oversight

Federal Pensions: Judicial Survivors' Annuities System Costs and Benefit Levels

Published by the Government Accountability Office on 1997-06-27.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                United States General Accounting Office

GAO             Report to Congressional Committees




June 1997
                FEDERAL PENSIONS
                Judicial Survivors’
                Annuities System Costs
                and Benefit Levels




GAO/GGD-97-87
      United States
GAO   General Accounting Office
      Washington, D.C. 20548

      General Government Division

      B-270286

      June 27, 1997

      The Honorable Orrin G. Hatch, Chairman
      The Honorable Patrick J. Leahy
      Ranking Minority Member
      Committee on the Judiciary
      United States Senate

      The Honorable Henry J. Hyde, Chairman
      The Honorable John Conyers, Jr.
      Ranking Minority Member
      Committee on the Judiciary
      House of Representatives

      This report was prepared in response to the requirements of the Federal
      Courts Administration Act of 1992 (P. L. 102-572) specifying that we
      review certain aspects of the Judicial Survivors’ Annuities System (JSAS).
      JSAS is one of several survivor benefit plans applicable to particular groups
      of federal employees. It provides annuities to the surviving spouses and
      dependent children of deceased federal judges and other judicial officials
      who participate in JSAS.

      The 1992 Act enhanced the benefits available from JSAS and reduced the
      amounts participating judges and other judicial officials were required to
      contribute toward the plan’s costs. The act requires us to review the
      system’s costs every 3 years and to determine whether the participants’
      contributions covered one-half of the costs. If the contributions are less
      than half of these costs, we are to determine what adjustments would be
      needed to achieve the 50-percent figure. The act also requires us to
      compare JSAS to the survivor benefit plans for other federal employees.

      To respond to this requirement, we reviewed JSAS’ 1993 to 1995 annual
      reports submitted by the Administrative Office of the U.S. Courts (AOUSC)
      to Congress and the Comptroller General. Such reports are required by
      Public Law 95-595 and contain financial and actuarial information
      indicative of JSAS’ cost and financial status. Our analysis of the judges’
      share of JSAS costs was done for the first 2 full years of the 1992 Act, fiscal
      years 1994 and 1995. We did not use the fiscal year 1993 cost information
      for this part of our analysis because it was based on actuarial information
      as of September 30, 1992, and did not reflect the changes in participant
      benefits and contributions resulting from the 1992 Act, which became
      effective on October 29, 1992. The costs we examined were “normal
      costs.” Normal cost is a term used to describe the annual cost of funding a



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                   pension or survivor plan, expressed as a percentage of payroll. Our
                   comparison of JSAS to other federal survivor benefit plans was based on a
                   review of applicable federal statutes, regulations, and agency guidance as
                   well as interviews with agency specialists. For this comparison, we chose
                   those plans previously compared to JSAS in developing the 1992 Act—the
                   Civil Service Retirement System (CSRS), including Members of Congress,
                   the Military Retirement System’s Survivor Benefit Plan (SBP), the U.S. Tax
                   Court Survivors’ Annuity Plan, and the U.S. Court of Veterans Appeals
                   Judges Retirement Plan. We also included the Federal Employees
                   Retirement System (FERS) because it covers a large number of federal
                   employees. The Tax Court and Veterans Appeals judges plans are not
                   administered by AOUSC.


                   The participating judges did not pay one-half of the JSAS normal cost
Results in Brief   during fiscal years 1994 and 1995; they paid about 36 percent. Based on
                   information contained in JSAS’ 1995 actuarial report, to cover one-half of
                   the future costs, the judges’ contribution would need to increase
                   0.9 percentage points above the 2.2 percent of salary currently paid by
                   active and senior judges and the 3.5 percent of annuities paid by retired
                   judges. However, increasing required contributions could affect the
                   judges’ rate of participation, and increasing participation was one of the
                   major reasons for enhancing JSAS’ benefits and reducing the judges’
                   contributions in 1992.

                   JSAS’benefits are greater than those available to the majority of federal
                   employees. JSAS provides greater spousal and children benefits, expressed
                   as a percentage of salary, than those for employees under CSRS, FERS, and
                   the military’s SBP. JSAS benefits also are greater than those for Members of
                   Congress. While a direct comparison of contribution rates for active
                   participants among the plans could not be made because of differing
                   program designs, retired judges under JSAS contributed a smaller
                   percentage of their annuities for survivor benefits than retired general
                   employees and Members of Congress under CSRS and FERS and retired
                   members of the military. Two judicial plans in our study provided spousal
                   and children’s benefits that were similar to JSAS. Also, JSAS included
                   features that were not available in the other survivor plans we studied.


                   Most federal civilian employees are covered by CSRS or FERS. Both these
Background         retirement plans include survivor benefit provisions. Three separate
                   retirement plans apply to various groups of judges in the federal judiciary,



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with JSAS being available to participants in all three retirement plans to
provide annuities to their surviving spouses and children. AOUSC
administers all four of these plans. The Judicial Retirement System
automatically covers U.S. Supreme Court Justices, federal circuit and
district court judges, and territorial district court judges, and is available,
at their option, to the Administrative Assistant to the Chief Justice, the
Director of AOUSC, and the Director of the Federal Judicial Center. The
Judicial Officers’ Retirement Fund is available to bankruptcy and full-time
magistrate judges, and the Court of Federal Claims Judges’ Retirement
System is available to Court of Federal Claims judges. Except for judges
who are automatically covered under the Judicial Retirement System,
judges and judicial officials may opt to participate in CSRS or FERS rather
than one of the other judicial plans if they were in either CSRS or FERS at the
time of their appointment.

Judges who retire1 under any of the three judicial retirement plans
generally continue to receive the full salary amounts that they were paid
immediately before retirement, assuming they met the age and service
requirements. Retired territorial district court judges receive the same
cost-of-living adjustment (COLA) increase that CSRS retirees receive, except
that their annuities cannot exceed 95 percent of an active district court
judge’s salary. Court of Federal Claims judge retirees continue to receive
the same salary payable to active Court of Federal Claims judges. Those in
the Judicial Retirement System and the Court of Federal Claims Judges’
Retirement System are eligible to retire at age 65 with 15 years of service.
Those in the Judicial Officers’ Retirement Fund are eligible to retire at age
65 with 14 years of service. The judicial officers under the Judicial
Retirement System can retire with 80 percent of full salary at age 65 with
15 years of service. Participants in all three judicial retirement plans are
required to contribute to Social Security and receive benefits.

JSAS was created in 1956 to ensure financial security for the families of
federal judges. It provides benefits to eligible spouses and dependent
children of judges who elect coverage within 6 months of taking office or
within 6 months after getting married, if they are not married when they
take office. Active and senior judges contribute 2.2 percent of their
salaries, and retired judges contribute 3.5 percent of their annuities to JSAS.
Upon a judge’s death, the surviving spouse is to receive an annual annuity

1
 There is a distinction between retired judges who resign their offices and those who retire to a status
designated as “senior.” Judges who retire by resignation are entitled for life to the salary of the office
at time of resignation and may engage in private law practice. Judges who retire to senior status
receive the current salary of the office and generally may perform reduced judicial duties. Senior
judges may not engage in private law practice.



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equal to 1.5 percent of the judge’s average annual salary during the 3
highest paid years (known as the “high 3”) times years of creditable
service. The annuity may not exceed 50 percent of high 3 and is
guaranteed to be no less than 25 percent. Separately, an unmarried
dependent child under age 18, or 22 if a full-time student, receives a
survivor annuity equal to 10 percent of the judge’s high 3. COLAs are paid to
surviving spouses and children based on annual increases in the Consumer
Price Index (CPI). Spouses and children are also eligible for Social Security
survivor benefits. Appendix I provides more details on these and other
features of JSAS.

Since its inception in 1956, JSAS has changed several times. Because of
concern that too few judges were participating in the plan (74 percent of
federal judges participated in 1985, down from 90 percent in 1976),2
Congress made broad reforms effective in 1986 with the Judicial
Improvements Act of 1985 (P. L. 99-336). The act (1) increased the annuity
formula for surviving spouses from 1.25 percent to the current 1.5 percent
of high 3 for each year of creditable service and (2) changed the provisions
for surviving children’s benefits to relate benefit amounts to judges’ high 3
rather than the specific dollar amounts provided by the Judicial Survivors’
Annuities Reform Act (P. L. 94-554) in 1976. In recognition of the
significant benefit improvements that were made, the 1985 Act increased
the amounts judges were required to contribute from 4.5 percent to
5 percent of their salaries and retirement annuities.

The 1985 Act also changed the requirements for government contributions
to the plan by specifying that the government would contribute whatever
amounts were necessary (up to a maximum of 9 percent of participating
judges’ salaries and annuities) to keep the plan fully funded. Under the
1976 Act, the government matched the judges’ contributions of 4.5 percent
of salaries and annuities. Despite the benefit improvements in the 1985
Act, the rate of participation in JSAS continued to decline. In 1991, it was
about 40 percent overall and 25 percent for newly appointed judges.

