Changes Needed in Calculation of Reduction in Civil Service Annuities for Survivor Benefits

GAO reviewed the method used by the Office of Personnel Management (OPM) to reduce the civil service annuities of retired federal employees who have elected survivor benefits for their spouses. Specifically, its objectives were to evaluate the OPM method of calculating the survivor benefit reduction when applying cost-of-living adjustments and to determine what the effects would be if the method were changed.

When they retire, federal employees may elect that upon their death an annuity will also be payable to a surviving spouse. The applicable law specifies that, for this coverage, the retiree's full annuity is reduced by specific percentages stated in the law. If a retiree's marriage ends by death or divorce, survivor coverage also ends and the annuity is increased to its full amount. Cost-of-living increases apply to all annuities payable from the fund, but the law authorizing them does not specifically state whether they are to applied to the reduced annuities or the unreduced annuities. OPM has elected to apply the increases to the reduced annuities, which results in a higher cost to the government. OPM calculates the reduced annuity only once for an individual at the time he or she retires and elects survivor coverage. Thereafter, the reduced annuity is adjusted by semiannual cost-of-living increases. This creates a situation where, for identical survivor benefits, new retirees pay more than earlier retirees who subsequently received cost-of-living increases. GAO believes that a more equitable method would be to recalculate the annuity reduction each time there is a cost-of-living increase. If a marriage ends, OPM recomputes and restores the full annuity. In addition, it maintains a record from that time forward of the adjusted reduced annuity and survivor benefits payable in case the retiree remarries. This procedure preserves the potential for inequity among single retirees in the event of their subsequent remarriage and should be changed.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

Director: Rosslyn S. Kleeman Team: General Accounting Office: Federal Personnel and Compensation Division Phone: (202) 512-9204