In this article, we will dive into the Civil Service Retirement System (CSRS) Offset pension and how CSRS Offset coordinates with the Windfall Elimination Provision (WEP). Over the years we have found that CSRS offset employees are generally left confused about how their pension is offset and the calculation WEP uses to reduce Social Security. It is important to have a clear understanding of how both the CSRS offset retirement pension and the Social Security system will affect your bottom line numbers in retirement.
Overview of the Civil Service Retirement System
The Civil Service Retirement System (CSRS) is a defined benefit, contributory retirement system for federal employees who were hired before January 1, 1984. Employees share in the expense of the annuities to which they become entitled.
CSRS-covered employees contribute 7%, 7.5%, or 8% of pay into CSRS and do not pay for or receive Social Security. However, CSRS employees do pay for Medicare tax (currently 1.45% of pay). CSRS employees may contribute to TSP, however, they will not receive a TSP government match.
The CSRS retirement pension calculation is included below:
| Years of Service | What You Receive |
|---|---|
| First 5 years of service | 1.5 percent of your high-3 average salary for each year |
| Second 5 years of service | Plus 1.75 percent of your high-3 average salary for each year |
| For all years of service over 10 | Plus 2 percent of your high-3 average salary for each year. |
CSRS Eligibility to Retire on Full Pension:
| Age | Years of Service |
|---|---|
| 62 | 5 |
| 60 | 20 |
| 55 | 30 |
Overview of CSRS Offset
CSRS Offset was created in 1987 and generally applies to employees who:
- Had a break in federal service after 1983 that lasted longer than 1 year and had at least 5 years of civilian service as of January 1, 1987
- Employees who were hired into a civilian job before 1984, but did not acquire retirement coverage until after 1984 and had at least 5 years of service as of January 1, 1987
CSRS Offset employees are covered by both CSRS and Social Security. You earn retirement credit under CSRS, while also earning credits under Social Security.
When you retire from the government, your retirement benefit is computed in the same way that CSRS benefits are computed. However, when you become eligible for Social Security benefits (usually at age 62), your CSRS retirement benefit is offset by the value of the Social Security benefit you earned while working for the government.
The amount CSRS Offset employees pay for retirement is the same amount that CSRS employees pay, however, it is reduced, or offset, by Social Security taxes (6.2 % of pay). CSRS Offset employees may contribute to TSP, however, they will not receive a TSP government match.
Pro Tip: if you are working under CSRS offset and of full retirement age (FRA) you can receive Social Security with no penalty or reduction.
FERS Replaces CSRS in 1987
The Federal Employees Retirement System (FERS) for Federal employees replaces CSRS starting January 1, 1987. Federal employees who first entered covered service on and after January 1, 1987, would be placed in the FERS retirement pension. FERS employees who contribute to the Thrift Savings Plan (TSP) can receive up to a 5% TSP government match.
To make matters even more complicated, some Federal employees are considered FERS Transfers. There was an open season for CSRS employees in 1987-88 and 1998 that allowed CSRS employees with at least 5 years of CSRS service the option to transfer to FERS during the open season.
CSRS Offset Pension Calculation
Retiring before age 62
The Office of Personnel Management (OPM) will contact the Social Security Administration (SSA) to obtain an entitlement determination when you are close to age 62 (the normal age of Social Security eligibility). If you are eligible to receive Social Security benefits, SSA will provide OPM with information concerning your Social Security benefits.
Please note that even if you do not apply for Social Security benefits when first eligible, the reduction in your annuity must still be made if you are entitled or would on proper application be entitled to Social Security benefits.
The offset reduction is subtracted from the annuity rate to become your new gross annuity rate. The offset reduction is the lesser of:
- The difference between the Social Security monthly benefit amount with and without Federal earnings; OR
- The product of the Social Security monthly benefit amount, with Federal earnings, multiplied by a fraction where the numerator (top of fraction) is the employee’s total CSRS Offset service rounded to the nearest whole number of years and the denominator (bottom of fraction) is 40.
Example
David joined Federal service on 1-1-78. David worked under the CSRS system until 1-1-1985 and then departed for the private sector. Years later, David joined Federal service again on 1-1-1990 as a CSRS offset employee. He decides to retire at age 60 with a total of 30 years of service: 5 years of CSRS and 25 years of CSRS Offset. To compute David’s CSRS pension amount, OPM will contact the Social Security Administration (SSA) to determine his Social Security amount at 62.
- Eligible Social Security amount at 62 = $2,000
- Social Security benefit earned as CSRS Offset (25 years) = $1,500
Starting the month David turns age 62, his CSRS pension will be reduced by $1,250 a month.
Retiring after age 62
If retiring after the age of 62, the calculation is different. OPM will contact the Social Security Administration (SSA) to obtain an entitlement determination on the day of retirement. The eligible Social Security amount is not at 62, but the age that you retire.
Example
David from the example above decides to retire at age 67 now. He has 5 years of CSRS and 32 years of CSRS Offset. David is eligible for $3,000 a month at age 67.
If the monthly CSRS amount is $8,000/mo, the pension will be reduced by $2,400/mo leaving David with $5,600/mo.