In response to concerns that required contributions of 5 percent may have
been creating a disincentive to participation,3 Congress enacted the
Federal Courts Administration Act of 1992. Under the act, participants’
contribution requirements were reduced to 2.2 percent of salary for active
and senior judges and 3.5 percent of annuities for retired judges. For those
already enrolled in JSAS, the new rates were further reduced by

2
 H. Rep. 99-423, 99th Congress.
3
 H. Rep. 102-1006, 102d Congress.



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              0.5 percentage point for every month, not to exceed 18 months, during
              which they had contributed 5 percent. In other words, the rate for an
              active judge could be reduced to 1.7 percent and 3 percent for a retired
              judge for up to 18 months. Another significant change was an increase in
              benefits for survivors of retired judges. This increase was accomplished by
              including years spent in retirement4 in the calculation of creditable service
              and high-3 salary averages. The act also allowed the judges to stop
              contributing to the plan upon divorce or the spouse’s death and granted
              benefits to survivors of any judge who died in the interim between leaving
              federal service and the commencement of a deferred annuity.5 As of
              September 30, 1995, there were 1,263 active and senior judges, 109 retired
              judges, and 221 survivor annuitants covered under JSAS. About 67 percent
              of all eligible judges participated in the system in 1995, including
              73 percent of all new judges who began service in 1995.

              One objective of the change in contribution requirements contained in the
              1992 Act was to preclude the circumstances that had frequently occurred
              under the 1985 Act, whereby the participating judges paid all of the plan’s
              cost. In 3 of the 4 years before the 1992 Act, the government made no
              contributions to JSAS because the participants’ 5 percent of salary and
              annuity contributions were sufficient to cover the costs for those years. In
              1991, the cost of JSAS was estimated to be 3.2 percent of salary and annuity.
              Proponents of lowering the contribution rates contended that participants
              in CSRS, including Members of Congress, were paying about one-half of the
              costs of their survivor benefits, and Congress intended to make JSAS
              comparable to the cost of participation by a Member of Congress.


              To determine whether the contributions by the participating judges for the
Scope and     3-year period ending in fiscal year 1995 accounted for 50 percent of JSAS’
Methodology   costs, we first identified the costs for plan years 1993 to 1995. We used the
              normal cost amounts determined by actuarial valuations of the system for
              each of the 3 fiscal years. Normal cost is the term used to describe the
              annual cost of a pension or survivor plan. It is expressed as a percentage
              of payroll and represents the amount of money that should be set aside
              during employees’ working years that, with investment earnings, will be
              sufficient to cover future benefit payments. It applies to future benefits
              being earned during current employment, not payments to current


              4
               Includes senior judges and judges who resign their offices.
              5
               A judge who is not entitled to receive an immediate retirement annuity upon leaving office, but is
              eligible to receive a deferred retirement annuity at a later date, may remain in JSAS by contributing
              3.5 percent of the deferred retirement annuity that the judge would be entitled to receive.


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annuitants. Therefore, if participating judges were to pay one-half the cost
of JSAS, they would pay one-half the plan’s normal cost.

Information on JSAS’ normal cost and other actuarial and financial matters
is contained in annual reports submitted by AOUSC to Congress and the
Comptroller General. Such reports are required by Public Law 95-595 for
all federal retirement plans. These reports (595 Reports) are due 210 days
after the end of each plan’s fiscal year. AOUSC provided to us a final version
of the 595 Report for fiscal year 1995 on April 8, 1997.6 We discussed the
contents of the reports with officials from AOUSC but otherwise relied on
the data presented in the annual reports for the 3 fiscal years without
independent verification. We also obtained the services of an enrolled
actuary, Mr. Jess Feinman, to assist us in analyzing the reports and making
the required determinations about the share of costs covered by
participant contributions, including the adjustment needed to achieve the
50-percent figure for the participating judges.

To compare the features of JSAS with those of other federal survivor
benefit plans, we reviewed applicable federal statutes, regulations, and
agency guidelines and interviewed agency specialists for the various plans.
We also met with actuaries at the Office of Personnel Management (OPM)
and the Department of Defense. We reviewed the annual reports filed
under Public Law 95-595 for all plans in the comparison.

We identified and compared the benefit levels, contribution rates, and
other features of JSAS and five other federal survivor benefit plans. We
compared JSAS benefit levels to the other plans’ survivor benefit levels
without Social Security survivor benefits. Total survivor benefit levels for
those eligible to receive Social Security benefits will be greater than those
levels reported in our comparison. We compared retiree contribution rates
only. The differing designs of the various programs precluded us from
making a comparison of total employee and retiree contribution rates.
Two of the plans in our study do not have separate and identifiable
employee contribution rates for survivor benefits. Appendix I describes
the features of the six federal survivor benefit plans in our study.


6
 Although the Federal Courts Administration Act of 1992 mandated us to report to Congress by
November 29, 1995 (60 days after the end of fiscal year 1995), we informed the addressees of our
report in November 1995 that the 595 Report for fiscal year 1995 would not be available until after our
statutory reporting date (the 595 Report was due by Apr. 28, 1996). We were unable to complete our
work until we received the 595 Report for fiscal year 1995. In February 1997, we again informed the
addressees that the 595 Report had not been finalized, and we would fulfill our reporting requirement
using the draft 595 Report provided to us by AOUSC on October 24, 1996, if the final 595 Report was
not provided by the end of February 1997.



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                         The five plans in our comparison were CSRS and FERS (including Members
                         of Congress), the Military Retirement System’s SBP, the U.S. Tax Court
                         Survivors’ Annuity Plan, and the U.S. Court of Veterans Appeals Judges
                         Retirement Plan. We selected these five plans because (1) four of them
                         (not FERS) were compared to JSAS in the legislative history of the Federal
                         Courts Administration Act of 1992 and (2) CSRS, FERS, and the Military
                         Retirement System cover about 97 percent of all participants in federal
                         retirement plans and, like JSAS, the U.S. Tax Court and U.S. Court of
                         Veterans Appeals plans cover judicial workforces.

                         We made our review from October 1995 to February 1997, in accordance
                         with generally accepted government auditing standards. We made a draft
                         of this report available to the Director of AOUSC for review and comment.
                         AOUSC’s comments are reprinted in appendix II. Although we did not obtain
                         comments from the other agencies on the survivor benefit plans included
                         in our review, we asked officials responsible for each of these other plans
                         to verify the accuracy of the information presented on their respective
                         plans. Their views were considered in preparing this report.


                         For JSAS’ first 2 full years (1994 and 1995) under the Federal Courts
Judges Did Not           Administration Act of 1992, the participating judges contributed about
Contribute One-Half      36 percent of the plan’s costs. Fiscal year 1993 cost did not reflect the
of JSAS’ Cost            changes in contribution rates and benefits incorporated by the 1992 Act.
                         To cover one-half of JSAS’ costs, the participating judges’ contribution
                         would have to increase 0.9 percentage points above the current rates. This
                         could be achieved by distributing the increase equally among those
                         contributing 2.2 percent and 3.5 percent or adding the increase solely to
                         those paying 2.2 percent. However, increasing the judges’ contribution
                         rates could adversely affect participation in the plan, which would be
                         contrary to one of the major reasons for the changes to JSAS in 1992.


Defining Cost for JSAS   The cost of a retirement or survivor benefit plan is generally not measured
                         by annual expenditures. Such expenditures are not an indicator of the
                         overall long-term total cost of a plan. For the 3-year period ending
                         September 30, 1995, the participating judges paid $12.5 million, and the
                         government’s actual outlays were $6.9 million. Although judges’ payments
                         were made in the same year they were accrued, the government’s
                         payments were based on actuarial valuations that occurred 1 to 2 years
                         before the appropriation year. The government’s contribution of
                         $6.9 million in fiscal year 1995 was based on the actuarial calculation for



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                            employer normal cost as of September 30, 1993. There were no
                            government contributions for 1993 and 1994 because the actuarial
                            valuation for the applicable prior years (before the 1992 changes to
                            participant benefits and contributions) showed that the participants’
                            contributions covered the entire normal cost of JSAS.

                            The more complete and acceptable calculation of a plan’s cost is the total
                            projected outlays to retirees or survivors, considering the current
                            participants and allocating such cost on an annual basis. This annual cost
                            allocation is the normal cost. Normal cost, expressed as a percentage of
                            payroll, for JSAS represents the amount of money that should be set aside
                            during the judges’ working and retirement years that, with investment
                            earnings, will be sufficient to cover future survivor benefit payments.
                            Normal cost calculations, prepared by an actuary, require that many
                            actuarial assumptions be made about the future, including mortality rates,
                            quit rates, return on investments, salary increases, and COLA increases over
                            the lifespans of current and future participants.

                            There are many acceptable actuarial methods for calculating normal cost.7
                             JSAS uses the aggregate cost method. Regardless of which cost method is
                            chosen, the total long-term cost of the plan will be the same; however,
                            year-to-year costs may differ depending on the cost method used. The
                            aggregate method ordinarily incurs higher annual cost in the early years
                            and lower cost in the later years, whereas the more commonly used
                            entry-age normal method gives a level annual cost over the years. One of
                            the principal reasons for this is that the aggregate method includes the
                            unfunded liability for participants’ past service (for which no contributions
                            were made at the time service was performed) as part of its normal cost,
                            while the entry-age normal method treats the unfunded liability separately
                            from the normal cost.


JSAS Costs for the 3-Year   On the basis of data from the first 2 full years under the Federal Courts
Period                      Administration Act of 1992, fiscal years 1994 and 1995, the participating
                            judges contributed about 36 percent of JSAS’ normal cost; and the
                            government’s share amounted to about 64 percent. For fiscal year 1993,
                            the government’s normal cost was based on an actuarial valuation that
                            preceded changes in participant benefits and contributions. Thus, the
                            fiscal year 1993 normal cost was not indicative of the government’s share
                            of JSAS’ cost under the 1992 Act. Table 1 shows the judges’ and

                            7
                             Acceptable actuarial cost methods for preparing the annual reports required under Public Law 95-595
                            include the accrued benefit (unit credit), entry-age normal, individual level premium, aggregate,
                            attained-age normal, and frozen initial liability.



