Revised federal retirement plan: Interpreting the latest FERS suggestions and their implications for your benefits

The proposed changes to federal retirement benefits, as outlined in the latest bill passed by the House of Representatives, have sparked discussions about the future of the Federal Employees Retirement System (FERS) annuity supplement. Here's what you need to know about this potential shift and its implications for current and future federal employees.

The FERS annuity supplement is a component of the FERS basic annuity benefit, payable to employees who retire before age 62 and are not yet eligible for Social Security retirement benefits. The supplement is calculated as if the retiree is age 62 and has applied for Social Security benefits, intended to replace the amount of the Social Security benefit the individual would have otherwise received had they retired after age 62.

In a move that could affect those retiring after 2028, the proposed changes suggest that employees covered by FERS as of January 1, 2028, might be exempt from changes to the FERS annuity supplements. This exemption is due to the changes being intended to apply only to employees who retire before 2028.

Eligibility for the annuity supplement continues until the earlier of the last day of the month before the first month for which you would be entitled to Social Security benefits, or the last day of the month on which you reach age 62. However, there are exceptions. If you receive a deferred benefit, a disability benefit, or an immediate MRA+10 benefit, you will not be eligible for the annuity supplement. In these three instances, you will not be eligible for the annuity supplement until you reach your Minimum Retirement Age (MRA).

It's important to note that federal employees who are subject to mandatory retirement, such as federal law enforcement officers or firefighters who are subject to mandatory retirement at age 57 or air traffic controllers at age 56, would continue to receive the FERS supplement upon retirement, even if they retire before the mandatory age. Similarly, those who retired involuntarily before attaining their MRA or voluntarily because of a major reorganization, reduction in force, or an early retirement for Members of Congress, may also receive the supplement.

The Congressional Budget Office estimates that about 21,000 new FERS retirees who do not retire under a mandatory authority are added to the annuity supplement rolls each year. In fiscal year 2025, the average annual supplement for affected annuitants would be about $18,000/year or $1,500/month, according to the CBO.

However, the proposed changes also indicate that the FERS supplement would be eliminated beginning Jan. 1, 2028, for those who retire after that date. Yet, federal workers already entitled to retire with the supplement on that date will retain their eligibility.

Rep. Mike Turner, R-Ohio, has opposed the proposal's application to current employees. The proposal to change the basis of the FERS retirement benefit from the "high-three average salary" to the "high-five" has been removed, easing concerns for some federal employees.

As these proposed changes move through Congress, it's crucial for federal employees to stay informed about the potential impact on their retirement benefits. For those retiring before 2028, the FERS annuity supplement remains a significant part of their retirement income. For those retiring after 2028, the future of this supplement is uncertain, and it's essential to keep abreast of any developments in the legislation.

Revised federal retirement plan: Interpreting the latest FERS suggestions and their implications for your benefits