Federal and postal workers planning to join the new Federal Employees Retirement System for a short time simply to protect Social Security benefits that they would get based on their spouse's Social Security entitlement should be aware that Congress is serious about closing that attractive loophole in the FERS plan.
This alert comes at the start of an open season when federal workers must select a pension plan. The open season will run through Dec. 31, and it applies to the nearly 2 million federal employes hired before 1984 who are now under the old Civil Service Retirement System.
Under the old system, any Social Security spouse or survivor benefit is reduced by $2 for every $3 the workers get in a pension from the federal, state or local government. That offset doesn't apply to any Social Security benefit they earn and pay for themselves.
As the FERS program is now set up, persons retiring from it are not subject to that Social Security benefit offset. It has a loophole that would allow someone to convert to FERS, stay in it one day and retire and escape the spousal or survivor benefit reduction.
But the powerful House Ways and Means Committee is moving to close that loophole, and its chairman, Dan Rostenkowski (D-Ill.), has issued a warning that the loophole may be closed.
Through its Social Security subcommittee, the House unit has approved language requiring anyone under the FERS system to be covered by it -- and pay full Social Security taxes -- for up to five years before their spousal or survivor benefit, based on the Social Security eligibility of their spouse, would be protected from any reduction.
Because of the possible change on the eve of the open season, Rostenkowski took the unusual step of suggesting that agencies advise their employes of the situation.
The offset provision, and the possible change, are complex but important. Here is the official explanation of what the subcommittee has done so far, and its impact if the change becomes law:
" . . . Approved a provision closing a loophole in the government pension offset. Under the government pension offset, a Social Security spouse's or surviving spouse's benefit is reduced by two-thirds of the amount of any government pension to which the person is entitled from federal, state or local government employment. An unintended interaction between FERS and the Social Security Act would permit an individual to escape the government pension offset by joining FERS for just one day.
"The subcommittee provision would permit a federal employe to be exempt from the government pension offset if he or she has five years of federal employment covered by Social Security after June 30, 1987. A transition would be provided for those who are near retirement. Persons who are 65 or over in 1987 would be exempt from the government pension offset if they had six months of Social Security-covered federal employment under FERS; those who are 64 this year would be exempt with one year of Social Security-covered federal employment; those 63 this year would be exempt with two years; those 62 would be exempt with three years; those 61 would be exempt with four years, and those 60 or younger this year would be exempt with five years of Social Security covered federal employment under FERS. The provision would apply to federal employes who join FERS on or after June 30, 1987."
Although the change isn't law yet, employes planning to switch to FERS because of the Social Security loophole may want to wait until it becomes clear what Congress will do.