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                                         government’s contribution rates and share of JSAS’ normal cost (using the
                                         aggregate cost method), for the period covered in our study.8


Table 1: Share of JSAS’ Normal Cost Borne by Participating Judges and Government, Fiscal Years 1993-1995
                                                                      Contributions to JSAS
                                                                                                                                      Fiscal
                                                                                                                                      years
                                             Fiscal year 1993              Fiscal year 1994             Fiscal year 1995            1994-1995
Source of contributions                        Ratea         Shareb             Ratea     Shareb           Ratea         Shareb          Shareb
Judges                                           2.35%          74.6%            2.24%       37.7%           2.23%          34.2%           35.8%
Government                                        0.8%c         25.4%             3.7%       62.3%            4.3%          65.8%           64.2%
Totals                                           3.15%         100.0%            5.94%     100.0%            6.53%         100.0%         100.0%
                                         a
                                             Normal cost expressed as a percentage of payroll.
                                         b
                                             Percentage of total normal cost.
                                         c
                                          The government’s normal cost for fiscal year 1993 was based on the September 30, 1992,
                                         actuarial valuation that preceded benefit and contribution changes to JSAS on October 29, 1992.

                                         Source: JSAS actuarial reports, 1993-1995.



                                         The judges’ and government’s contribution rates for each of the 3 years,
                                         shown in table 1, were based on the actuarial valuation that occurred at
                                         the end of the prior year. For example, the judges’ contribution of
                                         2.23 percent and the government’s contribution of 4.3 percent in fiscal year
                                         1995 were based on the September 30, 1994, valuation contained in the
                                         fiscal year 1994 actuarial report. The contribution rates for the judges were
                                         the expected contributions for the upcoming year excluding any purchase
                                         of prior creditable service at 3.5 percent or any reduction of 0.5 percentage
                                         point in the contribution rates, up to 18 months, for those judges who were
                                         enrolled in JSAS on October 29, 1992, the effective date of the 1992 Act.

                                         Although JSAS uses the aggregate cost method to determine normal cost,9
                                         officials from AOUSC contended that the entry-age normal cost method was
                                         a more appropriate measure to determine whether the participating judges
                                         were paying one-half of JSAS’ costs. Their reasoning was that when the
                                         judges’ share of the costs was determined in 1992, comparable costs were
                                         calculated for general employees and Members of Congress under the CSRS
                                         survivor benefit programs. It was estimated that these CSRS participants

                                         8
                                          Although outside the scope of our study, the fiscal year 1996 normal cost was 6.26 percent, a drop of
                                         0.27 percentage points from fiscal year 1995. However, the judges’ contributions to JSAS for fiscal year
                                         1996 remained at about 36 percent of normal cost.
                                         9
                                          AOUSC selected the aggregate cost method for JSAS in 1982.



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                           were paying about one-half of the costs. CSRS uses the entry-age normal
                           cost method, which treats separately the unfunded liability for
                           participants’ past service and provides a relatively constant year-to-year
                           annual cost.

                           Based on information provided by JSAS’ enrolled actuary, if the entry-age
                           normal cost method were used to determine JSAS’ normal cost, the
                           participating judges would have contributed 38 percent of JSAS’ normal
                           cost, or 2 percentage points more than under the aggregate cost method,
                           for the same 2-year period. This calculation was based on an estimated
                           entry-age normal cost of 5.96 percent for 1994 and 1995.


Adjustment That Would Be   How much of an adjustment that would be needed to the judges’
Needed in Judges’          contribution rates depends on which actuarial method for calculating
Contribution Rates         normal cost is used and the distribution of the adjustment among the
                           active and retired judges. Based on the information contained in JSAS’ 1995
                           actuarial report, as of September 30, 1995, the participating judges’ future
                           contributions would have to increase a total of 0.9 percentage points
                           above the current 2.2 percent of salary for active and senior judges and
                           3.5 percent of annuity for retired judges to cover one-half of JSAS’ costs. If
                           the increase were distributed equally among the judges, those contributing
                           2.2 percent would have to increase to 3.1 percent; and those contributing
                           3.5 percent would have to increase to 4.4 percent.

                           If the entry-age normal cost method were used to determine normal cost,
                           the participating judges’ contributions would have to increase a total of
                           0.7 percentage points to achieve the 50-percent figure. To ensure that the
                           increase is distributed equally among the judges, those contributing
                           2.2 percent would have to increase to 2.9 percent; and those contributing
                           3.5 percent would have to increase to 4.2 percent.

                           Because of the relatively small number of judges contributing 3.5 percent
                           (109 compared to 1,263 of those contributing 2.2 percent as of
                           September 30, 1995), the entire increase could be added solely to those
                           contributing 2.2 percent. Therefore, the 2.2 percent could be increased by
                           0.9 percentage points under the aggregate method and 0.7 percentage
                           points under the entry-age normal method.


Potential Drawback to      A potential impact associated with increasing the contribution rates could
Increasing Judges’         be a decline in the participation rate for JSAS. Increasing participation was
Contribution Rates         a major reason for the changes to JSAS over the years. The participation


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                          rate had increased from 38 percent before the 1992 Act was enacted to
                          67 percent as of September 30, 1995. Increasing the contribution rates
                          now, along with the potential for changing them every 3 years, could have
                          an impact on the judges’ decision to participate in JSAS. In a booklet
                          describing retirement benefits to the judges, AOUSC said that, if the
                          contribution rates were to change, it would ask Congress for an opt-out
                          provision for the judges already covered under JSAS. Currently, the only
                          way that participation for an active or retired judge may be revoked is
                          upon dissolution of the marriage, and there are no contribution refunds
                          until the judge’s death, if there are no survivors.


                          Based on our comparison of JSAS to the five other federal survivor benefit
Comparison of JSAS        plans in our study, we found that JSAS generally provides greater benefits.
to Other Federal          JSAS provides greater survivor spousal and children’s benefits than the

Survivor Plans            nonjudicial survivor plans in our study—CSRS, FERS, and the military’s SBP.
                          Members of Congress earn greater spousal benefits than general
                          employees under CSRS and FERS, but these benefits are still less than JSAS
                          benefit levels. Moreover, while a direct comparison of JSAS participant
                          contributions to the other survivor plans in our study cannot be made
                          because of differing program designs, we found that retired judges under
                          JSAS, Tax Court, and Court of Veterans Appeals survivor plans contributed
                          a smaller percentage of their retirement annuities than retirees under CSRS
                          and FERS, including Members of Congress and the military’s SBP.

                          We also found other JSAS features that were unique to JSAS or not available
                          in all of the other plans. These included counting retirement years in the
                          spousal benefit formula, refunding contributions to the participants’
                          estates if there are no survivors, and lower interest rates on purchasing
                          prior years creditable service.


JSAS Spousal and          JSAS spousal survivor benefits are greater than those provided by CSRS,
Children’s Benefits Are   FERS, or the military’s SBP. Children’s benefits are also higher under JSAS.
Greater Than Those of     The Tax Court and Court of Veterans Appeals plans provide spousal and
                          children benefit levels that are similar to those of JSAS because the benefits
Nonjudicial Plans         formulas are basically the same.

                          Figure 1 shows the spousal benefit replacement rates at various years of
                          creditable service for JSAS and the nonjudicial survivor plans that we
                          studied. The replacement rate is the initial survivor annuity computed as a
                          percentage of annual salary before retirement. For participants with



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                                                          comparable years of service, JSAS always provides greater survivor
                                                          benefits. While Members of Congress earn greater survivor benefits than
                                                          do general employees in CSRS or FERS, Members’ survivor benefits are still
                                                          less than JSAS benefits.



Figure 1: Comparison of Spousal Benefit Replacement Rates Among Selected Plans

Percentage of salary
60


                                                                                                                                                 f
                                                                                                                                                50
50
                                                                                                 45                                                  44
                                                                                                                                                          f
                                                                                                      41
40
                                                                                                                                                              36

                                                    30                                                     31               30                                                30
30                                                       28
           d
          25                                                                                                                                                       25
                d   d                                              d
               22 22                                          22                                                22
20                                                                                                                                                                      18
                                                                       17         16                                 15
                        13
                                                                            10
10                           8


                                    0e
 0




                                                                                                                                                                               P c
     AS




                                                  AS
                                     P c




                                                                                   P c




                                                                                                                       SB c




                                                                                                                                           AS
                                                                                            AS




                                                                                                          b     b                                        b     b
               CSRSbFERS b                               CSRSbFERS b                                  CSRS FERS                                      CSRS FERS
                                                                                                                         P
 JS




                                              JS




                                                                                                                                          JS
                                                                                           JS




                                                                                                                                                                             SB
                                  SB




                                                                                 SB




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     15 years of service                          20 years of service                       30 years of service                            35 years of service

     Surviving spouse's benefits a

      CSRS                                 FERS
                 Member of Congress               Member of Congress
                 General employee                 General employee




                                                          a
                                                           Does not include Social Security survivor benefits. Thus, total benefit levels to JSAS, CSRS
                                                          Members of Congress, and FERS survivors will be greater than the levels reported in this table.
                                                          Social Security provides a higher replacement rate for the survivors of lower wage earners than
                                                          higher wage earners.
                                                          b
                                                          Maximum amount based on survivors’ benefit formula for active or retired employee.




