2823 and Form TSP-3.

Edward A. Zurndorfer is a CERTIFIED FINANCIAL PLANNER™ professional, Chartered Life Underwriter, Chartered Financial Consultant, Chartered Federal Employee Benefits Consultant, Certified Employees Benefits Specialist and IRS Enrolled Agent in Silver Spring, MD. Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, and EZ Federal Benefits Seminars, located at 833 Bromley Street – Suite A, Silver Spring, MD 20902-3019 and telephone number 301-681-1652. Raymond James is not affiliated with and does not endorse the opinions or services of Edward A. Zurndorfer or EZ Accounting and Financial Services. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on

Ed Zurndorfer, EA, ATA, CFP®, CLU®, ChFC®, CEBS®, ChFEBC℠: Federal Employee Benefits Expert

A former career Federal employee, Ed has published a staggering 1,200+ separate articles on Federal Benefits and Retirement!
Just “Google” his name, and you are likely to find a plethora of sites that contain his writings. Drawn to its mission to reach, teach
and serve Feds, Serving Those Who Serve is the only financial planning practice with which Ed has chosen to affiliate in over
20 years teaching. In addition to conducting Federal Benefits seminars for Serving Those Who Serve, you can find Ed’s
writings here on our blog in the FedZone, and on Fed-Soup, MyFederalRetirement, FederalNews Radio and NITP.

He is a member of the Maryland Society of Accountants, the National Association of Enrolled Agents, the International Society of Certified Employee Benefits Specialists, the Financial Planning Association, the National Association of Health Underwriters,
and the Society of Financial Service Professionals. Since 1999, Ed has taught many thousands of Federal employees about
their benefits, in person and at Federal agencies all over the country. Ed is a true national treasure.

Edward A. Zurndorfer is a CERTIFIED FINANCIAL PLANNER™ professional, Chartered Life Underwriter, Chartered Financial Consultant, Chartered Federal Employee Benefits Consultant, Certified Employees Benefits Specialist and IRS Enrolled Agent in Silver Spring, MD. Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, and EZ Federal Benefits Seminars, located at 833 Bromley Street – Suite A, Silver Spring, MD 20902-3019 and telephone number 301-681-1652. Raymond James is not affiliated with and does not endorse the opinions or services of Edward A. Zurndorfer or EZ Accounting and Financial Services. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.