The Foreign Service Journal, January-February 2015

RETIREE VP VOICE | BY LARRY COHEN AFSA NEWS THE FOREIGN SERVICE JOURNAL | JANUARY FEBRUARY 2015 49 Views and opinions expressed in this column are solely those of the AFSA Retiree VP. Contact: lawrencecohenassociates@hotmail.com or (703) 437-7881 Making Sense of the FSPS Annuity Supplement Most Foreign Service person- nel today are in the Foreign Service Pension System retirement system. One of its most confusing aspects is the FSPS annuity supple- ment. If you have yet to par- ticipate in the Retirement Seminar or Job Search Pro- gram, you may not ever have heard an explanation of it in plain English. I will try now to describe it. The FSPS annuity supple- ment is a benefit—on top of the monthly pension—pay- able to certain individuals who retire before age 62, are in the “new” FSPS retirement system and are entitled to an immediate annuity. If this applies to you—and it does apply to many—read care- fully. The supplement’s pur- pose is to provide a level of income before age 62 that is similar to what an annui- tant would receive at age 62 as part of Social Security benefits. It is calculated as if the annuitant is 62 (the earli- est eligibility for full, though reduced, Social Security benefits) and fully eligible to receive them on the day of actual retirement. When the annuitant actually reaches 62, any annuity supplement ends. The supplement is subject to an annual earned income earnings test, similar to the one applied to Social Secu- rity benefits. However, the earnings test does not kick in until the retiree reaches his or her minimum retirement age (MRA). For someone born before 1965, the MRA is 56 years. The MRA ramps up, gradually, to 57 for a person born in 1970 or later. In essence, then, as long as you are under your MRA, you should be able to earn as much as you want in another job without fear of reducing your FSPS annuity supple- ment. To show continued supplement eligibility after reaching their MRA, annui- tants must submit an FSPS Annuity Supplement Report (DS-5026) to the HR Service Center at the end of each calendar year. On this form the annuitant declares earned income for the previous year. The cur- rent (2014) earned income cap is $15,480, after which the supplement is reduced by $1 for every $2 of additional earned income. If you reached your MRA and are receiving an annu- ity supplement, don’t for- get to send in the DS-5026 form by early January. Oth- erwise, the State Department may ask for repayment of any overpayment. Reduction, termination or reinstatement of benefits becomes eective on Jan. 1 of the year following the year of income reported. By the way, earned income includes all wages from employment covered by Social Security and various other cash-based incomes. It does not include pensions and annuities, distributions from a Thrift Savings Plan or Individual Retirement Account, unemployment compensation, interest or dividends not resulting from a business or trade, or most rental income. For more information on the FSPS annuity supplement, visit the Retiree Services page on the AFSAwebsite at www. bit.ly/AFSA_AnnuitySupp. While the FSPS annuity supplement is a nice financial benefit for younger Foreign Service retirees, I do not recommend it as the sole driver in determining whether to retire earlier than you otherwise plan. While the FSPS annuity supplement is a nice financial benefit for younger Foreign Service retirees, I do not recommend it as the sole driver in determining whether to retire earlier than you otherwise planned to do. Retirees who are initially eligible often discover when they reach their MRA that they quickly surpass the low earned income cap. So make your retirement plans, commit to fulfillment of your dreams, and don’t fret the annuity supplement. n REMI NDER : ANNUAL HS ESSAY CONTEST NOW ACCEPT I NG ENTR I ES AFSA’s 2015 National High School Essay Contest is now accepting entries. All students who are U.S. citizens and whose parents are not in the Foreign Service are eligible to participate if they are in grades nine through 12. The winner will receive $2,500, a trip toWashing- ton, D.C., tomeet the Secretary of State and a full- tuition scholarship for a Semester at Sea voyage. The runner-up will win a full scholarship to participate in the International Diplomacy programof the National Student Leadership Conference. The deadline for entry is 11:59 p.m. EST on March 15. Details and essay topic can be found at www.afsa. org/essaycontest. ANNOUNCEMENT