                                                          Page 12                                                                GAO/GGD-97-87 Federal Pensions
                         B-270286




                         c
                          Computations are based on (1) member’s service beginning after July 31, 1986, (2) surviving
                         spouse under age 62 (at age 62, SBP benefits are reduced to 35 percent of retirement pay to
                         reflect availability of Social Security benefits), and (3) regular military compensation, which is
                         considered to be the military equivalent of federal civilian pay. Regular military compensation
                         includes basic pay, tax-free subsistence and housing allowances, and the federal tax advantages
                         accruing from the tax-free allowances.
                         d
                          Minimum guaranteed amount. In CSRS, the guaranteed minimum surviving spouse benefit
                         applies only to active employees and Members. There is no guaranteed minimum surviving
                         spouse benefit for CSRS retirees.
                         e
                          No SBP benefits are available to survivors of military members with fewer than 20 years of
                         service unless the member is retired for disability or a specially enacted early retirement program.
                         f
                         Maximum allowable amount.

                         Source: Survivor benefit plans data.


JSAS Survivor Benefits   JSAS spousal survivor benefits are equal to 1.5 percent of the judge’s
                         average annual salary received during the 3 highest paid years (known as
                         the “high 3”) for each year of creditable service, which includes
                         employment and retirement. Regardless of years of service credits, the
                         minimum benefit is 25 percent of high 3, and the maximum benefit is
                         50 percent of high 3. It takes 33 years and 4 months of creditable service to
                         earn a survivor benefit equal to 50 percent of high 3. It would take 16 years
                         and 8 months of creditable service to earn a survivor benefit of 25 percent
                         of high 3 were it not for the guaranteed minimum. Judges and their
                         survivors are also eligible for Social Security benefits in addition to JSAS
                         benefits.

CSRS Survivor Benefits   CSRS survivor benefits for general employees are based on actual or
                         accrued annuity amounts, not high-3 salaries. The maximum retirement
                         annuity is 80 percent of high 3, which can be reached with 41 years and 11
                         months of service. The survivor benefit is 55 percent of the annuity.
                         Therefore, the maximum survivor benefit is 44 percent of high 3. If an
                         employee worked 33 years and 4 months—the creditable years of service
                         required for JSAS survivors to receive 50 percent of high 3—the CSRS
                         survivor benefit would be 34.6 percent of high 3.

                         Unlike JSAS, CSRS does not guarantee a minimum survivor benefit for
                         retirees. However, it does have a minimum for active employees,
                         22 percent of high 3. Survivor benefits greater than 22 percent of high 3 are
                         available only after about 21 years and 10 months of service, compared
                         with 16 years and 8 months a JSAS participant must work and/or be retired
                         to earn survivor benefits greater than 25 percent of high 3. It would take a
                         CSRS employee 24 years and 8 months of service to earn a survivor benefit
                         of 25 percent of high 3. Unlike the other five survivor plans in our study,



                         Page 13                                                          GAO/GGD-97-87 Federal Pensions
                          B-270286




                          CSRS general employees generally receive no Social Security benefits
                          (regular or survivor) from their federal service.10

CSRS Member of Congress   The maximum retirement annuity for Members of Congress under CSRS is
Survivor Benefits         80 percent of the higher of high 3 or final salary. The survivor benefit
                          formula is the same for Members as for general employees; therefore,
                          44 percent of high 3 or final salary is also the maximum survivor benefit
                          for Members. However, a Member can reach the 80 percent annuity
                          maximum after 32 years of service because the percentage of salary used
                          in the retirement formula is higher. Therefore, even though a Member can
                          never earn a survivor benefit as large as a judge under JSAS, he or she can
                          earn the maximum survivor benefit 1 year and 4 months sooner than the
                          judge. Under CSRS, Members can earn more than the guaranteed 22 percent
                          minimum survivor benefit by working longer than 16 years. Members
                          would have to work 18 years and 2 months to earn a survivor benefit equal
                          to the 25 percent of high 3 guaranteed by JSAS.

FERS Survivor Benefits    The FERS defined benefit plan for general employees has no maximum or
                          minimum survivor benefits. FERS is a three-part retirement package that
                          includes (1) a defined benefit plan, (2) a Thrift Savings Plan11 (TSP), and
                          (3) Social Security. For deceased employees, the survivor benefit is a
                          lump-sum payment, currently $21,335 plus one-half the higher of the
                          employee’s high 3 or salary at the time of death, and, if the employee had
                          at least 10 years of service, an annuity equal to 50 percent of the
                          employee’s accrued annuity. Survivors of retirees receive either 50 or
                          25 percent of the retiree’s annuity, depending on the amount of annuity
                          reduction the retiree elects. For the FERS defined benefit plan to provide a
                          survivor benefit equal to 25 percent of high 3—the minimum guaranteed
                          by JSAS—an employee would have to work 45 years and 6 months. It would

                          10
                            Relatively few federal employees are covered by CSRS and Social Security at the same time. These
                          employees participate in the “CSRS Offset” plan. They are employees who were rehired into federal
                          service after 1983 with a break in service of more than 1 year but had at least 5 years of creditable
                          civilian service at the time they separated from service and chose not to participate in FERS.
                          Employees pay the Social Security tax plus a small contribution to CSRS, which equates to the regular
                          CSRS employee contribution of 7 percent. At age 62, CSRS Offset retiree annuities are reduced to
                          reflect the availability of Social Security benefits.
                          11
                           TSP is a tax-deferred retirement savings and investment plan, similar to what private corporations
                          offer their employees under 401(k) plans. For each employee covered by FERS, including Members of
                          Congress, the government contributes 1 percent of salary to the employee’s TSP account. The
                          government contributes additional amounts to match any contributions the employee makes to TSP.
                          The government matches, dollar-for-dollar, employee contributions up to 3 percent of salary and 50
                          cents on the dollar for each of the next 2 percent of salary the employee contributes. Employees may
                          contribute another 5 percent of salary to TSP with no government matching.

                          Most judges and Members of Congress and general employees in CSRS may participate in TSP. They
                          can contribute up to 5 percent of their salaries to TSP, but the government makes no contribution to
                          their accounts. Tax Court judges and military members cannot participate in the TSP.



                          Page 14                                                          GAO/GGD-97-87 Federal Pensions
                                 B-270286




                                 take over 90 years of service to provide a survivor benefit equal to
                                 50 percent of high 3—the maximum available after 33 years and 4 months
                                 in JSAS.

                                 The TSP component of FERS, to which most employees and the government
                                 contribute, has no survivor benefits as such. If a participant dies before
                                 withdrawing all his or her account balance, the survivors receive the
                                 remainder. A spousal waiver is generally required for withdrawals other
                                 than a joint life annuity. If the retiree purchases a 100 percent joint life
                                 annuity with spouse,12 the retiree’s annuity is actuarially reduced to cover
                                 the full cost of the survivor benefit. In any event, TSP pays the same total
                                 amounts to retirees and survivors as would have been paid to the retiree
                                 alone.

                                 FERS employees and their survivors also receive Social Security benefits. If
                                 the surviving spouse is not eligible for Social Security benefits, a special
                                 supplementary annuity is provided that approximates the value of FERS
                                 service in a Social Security benefit. Like JSAS, Social Security spousal
                                 survivor benefits are completely additive to spousal survivor benefits
                                 under the FERS defined benefit plan. However, unlike JSAS, Social Security
                                 benefits for surviving children are deducted, dollar-for-dollar, from FERS
                                 benefits.

FERS Member of Congress          Similarly, the FERS defined benefit plan for Members of Congress has no
Survivor Benefits                maximum or minimum survivor benefits. It would take 36 years of service
                                 for a Member to earn survivor benefits equal to the guaranteed minimum
                                 of 25 percent of high 3 available under JSAS. It would take 86 years of
                                 service for a Member to earn survivor benefits of 50 percent of high 3—the
                                 maximum under JSAS—that a judge can earn in 33 years and 4 months of
                                 work and retirement.

Military SBP Survivor Benefits   Under the military’s SBP, if the member dies with 20 years or more of
                                 service, the full spousal annuity is 55 percent of the member’s retirement
                                 pay, with a minimum of 35 percent and maximum of 55 percent of
                                 retirement pay. After the surviving spouse reaches age 62, SBP benefits are
                                 reduced to 35 percent of retirement pay to reflect the availability of Social
                                 Security benefits. For those members who die before completing 20 years,
                                 protection is available through a survivors’ program for service-related
                                 deaths administered by the Department of Veterans Affairs, Social Security
                                 benefits, and/or life insurance.

                                 12
                                  A 50 percent joint life annuity is available whereby the monthly payment to the survivor, retiree or
                                 spouse, is one-half of the annuity payment made while both retiree and spouse were alive.



                                 Page 15                                                           GAO/GGD-97-87 Federal Pensions
                                B-270286




Children’s Benefits Under the   Children’s benefits under JSAS, expressed as a percentage of salary, are
Various Plans                   higher than those under CSRS and FERS except where the high-3 salary of a
                                CSRS or FERS employee falls below $40,440. Under the military’s SBP,
                                children’s benefits must be purchased separately. For a surviving spouse
                                with children under JSAS, each child receives an annuity of the lesser of
                                10 percent of average salary or 20 percent of high-3 salary divided by the
                                number of children.13 Under CSRS, each child receives a fixed dollar
                                amount—the lesser of $4,044, $12,132 divided by the number of children,
                                or 60 percent of the high-3 salary divided by the number of children. FERS
                                provides similar dollar amounts. The amounts under CSRS and FERS are
                                adjusted annually for inflation. If there is no surviving spouse, the amounts
                                increase under both plans.

