Congress is moving to close a loophole in the new federal pension plan that would make it less attractive for workers -- most of them women -- who plan to collect a monthly check based on the Social Security earned by their spouse.
The change is important because Wednesday is the start of an open season period when most government employes must decide whether to remain in the Civil Service Retirement System or move into the new Federal Employees Retirement System. CSRS covers most employes hired before 1984, while FERS covers most employes hired since the end of 1983.
The CSRS plan offers benefits based on civil service salary and length of service. FERS, modeled after private-sector pension plans, bases benefits on Social Security, a less generous civil service pension and earnings from an investment plan that allows workers to put up to 10 percent of salary into a tax-deferred investment program and get a matching 5 percent contribution from the government. Workers under the old plan can invest only half as much and get no matching government contributions.
Once employes leave the old system and go into FERS -- they have until Dec. 31 to decide -- they cannot ever come back into the CSRS plan. It is a one-time, one-way decision that will be one of the most important career moves any government employe ever makes.
One of the attractive features of the FERS plan (now facing revision) protects the right of a civil service retiree to get a full Social Security spousal or survivor benefit. A loophole in the new retirement law provides that employes covered by FERS even for one day can avoid the spousal or survivor Social Security reduction. That spousal benefit is considered "unearned" because it is based on Social Security contributions made by your husband or wife, and not your own.
Typically the spousal or survivor benefit is reduced $2 for every $3 that the retiree gets from a government pension. That deduction or offset does not apply to a Social Security benefit you have earned through your own work and contributions.
But, as predicted here June 3, the House Ways and Means Committee is moving to apply the Social Security benefit offset rule to the FERS plan. If that happens -- and there is a good chance it will -- there would be no advantage in an employe switching from the CSRS plan to the new pension plan solely to avoid the Social Security offset.
Last Thursday the Social Security subcommittee of the Ways and Means Committee voted to close the spousal survivor loophole. It would require that employes be covered by the FERS system for at least five years after June 30 of this year before the offset was not applied to their Social Security spousal/survivor benefit. The language, which must still be approved by the full committee, then the House and the Senate, provides a transition for those who are currently between 60 and 65.
If that change is approved, it would make the FERS plan less attractive to people considering joining it simply to protect their spousal or survivor benefit, unless they stayed in the new system and paid full Social Security taxes for at least five years.
The committee has urged the Office of Personnel Management to alert workers -- who are facing the pension switch choice -- to the possibility of this change in FERS rules. Otherwise they could move into the plan and then find that its most attractive feature for them -- the immediate protection from the Social Security reduction -- had disappeared.