The Foreign Service Journal, October 2006

Retiree Issues The FSPS Annuity Supplement BY BONNIE BROWN, RETIREE COORDINATOR Q: What is the annuity supplement? A: The annuity supplement is a benefit paid until age 62 to Foreign Service Pension Systememployees who retire before age 62 andwho are entitled to an immediate annuity. The annuity supplement approximates the value of their FSPS ser- vice in calculating their Social Security benefits, and is calculat- ed as if they were entitled to receive SSA benefits on the day of actual retirement. (The supplement usually totals between $35 and $40 a month for each full year of FSPS service.) The pur- pose of the supplement is to provide a level of income before age 62 similar to that one would receive at age 62 fromSocial Security. Q: Who is eligible for an annuity supplement? A: Employees who have at least one year of FSPS service, and who voluntarily or involuntarily retire with enti- tlement to an immediate annuity, are eligible. This does not include employees who retire at theminimumretirement age with at least 10 years of service or employees who retire on disability or deferred retirement. The annuity supplement is payable from the date of retirement until themonth prior to themonth inwhich the annuitant reaches age 62. Q: How is the value of an FSPS supplement calculated? A: The supplement is computed as if an employee were age 62 and fully eligible for Social Security benefits when the supplement begins. The department first estimates what the full Social Security benefits for the employee would be. Then it calculates the amount of service under the FSPS and reduces the estimated full Social Security benefits accordingly. For instance, if an estimated Social Security benefit at age 62 is $20,000 and the number of years under the FSPS is 20 years, the formula would be $20,000 divided by 40 times 20, or $10,000. Q: Is there an income limitation? A: Yes. Like Social Security benefits, the annuity supple- ment is subject to an earnings test. If one earns more than the exempt amount of earnings (theminimum level of earn- ings) in the preceding year, the supplement is reduced by $1 for every $2 of earnings over a set level ($12,000 in 2005). The income limitation does not apply until after the first calendar year inwhich one receives an annuity supplement. Earnings include income from employment but do not include annuity income, Social Security benefits or investment income. Q: How is the income limitation applied after the first year of retirement? A: At the end of each calendar year, the department asks FSPS annuitants to submit a statement (FormDS-5026) declaring earned income for that year in order to show contin- uing eligibility for the annuity supplement. The department then determines whether the annuity supplement should be reduced or terminated. If an annuitant receives excess funds before a reduc- tion or termination goes into effect the following year, the depart- ment will ask for repayment of this overpayment. Q: Is there any way to avoid overpayments? A: Yes. If an annuitant submits a statement of entitle- ment to an annuity supplement by Jan. 10, the depart- ment will make every effort to assure that no overpayment is included in the February annuity payment. This early submis- sion should avoid overpayment since the February payment is for themonth of January. (The deadline for submitting the state- ment is Feb. 15.) Q: Are annuity supplements for retirees increased by cost-of-liv- ing adjustments? A: No, the supplement is not increased by COLAs. The COLAdoes apply to the supplements of survivors, how- ever. 78 F OR E I GN S E R V I C E J OU R N A L / OC T OB E R 2 0 0 6 State Tax Incentives for Long-Term Care Insurance Over 20 states, including Virginia and Maryland, offer long-term care tax incentives to reduce the cost of long-term care premiums. Retirees with 1099 income may be eligible to deduct all or part of the premiums as a health expense on IRS Form 1040. For more tax information, please seek the advice of your tax adviser. AFSA offers long-term care insurance through the Hirshorn Company. Contact Carl Shaifer at 1 (800) 242-8221, or e-mail cshaifer@hirshorn.com . More information on the AFSA long-term care program is at www.hirshorn.com/AFSA2LTC_Home.html . A F S A N E W S Q & A AFSA NEWS BRIEFS