Differing Program Designs       The survivor benefit contributions for employees and Members of
Preclude Direct Comparisons     Congress in CSRS and FERS are incorporated into their basic retirement
of Contributions Among Plans    plans, whereas JSAS, the Tax Court, and the U.S. Court of Veterans Appeals
                                plans have separate and identifiable contribution rates for survivor
                                benefits. Because OPM does not report the survivor portion of retirement
                                contributions for CSRS and FERS, direct comparisons of employee
                                contribution requirements among the plans cannot be made. Participants
                                in all the programs except CSRS14 are also covered by Social Security to
                                which they must contribute and from which survivor benefits are
                                available.

                                While the differing designs of the various plans preclude definitive
                                comparisons of employee contributions toward survivor benefit costs, it is
                                clear that retirees under CSRS, FERS, and the military’s SBP must contribute
                                larger percentages of their annuities than retired judges must contribute
                                under JSAS in order for their survivors to receive benefits upon the retirees’
                                deaths. Retired Tax Court and Court of Veterans Appeals judges
                                contribute at the same rate as retired judges under JSAS. Table 2 shows the
                                participants’ contribution rates for the six federal survivor plans in our
                                study.




                                13
                                  At the end of fiscal year 1995, the average salary/retirement pay for participating active and retired
                                judges was about $126,500.
                                14
                                  CSRS Members of Congress are covered by Social Security.



                                Page 16                                                             GAO/GGD-97-87 Federal Pensions
                                          B-270286




Table 2: Participants’ Contributions to
the Six Federal Survivor Benefit Plans                                                                       Participants’ contribution rate
                                                                                                             (expressed as a percentage of
                                                                                                                    salary or annuity)
                                          Federal survivor plans                                                   Active                 Retired
                                          JSAS                                                                         2.2%                        3.5%
                                          Tax Court Survivors’ Annuity Plan                                            3.5%                        3.5%
                                          Court of Veterans Appeals Judges Retirement Plan                             3.5%                        3.5%
                                          CSRS                                                                                    2.5% of $3,600
                                                                                                                                     plus 10% of
                                                                                                                           a
                                                                                                                                          excessc
                                                                                                                           a
                                          FERS                                                                                                     10%d
                                                                                                                           b
                                          Military’s SBP                                                                                           6.5%c
                                          a
                                           No portion of participants’ contributions to the retirement plan is designated for survivors’ benefit
                                          costs.
                                          b
                                           Military members do not contribute to their retirement plan, and survivor benefits are not
                                          available until the member is eligible to retire.
                                          c
                                           For reduced survivor benefits, a lesser portion of the retirement annuity may be designated as
                                          the base for the survivor benefit computation.
                                          d
                                          Maximum contribution rate for full survivor benefits, 5 percent for reduced survivor benefits.

                                          Source: Survivor benefit plans data.



                                          JSAS requires active and senior status judges to contribute 2.2 percent of
                                          their salaries towards the costs of JSAS. Retired judges must contribute
                                          3.5 percent of their retirement annuities to JSAS. In contrast, survivor
                                          benefit plans for judges under the Tax Court and Court of Veterans
                                          Appeals require all participating judges, active and retired, to contribute
                                          3.5 percent of their salaries and annuities toward plan costs.

                                          Judges in the three retirement plans that are associated with JSAS have
                                          varying participant contribution requirements. Judges in the Judicial
                                          Officers’ Retirement Fund contribute 1 percent of their salaries for no
                                          more than 14 years toward the cost of their retirement benefits, while
                                          judges in the Judicial Retirement System and the Court of Federal Claims
                                          Judges’ Retirement System make no contributions toward retirement
                                          benefits. Additionally, Tax Court judges do not contribute toward their
                                          retirement benefits while Court of Veterans Appeals judges contribute
                                          1 percent of their salaries for no more than 15 years toward their
                                          retirement benefits.




                                          Page 17                                                            GAO/GGD-97-87 Federal Pensions
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Most employees in CSRS contribute 7 percent of their salaries to the
retirement plan during their working years. Certain groups with special
benefits not available to general employees contribute amounts greater
than 7 percent. For example, Members of Congress receive more generous
retirement benefits and must contribute 8 percent of their salaries. While
annuities are available to the survivors of employees and Members who
die before retirement, no portion of the required contribution is designated
as being the employee’s or Member’s share of survivor benefit costs.
Rather, the contributions represent the share of all system costs, including
survivor benefit costs, that participants must pay. Similarly, the retirement
plan portion of FERS requires employees to contribute 0.8 percent of their
salaries and Members to contribute 1.3 percent of their salaries toward
total plan costs, with no specified portion of these contributions being
designated as contributions toward survivor benefit costs. Active military
personnel do not contribute toward the cost of the Military Retirement
System; however, the plan provides no survivor benefits to personnel who
die before they are eligible to retire.

Active judges in all of the above-mentioned judicial retirement systems
and participants in FERS and the Military Retirement System must make
Social Security contributions. In 1997, the required Social Security
contribution is 6.2 percent of earnings up to $65,400. Social Security
benefits are available to the survivors of deceased participants in all of
these systems, but like CSRS and FERS, no portion of the Social Security
contribution is designated as being for survivor benefit costs. CSRS
participants, except for Members of Congress, are not covered by Social
Security.

CSRS retirees who wish to provide annuities to surviving spouses upon
their deaths must accept reductions in their annuity amounts. They may
designate any portion of their annuities as the base for spousal survivor
benefits and then accept reductions equal to 2.5 percent of the first $3,600
of the designated annuity amount and 10 percent of any designated
amount greater than $3,600. Retirees under FERS have somewhat different
options for providing benefits to their surviving spouses. They may have
their annuities reduced by either 10 percent or 5 percent, depending on the
level of spousal survivor benefits they desire to provide. Regardless of
whether CSRS and FERS retirees elect to have their annuities reduced to
provide benefits to their surviving spouses, benefits are payable to any
eligible surviving children without an annuity reduction.




Page 18                                          GAO/GGD-97-87 Federal Pensions
                          B-270286




                          Military retirees may designate their retirement annuity or a lesser elected
                          base amount as the base for survivor benefits. Military retirees accept
                          annuity or lesser elected base reductions of 6.5 percent to provide spousal
                          survivor benefits and further reductions to provide benefits to surviving
                          children. The amount of annuity reduction for children’s survivor benefits
                          varies, depending on the age of the youngest child and whether there is a
                          surviving spouse.

                          The varying contribution requirements among JSAS, CSRS, FERS, and military
                          retirees who provide survivor benefits to their survivors are best
                          illustrated with an actual computation. A U.S. District Court judge who
                          retired in 1996 would receive an annual annuity of $133,600. To provide
                          survivor coverage under JSAS, the retired judge would contribute
                          3.5 percent of annuity or $4,676. If the judge were subject to the annuity
                          reduction requirements of CSRS or FERS and wished to provide the
                          maximum survivor benefits, the required reduction would be $13,090
                          under CSRS and $13,360 under FERS, or at least $8,414 a year more than the
                          contribution required by JSAS. Similarly, if the judge were subject to the
                          military SBP reduction requirements, the reduction would be $8,684 for the
                          basic package, and $4,008 more than required by JSAS.


Other Differences Among   In addition to the spousal and children’s benefits, other features of the
the Survivor’s Benefit    survivor’s plans in our study are different, but there are similarities. Table
Plans                     3 shows a summary comparison of these other features of the six federal
                          survivors plans in our study.




                          Page 19                                           GAO/GGD-97-87 Federal Pensions
                                              B-270286




Figure 3: Summary Features of the Six Federal Survivor Benefit Plans

                                                                                                                                 Six federal
                                                                                  Tax Court of Survivors'        Court of Veterans Appeals
                                                          JSAS                                                   Judges Retirement Plan
                                                                                  Annuity Plan




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Plan Feature

Minimum service requirement   18 months                          5 years                         5 years
Marriage duration             1 year                             2 years                         2 years
Minimum age of surviving      None                               50, any age with children       50, any age with children
spouse
Participation election        Within 6 months of                 Anytime in office, before       Anytime in office
                              taking office or marriage          successor takes office

Participation withdrawal
Deferred annuity

Surviving spouse benefit      1.5% of pay x years of             1.5% of pay x years of          1.5% of pay x years of
formula (after retirement)    service, including                 serviced                        serviced
                              retirementd
Surviving spouse benefit      Same as after                      Same as after                   Same as after
formula (before retirement)   retirement                         retirement                      retirement



Minimum/maximum benefit       25%/50%                            25%/50%                         25%/50%
(percentage of pay)
Children benefits             Lesser of 10% of pay per           Lesser of 10% of pay per        Lesser of 10% of pay per
(with surviving spouse)       child or 20% of pay                child or 20% of pay             child or 20% of pay
                              divided by number of               divided by number of            divided by number of
                              children                           children                        children
Children benefits             Lesser of 20% of pay per           Lesser of 20% of pay per        Lesser of 20% of pay per
(with no surviving spouse)    child or 40% of pay                child or 40% of pay             child or 40% of pay
                              or spousal annuity divided         divided by number of            divided by number of
                              by number of children              children                        children
Cost-of-living adjustment     Full CPI                           3% for each                     3% for each
                                                                 5% increase in judges'          5% increase in judges'
                                                                 pay                             pay




                                              Page 20                                                        GAO/GGD-97-87 Federal Pensions
                                                   B-270286




             survivor plans
                                                                                       Military Retirement System's
                             CSRS                                FERS
                                                                                       SBP


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18 months                           18 months                           20 yearsa
9 months                            9 months                            1 yearb
None                                None                                None

At retirement; after                At retirement; after                At retirement; after
retirement, within 2 years          retirement, within 2 years          retirement, within 1 year
of marriagec                        of marriagec                        of marriagec


Only Members of
Congress
55% of retirement pay               50% of retirement pay +             55% of retirement paye
                                    special supplement or
                                    Social Security
Higher of 55% of                    Lump sum + one-half                 None (VA provides
retirement pay or disability        annual pay and 50% of               benefits for service-
formula                             retirement pay if 10 or             related deaths)
                                    more years
22%/44%f                            0/0                                 35%/55%g

Lesser of $4,044 per child          Lesser of $4,044 per child          No separate annuity
or $12,132 or 60% of                or $12,132 divided by
pay divided by number of            number of children
children
Lesser of $4,824 per child          Lesser of $4,824 per child          55% of retirement pay
or $14,472 or 75% of                or $14,472 divided by               divided by number of
pay divided by number of            number of children                  children
children
Full CPI                            Modified CPI                        Modified CPI




                                                   a
                                                    No mandatory years of service if member retires under disability or early retirement.