CSRS Offset Applying for Social Security
CSRS Offset annuitants can receive Social Security. It is important to be aware of the Windfall Elimination Provision (WEP). WEP has the potential to reduce Social Security benefits in a big way.
Understanding the Windfall Elimination Provision (WEP)
The Windfall Elimination Provision (WEP) is a provision in the Social Security Act that affects individuals who receive a pension from a job where they did not pay Social Security taxes, such as CSRS employees.
The WEP applies to individuals who have both a CSRS retirement pension and a Social Security benefit based on work in other jobs where they did pay Social Security taxes. Commonly, individuals who left Federal service and were employed in the private sector for a number of years, worked part-time in a private sector job while simultaneously being employed as a Federal employee and small business owners.
Explanation of the WEP
The Windfall Elimination Provision reduces the amount of Social Security retirement benefits that a person can receive based on their earnings history and years of substantial earnings covered by Social Security. It is intended to prevent individuals from receiving a windfall in the form of a higher retirement benefit due to both their Civil Service Retirement System pension and their Social Security benefit.
The WEP was established to address concerns about fairness in the Social Security system. Individuals who did not pay Social Security taxes throughout their careers, but rather contributed to a government pension plan like CSRS, were receiving higher retirement benefits than those who paid into Social Security throughout their working years.
The basis of WEP is based on your number of substantial earnings into Social Security. Below are two charts that show how to calculate the WEP reduction if any. If you have more than 30 years of substantial earnings then you will have NO reduction due to WEP.
| Years of Substantial Earnings | |||||||||||
| ELY | <= 20 | 21 | 22 | 23 | 24 | 25 | 26 | 27 | 28 | 29 | 30 |
| 2017 | 442.5 | 398,3 | 354.0 | 309.8 | 265.5 | 221.3 | 177.0 | 132.8 | 88.5 | 44.3 | 0.0 |
| 2018 | 447.5 | 402.8 | 358.0 | 313.3 | 268.5 | 223.8 | 179.0 | 134.3 | 89.5 | 44.8 | 0.0 |
| 2019 | 463.0 | 416.7 | 370.4 | 324.1 | 277.8 | 231.5 | 185.2 | 138,9 | 92.6 | 46.3 | 0.0 |
| 2020 | 480.0 | 432.0 | 384.0 | 336.0 | 288.0 | 240.0 | 192.0 | 144.0 | 92.0 | 48.0 | 0.0 |
| 2021 | 498.0 | 448.2 | 398.4 | 348.6 | 298.8 | 249.0 | 199.2 | 149.4 | 99.6 | 49.8 | 0.0 |
| 2022 | 512.0 | 460.8 | 409.6 | 358.4 | 307.2 | 256.0 | 204.8 | 153.6 | 102.4 | 51.2 | 0.0 |
| 2023 | 557.5 | 501.8 | 446.0 | 390.3 | 334.5 | 278.8 | 223.0 | 167.3 | 111.5 | 55.8 | 0.0 |
*Choose the year you retired on the left column and the number of years of substantial earnings on the top row. The figure chosen will be the maximum monthly amount your Social Security benefit will be reduced due to WEP.
| Year | Substantial Earnings | Year | Substantial Earnings |
|---|---|---|---|
| 1937-1954 | $900 | 1994 | $11,250 |
| 1955-1958 | $1,050 | 1995 | $11,325 |
| 1959-1965 | $1,200 | 1996 | $11,625 |
| 1966-1967 | $1,650 | 1997 | $12,150 |
| 1968-1971 | $1,950 | 1998 | $12,675 |
| 1972 | $2,250 | 1999 | $13,425 |
| 1973 | $2,700 | 2000 | $14,175 |
| 1974 | $3,300 | 2001 | $14,925 |
| 1975 | $3,525 | 2002 | $15,750 |
| 1976 | $3,825 | 2003 | $16,125 |
| 1977 | $4,125 | 2004 | $16,275 |
| 1978 | $4,425 | 2005 | $16,725 |
| 1979 | $4,725 | 2006 | $17,475 |
| 1980 | $5,100 | 2007 | $18,150 |
| 1981 | $5,550 | 2008 | $18,975 |
| 1982 | $6,075 | 2009-2011 | $19,800 |
| 1983 | $6,675 | 2012 | $20,475 |
| 1984 | $7,050 | 2013 | $21,075 |
| 1985 | $7,425 | 2014 | $21,750 |
| 1986 | $7,875 | 2015-2016 | $22,050 |
| 1987 | $8,175 | 2017 | $23,625 |
| 1988 | $8,400 | 2018 | $23,850 |
| 1989 | $8,925 | 2019 | $24,675 |
| 1990 | $9,525 | 2020 | $25,575 |
| 1991 | $9,900 | 2021 | $26,550 |
| 1992 | $10,350 | 2022 | $27,300 |
| 1993 | $10,725 | 2023 | $29,700 |
| Years of substantial earnings | Percentage |
|---|---|
| 30 or more | 90% |
| 29 | 85% |
| 28 | 80% |
| 27 | 75% |
| 26 | 70% |
| 25 | 65% |
| 24 | 60% |
| 23 | 55% |
| 22 | 50% |
| 21 | 45% |
| 20 or less | 40% |
*The charts above show what would qualify for substantial earnings in the corresponding year.
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