                                                   Page 21                                                            GAO/GGD-97-87 Federal Pensions
B-270286




b
 Applies only to marriage after retirement; there is no minimum marriage duration before
retirement.
c
 Coverage is automatic for employees/members after meeting the eligibility requirements; retirees
can elect to continue survivor benefit coverage.
d
Years of service other than judicial may be included at 0.75 percent of pay.
e
 Benefits are reduced to 35 percent of retirement pay at survivor’s age 62 to reflect availability of
Social Security benefits.
f
 Minimum survivor benefits for deceased employees; there is no guaranteed minimum for retirees’
survivors.
g
 Minimum survivor benefits are 55 percent of a minimum $300 base amount and the maximum
survivor benefits are 55 percent of full retirement pay.

Source: Survivor benefit plans data.


Under JSAS, the judges’ years of service in the survivor benefit formula
include those years in retirement. The survivor benefit formulas for the
other five plans do not include the retirement years, even though
participants under all six plans make contributions in retirement.

Refunding of the contributions to participants’ estates, if there are no
survivors, varies among the three judicial and three nonjudicial plans.
Those who choose to participate in the survivor plans must contribute a
designated amount to the plan. Under the JSAS, Tax Court, and Court of
Veterans Appeals plans, contributions plus 3 percent interest are paid to
the judges’ estates if there are no survivors. Conversely, there are no
refunds to the estates of CSRS, FERS, and military SBP participants. While
participants in all six plans may stop their contributions upon the
dissolution of the marriage, only the participants in the three judicial plans
can receive refunds upon leaving office. However, JSAS participants cannot
receive refunds on those contributions of 2.2 percent of salary under the
1992 Act.

Creditable service rendered in prior years, for which contributions were
withdrawn or not withheld, may be purchased under all of the plans,
except the Military Retirement System and FERS for service performed
after 1988 or any contribution withdrawal, with differing rates of interest
paid by the participants. The years of creditable service are used in the
formula for determining retirement and/or survivor benefit amounts.
Survivor annuities under the three judicial plans and retirement annuities
under CSRS, for work performed before October 1982, may be reduced by
10 percent of the unpaid contributions for prior service at the time of the
participant’s death. JSAS, Tax Court, and Court of Veterans Appeals



Page 22                                                            GAO/GGD-97-87 Federal Pensions
                     B-270286




                     participants pay 3.5 percent of the salary earned during the earlier service
                     plus 3 percent interest. CSRS and FERS participants pay 7 percent and
                     1.3 percent, respectively, of salary earned during the earlier service at
                     current interest determined by the Secretary of the Treasury. CSRS
                     participants may be required to make payment to receive credit for prior
                     military service. For FERS participants to receive credit for prior military
                     service, 3 percent of the earned military base pay plus current interest
                     determined by the Secretary of the Treasury must be paid. The other plans
                     do not require payment to receive credit for prior military service.

                     All six plans have employee minimum-service requirements before
                     survivors become eligible for benefits, ranging from 18 months to 5 years
                     with the military’s requirement set at 20 years. There is a minimum
                     marriage duration before the employee’s death, ranging from 9 months to 2
                     years for all of the plans except the military’s SBP; however, a child of the
                     marriage overrides the marriage tenure. Although two of the plans, Tax
                     Court and Court of Veterans Appeals, have a minimum-age requirement
                     before a surviving spouse can begin receiving benefits, there is no age
                     requirement if there are eligible dependent children of the marriage.
                     Electing to participate in these optional survivor plans varies from the
                     time of taking office with JSAS to the time of retirement with CSRS, FERS, and
                     the military’s SBP; employees in the latter three plans are automatically
                     covered after meeting the eligibility requirements. Two plans, JSAS and
                     FERS, and Members of Congress under CSRS provide for a deferred annuity
                     for a surviving spouse. All six plans have some type of COLA, with four of
                     them tied to the yearly changes in the CPI.

                     Details on the various features of the six plans are provided in appendix I.


                     The Director of AOUSC provided written comments on a draft of this report.
Agency Comments      AOUSC’s comments and our detailed responses to them are contained in
and Our Evaluation   appendix II.

                     In general, AOUSC believed that we should have (1) stressed more that the
                     judges’ contributions have exceeded the government’s contributions,
                     (2) used the entry-age normal cost method with a different weighting for
                     retired judges’ contributions to determine the judges’ future costs, and
                     (3) included Social Security and TSP benefits in the comparison of the
                     survivor plans that we studied.




                     Page 23                                          GAO/GGD-97-87 Federal Pensions
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AOUSC believed that we should have highlighted that the judges have
actually contributed more than the government to JSAS during the 3-year
period covered by our study and, as a matter of record, more than the
government over the last 10 years. Our report did provide this context,
pointing out that the judges have paid more into JSAS than the government
before and after the 1992 Act. However, as directed by statute, our
objective was to determine whether the judges were paying one-half of
JSAS’ future costs, as opposed to comparing the judges’ and government’s
share of total JSAS contributions in any particular year.

AOUSC  believed that we overstated the adjustment needed for the judges to
cover one-half of JSAS’ future costs. AOUSC said that the adjustment would
have been less had it been computed using the entry-age normal cost
method, rather than the aggregate normal cost method, and a different
weighted contribution rate for the judges. AOUSC provided a revised table
based on the entry-age normal method and its proposed new weights for
the judges’ contributions. We recognize that the entry-age and aggregate
approaches are both acceptable methods for determining normal cost and
have shown in the report that the adjustment would have been smaller
using the entry-age method. However, we used the aggregate cost method
as our primary cost comparison approach for consistency reasons.
Specifically, this was the method that was used in JSAS’ 595 Reports and in
comparing JSAS’ normal costs to other federal survivor benefit plans in the
report of the House Judiciary Committee accompanying the 1992 Act.15
With respect to using a different weighted contribution rate for the judges,
at issue are AOUSC’s past and current assumptions about the rate at which
judges retire. In its comments, AOUSC asserted a higher retirement rate than
the one that was used in preparing the JSAS 595 Reports and that AOUSC
made available during our review. We recognize that actuarial
assumptions vary from year-to-year and can yield different results.
However, we believe it is appropriate to rely on the weighted contribution
rate for the judges that AOUSC presented in its published JSAS 595 Reports,
which are the official public record of JSAS’ fiduciary soundness.

AOUSC also said that our comparison of federal survivor plans should have
included any benefits available to survivors from Social Security and TSP.
While we recognized and have noted in our report that Social Security
survivor benefits and TSP investments can contribute to a surviving
spouse’s income, we disagree that they should have been included in our
comparison of the federal survivor benefit plans. In the House Judiciary
Committee report accompanying the 1992 Act, Social Security benefits

15
  H. Rep. 102-1006, 102d Congress.



Page 24                                         GAO/GGD-97-87 Federal Pensions
B-270286




were not included in the comparison of JSAS to the other federal survivor
benefit plans. Also, the act specifically required us to compare JSAS to the
other federal survivor plans, and—as noted in the report—Social Security
contributions and benefits are separate and apart from such plans. Finally,
had we added Social Security benefits into our comparison, we believe the
most appropriate comparison would have been between the judges in JSAS
and Members of Congress and higher-graded FERS general employees
because of Social Security’s benefit structure. In this regard, Members in
either CSRS and FERS, higher-graded FERS general employees, and JSAS
survivors should receive about the same level of Social Security survivor
benefits because the salary levels of judges, Members of Congress, and
higher-graded FERS general employees are similar.

We also do not agree that TSP investments should have been included in
our comparison because TSP does not provide survivor benefits. As stated
in the report, TSP is a tax-deferred retirement savings and investment plan.
If an employee or retiree dies and has a TSP account, the surviving spouse
can receive the proceeds from the account or an annuity if one had been
purchased with the TSP proceeds at retirement. However, survivors
generally have no statutory entitlement to TSP account balances as they do
to the federal plans’ survivor benefits. Spouses of retired FERS employees
must waive their rights to any TSP withdrawal option other than a
50-percent joint life annuity. Moreover, just as with Social Security
benefits, TSP was not included in the federal survivor benefit plans’
comparison in the House Judiciary Committee report on the 1992 Act.

Based on its view that we should have used the entry-age normal method
and different retirement rate assumptions to determine the adjustment
that would be necessary for the judges to pay one-half of JSAS’ future costs,
AOUSC prepared an alternative table to ours using its preferred cost method
and retirement assumptions. It also prepared alternative tables comparing
survivor benefits and participant contributions that included TSP and
Social Security. Our detailed responses to these tables are provided in
appendix II. Caution should be exercised in drawing conclusions from
these tables because of technical errors in the tables and because the
assumptions underlying them appear to underestimate the shortfall in the
judges’ contributions and survivor benefits.


We are sending copies of this report to the Chairmen and Ranking
Minority Members of the Senate Subcommittee on Administrative
Oversight and the Courts and the House Subcommittee on Courts and



Page 25                                          GAO/GGD-97-87 Federal Pensions
B-270286




Intellectual Property of the Committees on the Judiciary, the Director of
AOUSC, and other interested parties. Copies will also be made available to
others upon request.

Major contributors to this report are listed in appendix III. If you have any
questions, please call me at (202) 512-9039.




Michael Brostek
Associate Director, Federal Management
  and Workforce Issues




Page 26                                          GAO/GGD-97-87 Federal Pensions
Page 27   GAO/GGD-97-87 Federal Pensions
Contents



Letter                                                                                             1


Appendix I                                                                                        30
                        Judicial Survivors’ Annuities System                                      30
Features of Selected    U.S. Tax Court Survivors’ Annuity Plan                                    33
Federal Survivor        U.S. Court of Veterans Appeals Judges Retirement Plan                     36
                        Civil Service Retirement System                                           38
Benefit Plans           Federal Employees Retirement System                                       42
                        Military Retirement System’s Survivor Benefit Plan                        45

Appendix II                                                                                       50

Comments From the
Administrative Office
of the U.S. Courts
Appendix III                                                                                      60

Major Contributors to
This Report
Tables                  Table 1: Share of JSAS’ Normal Cost Borne by Participating                 9
                         Judges and Government, Fiscal Years 1993-1995
                        Table 2: Participants’ Contributions to the Six Federal Survivor          17
                         Benefit Plans

Figures                 Figure 1: Comparison of Spousal Benefit Replacement Rates                 12
                          Among Selected Plans
                        Figure 3: Summary features of the Six Federal Survivor Benefit            20
                          Plans

                        Abbreviations

                        AOUSC      Administrative Office of the U.S. Courts
                        COLA       cost-of-living adjustment
                        CPI        Consumer Price Index
                        CSRS       Civil Service Retirement System
                        FERS       Federal Employees Retirement System
                        JSAS       Judicial Survivors’ Annuities System
                        OPM        Office of Personnel Management
                        SBP        Survivor Benefit Plan
                        TSP        Thrift Savings Plan


                        Page 28                                        GAO/GGD-97-87 Federal Pensions
Page 29   GAO/GGD-97-87 Federal Pensions
Appendix I

Features of Selected Federal Survivor
Benefit Plans

                               This appendix lists the various features of the six selected federal survivor
                               benefit plans. Two of the survivor plans, the Judicial Survivors’ Annuities
                               System (JSAS) and the U.S. Tax Court Survivors’ Annuity Plan, are
                               stand-alone plans. For those judges who participate in the JSAS, the
                               companion retirement and disability benefits plans include the Judicial
                               Retirement System, the Judicial Officers’ Retirement Fund, and the Court
                               of Federal Claims Judges’ Retirement System. The Tax Court judges’
                               retirement and disability plan is called the U.S. Tax Court Retirement Plan.
                               The remaining four survivor plans are part of larger retirement systems
                               that also provide retirement and disability benefits to participants. The six
                               plans are as follows:

                           •   Judicial Survivors’ Annuities System
                           •   U.S. Tax Court Survivors’ Annuity Plan
                           •   U.S. Court of Veterans Appeals Judges Retirement Plan
                           •   Civil Service Retirement System
                           •   Federal Employees Retirement System
                           •   Military Retirement System’s Survivor Benefit Plan



Judicial Survivors’
Annuities System

Contribution Rates             Employee/retiree contribution rate. Active and “senior status” judges and
                               other judicial officials contribute 2.2 percent of salary and retired judges
                               and judicial officials contribute 3.5 percent of retirement annuity to
                               participate in JSAS. Prior creditable service may be credited to JSAS if
                               deposits equal to 3.5 percent of salary earned during the earlier service
                               plus 3 percent interest are paid. No deposits are required for prior military
                               service.

                               Government contribution rate. The government’s share of contribution is
                               the amount required to reduce the unfunded liability to zero, not to exceed
                               9 percent of salary or retirement annuity.


Eligibility Requirements       Years of service. A judicial official must have at least 18 months of judicial
for Survivor Benefit           service and contributions to JSAS before becoming vested in the plan.
Coverage



                               Page 30                                           GAO/GGD-97-87 Federal Pensions
                           Appendix I
                           Features of Selected Federal Survivor
                           Benefit Plans




                           Marriage Duration. A surviving spouse must have been married to the
                           judicial official at least 1 year before the official’s death or be a parent of a
                           child of the marriage. A former spouse must have been married to the
                           judicial official at least 9 months.

                           Commencement/termination of benefits. Benefits commence on the date
                           of the judicial official’s death. If a surviving or former spouse remarries
                           before age 55, benefits for that spouse are terminated.


Participation Election     The election must be made within 6 months of taking office or getting
                           married.

                           Former spouse. The judicial official’s election must have been in effect at
                           the time of divorce. An election to provide a survivor annuity must be
                           made at the time of retirement or, if later, within 2 years after the marriage
                           was dissolved.

                           Insurable interest.16 Not applicable.

                           Deferred retirement. The judicial official must file a written notification,
                           within 90 days before leaving office, of the intent to remain under JSAS and
                           contribute 3.5 percent of the deferred retirement annuity amount.


Withdrawal of              Participation may be revoked upon the dissolution of the marriage. The
Participation              contributions plus 3 percent interest, minus those paid at 2.2 percent of
                           salary and 3.5 percent of salary for prior creditable service, may be paid to
                           the judge upon leaving office. If there is no eligible surviving spouse or
                           child upon the death of the judicial official, the contributions plus
                           3 percent interest are paid to the judicial official’s estate.


Survivor Benefit Formula   After retirement. The annual spousal annuity is 1.5 percent of average
                           salary17 for each year of creditable judicial service (including years in
                           retirement) and as a Member of Congress and up to 15 years of combined
                           congressional staff and executive branch service and up to 5 years of
                           military service, plus 0.75 percent of average salary for congressional staff

                           16
                             An insurable interest beneficiary is one who can reasonably expect to receive financial benefit from
                           the continued life of the retiree.
                           17
                            Average salary is the average annual salary and/or retirement annuity received during the 3 highest
                           paid years.



                           Page 31                                                           GAO/GGD-97-87 Federal Pensions
                                 Appendix I
                                 Features of Selected Federal Survivor
                                 Benefit Plans




                                 and executive branch service over 15 years. Creditable years include those
                                 where deductions or contributions were made to the plan, except for
                                 military service.

                                 Before retirement. Same as after retirement.

                                 Insurable interest. Not applicable.

                                 Deferred retirement. Same as after retirement. Benefit formula includes
                                 time between leaving office and starting spousal annuity.

                                 Minimum/maximum amount of benefit. Spousal annuity may not be
                                 greater than 50 percent or less than 25 percent of average annual salary.


Reduction of Annuity for         Spousal annuity is reduced by 10 percent of any judicial and nonjudicial
Unpaid Contributions for         service deposits that are still unpaid on the date of the judicial officer’s
Prior Service                    death. The survivor may elect not to count years for which contributions
                                 were not paid for prior service and not incur a reduced annuity.


Children’s Benefits              Age of children. Surviving unmarried dependent children must be under
                                 age 18 or age 22 if full-time student or incapable of self-support due to a
                                 disability incurred before age 18 or age 22 if a student.

                                 Benefit computation. If the judicial official is survived by a spouse, each
                                 child’s annual annuity is the lesser of

                             •   10 percent of average salary or
                             •   20 percent of average salary divided by number of children.

                                 If the judicial official is not survived by a spouse, each child’s annual
                                 annuity is the lesser of

                             •   spousal annuity divided by number of children,
                             •   20 percent of average salary, or
                             •   40 percent of average salary divided by number of children.


Cost-of-Living Adjustments       Survivors’ annuities are increased for full annual increase in the Consumer
                                 Price Index (CPI). The adjustment measures yearly change in third quarter
                                 to third quarter CPI for urban wage earners and clerical workers.



                                 Page 32                                           GAO/GGD-97-87 Federal Pensions
                              Appendix I
                              Features of Selected Federal Survivor
                              Benefit Plans




Social Security Eligibility   A surviving spouse with children or children only are generally eligible for
and Benefits                  Social Security benefits if the employee paid Social Security taxes and
                              worked at least 18 months in the 3 years preceding death. Benefits are paid
                              to the surviving spouse at age 60 (age 50 if disabled) or at any age if there
                              are surviving children under age 16 or children who were disabled before
                              age 22. Benefits are also paid to unmarried children under age 18 and up to
                              age 19 if they are full-time students.

                              Former spouses, with marriages lasting 10 years or more, are eligible for
                              benefits similar to those of surviving spouses as well as those former
                              spouses with children who are under age 16 or at any age if disabled
                              before age 22.

                              A surviving spouse or minor children may receive a one-time payment of
                              $255 and monthly benefits. The monthly benefit is a percentage of the
                              deceased employee’s or retiree’s basic Social Security benefit ranging from
                              75 to 100 percent for each beneficiary. The maximum amount that a family
                              may receive is generally equal to about 150 to 180 percent of the
                              employee’s or retiree’s benefit rate.



U.S. Tax Court
Survivors’ Annuity
Plan

Contribution Rates            Employee/retiree contribution rate. Active and retired judges contribute
                              3.5 percent of salary and retirement annuity to participate in the plan.
                              Credit is given under the Tax Court plan for any deposits that were made
                              and not withdrawn during any earlier service under CSRS or FERS. Prior
                              creditable service for which contributions were not made or withdrawn
                              may be credited to the Tax Court plan if deposits equal to 3.5 percent of
                              salary earned during the earlier service plus 3 percent interest are paid. No
                              deposits are required for prior military service.

                              Government contribution rate. The government’s share of contribution is
                              the amount required to reduce the unfunded liability to zero, not to exceed
                              11 percent of salary.




                              Page 33                                          GAO/GGD-97-87 Federal Pensions
                           Appendix I
                           Features of Selected Federal Survivor
                           Benefit Plans




Eligibility Requirements   Years of service. A judge must have at least 5 years of creditable service
for Survivor Benefit       and contributions before becoming vested in the plan. Creditable service
Coverage                   for vesting purpose includes judicial, congressional, and executive branch.

                           Marriage duration. A surviving spouse must have been married to the
                           judge at least 2 years before the judge’s death or be a parent of a child of
                           the marriage.

                           Commencement/termination of benefits. Benefits commence on the date
                           of the judge’s death, for a surviving spouse beginning at age 50 or any age
                           if there are dependent children. If a surviving spouse remarries before age
                           55, benefits for the spouse are terminated.


Participation Election     The election must be made while the judge is still in office or no later than
                           the day after the judge’s successor takes office, if the judge is not
                           reappointed.

                           Former spouse. Not applicable.

                           Insurable interest. Not applicable.

                           Deferred retirement. Not applicable.


Withdrawal of              Participation may be revoked upon the dissolution of the marriage. The
Participation              contributions plus 3 percent interest may be paid to the judge upon leaving
                           office or dissolution of the marriage. If there is no eligible surviving spouse
                           or child upon the death of the judge, the contributions plus 3 percent
                           interest are to be paid to the judge’s estate.


Survivor Benefit Formula   After retirement. The annual spousal annuity is 1.5 percent of average
                           salary18 for each year of judicial, congressional (member and/or staff), and
                           military service, excluding any service greater than 15 years as a
                           congressional staff employee and greater than 5 years in the military
                           service, plus 0.75 percent of average salary for executive branch service.

                           Before retirement. Same as after retirement.



                           18
                            Average salary is the average of the highest 3 consecutive years of annual salary and/or retirement
                           annuity.



                           Page 34                                                           GAO/GGD-97-87 Federal Pensions
                                  Appendix I
                                  Features of Selected Federal Survivor
                                  Benefit Plans




                                  Insurable interest, Not applicable.

                                  Deferred retirement. Not applicable.

                                  Minimum/maximum amount of benefit. Spousal annuity may not be
                                  greater than 50 percent or less than 25 percent of average annual salary.

                                  Reduction of Annuity for Unpaid Contributions for Prior Service Spousal
                                  annuity is reduced by 10 percent of any judicial and nonjudicial service
                                  deposits still unpaid on the date of the judicial officer’s death. The survivor
                                  may elect to not count years for which no contributions were paid for
                                  prior service and not incur a reduced annuity.


Children’s Benefits               Age of children. Surviving unmarried dependent children must be age 18
                                  or incapable of self-support due to a disability.

                                  Benefit computation. If the judge is survived by a spouse, each child’s
                                  annual annuity is the lesser of

                              •   10 percent of average annual salary or
                              •   20 percent of average annual salary divided by number of children.

                                  If the judge is not survived by a spouse, each child’s annual annuity is the
                                  lesser of

                              •   20 percent of average annual salary or
                              •   40 percent of average annual salary divided by number of children.


Cost-of-Living Adjustments        Survivor’s annuities increase by 3 percent for each 5 percent increase in
                                  judges’ salaries on the day the salary increase becomes effective.


Social Security Eligibility       Survivors’ eligibility and benefits under the U.S. Tax Court Survivors’
and Benefits                      Annuity Plan are the same as those described under JSAS.




                                  Page 35                                           GAO/GGD-97-87 Federal Pensions
                           Appendix I
                           Features of Selected Federal Survivor
                           Benefit Plans




U.S. Court of Veterans
Appeals Judges
Retirement Plan

Contribution Rates         Employee/retiree contribution rate. Active and retired judges contribute
                           3.5 percent of salary or retirement annuity to participate in the survivor
                           plan. Credit is given under the plan for any deposits that were made and
                           not withdrawn during any earlier service under CSRS or FERS. Prior
                           creditable service for which contributions were not made or withdrawn
                           may be credited to the plan if deposits equal to 3.5 percent of salary
                           earned during the earlier service plus 3 percent interest are paid. No
                           deposits are required for prior military service.

                           Government contribution rate. The government’s share is the amount
                           required to reduce the unfunded liability to zero.


Eligibility Requirements   Years of service. A judge must have at least 5 years of creditable service
for Survivor Benefit       and contributions before becoming vested in the plan. Creditable service
Coverage                   for vesting purpose includes judicial, congressional, and executive branch.

                           Marriage duration. A surviving spouse must have been married to the
                           judge at least 2 years before the judge’s death or must be a parent of a
                           child of the marriage.

                           Commencement/termination of benefits. Benefits commence on the date
                           of the judge’s death for a surviving spouse beginning at age 50 or any age if
                           there are dependent children. If a surviving spouse remarries before age
                           55, benefits for the spouse are terminated.


Participation Election     The election must be made while in office.

                           Former spouse. Not applicable.

                           Insurable interest. Not applicable.

                           Deferred retirement. Not applicable.




                           Page 36                                          GAO/GGD-97-87 Federal Pensions
                               Appendix I
                               Features of Selected Federal Survivor
                               Benefit Plans




Withdrawal of                  Participation may be revoked at any time. Revocation of the election to
Participation                  participate in retirement program automatically revokes participation in
                               the survivor plan. The contributions plus 3 percent interest may be paid to
                               the judge upon leaving office. If there is no eligible surviving spouse or
                               child upon the judge’s death, the contributions plus 3 percent interest shall
                               be paid to the judge’s estate.


Survivor Benefit Formula       After retirement. The annual spousal annuity is 1.5 percent of average
                               salary19 for each year of judicial, congressional (member and/or staff), and
                               military service, excluding any service greater than 15 years as a
                               congressional staff employee and greater than 5 years in the military
                               service, plus 0.75 percent of average salary for executive branch service.

                               Before retirement. Same as after retirement.

                               Insurable interest. Not applicable.

                               Deferred retirement. Not applicable.

                               Minimum/maximum amount of benefit. Spousal annuity may not be
                               greater than 50 percent or less than 25 percent of average salary.


Reduction of Annuity for       Spousal annuity is reduced by 10 percent of any judicial and nonjudicial
Unpaid Contributions for       service deposits still unpaid on the date of the judicial officer’s death. The
Prior Service                  survivor may elect not to count years for which no contributions were
                               paid for prior service and not incur a reduced annuity.


Children’s Benefits            Age of children. Surviving unmarried dependent children must be under
                               age 18 or age 22 if full-time student or incapable of self-support due to a
                               disability incurred before age 18 or age 22 if a student.

                               Benefit computation. If the judge is survived by a spouse, each child’s
                               annual annuity is the lesser of

                           •   10 percent of average annual pay or
                           •   20 percent of average annual pay divided by number of children.



                               19
                                Average salary is the average of the highest 3 consecutive years of annual salary and/or retirement
                               annuity.



                               Page 37                                                           GAO/GGD-97-87 Federal Pensions
                                  Appendix I
                                  Features of Selected Federal Survivor
                                  Benefit Plans




                                  If the judge is not survived by a spouse, each child’s annual annuity is the
                                  lesser of

                              •   20 percent of average annual pay or
                              •   40 percent of average annual pay divided by number of children.



Cost-of-Living Adjustments        Survivors’ annuities are increased by 3 percent for each 5 percent increase
                                  in judges’ salaries on the day the salary increase becomes effective
                                  provided some of the last 18 months of federal service was service on the
                                  Court.


Social Security Eligibility       Survivors’ eligibility and benefits under the U.S. Court of Veterans Appeals
and Benefits                      Judges Retirement Plan are the same as those described under JSAS.


Civil Service
Retirement System

Contribution Rates                Employee/retiree contribution rate. Employees generally contribute
                                  7 percent20 toward the retirement program with no designated amount for
                                  survivor benefits. For retirees, 2.5 percent of the first $3,600 of annuity
                                  plus 10 percent over $3,600 are deducted to cover costs of full survivors’
                                  benefits. For less than full survivor’s benefits, the contribution rate
                                  remains the same, but the base amount is any amount less than the full
                                  retiree’s annuity. Insurable interest premiums are 10 to 40 percent of
                                  retirement annuity, depending on the age difference between the
                                  employee and the person named as beneficiary. Prior creditable service
                                  for which there are no contributions may be credited if deposits equal to
                                  7 percent of prior salary (since January 1970) plus interest as determined
                                  by the Secretary of the Treasury are paid. No deposits are required for
                                  pre-1957 military service or any military service if first employed by the
                                  federal government before October 1982.21

                                  20
                                    Although most employees contribute 7 percent, law-enforcement officers, firefighters, and
                                  congressional employees contribute 7.5 percent, and Members of Congress contribute 8 percent
                                  towards the retirement program. Bankruptcy, magistrate, Court of Federal Claims, and Court of
                                  Military Appeals judges also contribute 8 percent.
                                  21
                                   Deposits for any post-1956 military service can be made to avoid a reduction in retirement annuity at
                                  age 62 or a reduction in spousal survivor annuity, if the employee becomes eligible for Social Security
                                  benefits.



                                  Page 38                                                           GAO/GGD-97-87 Federal Pensions
                           Appendix I
                           Features of Selected Federal Survivor
                           Benefit Plans




                           Government contribution rate. The government pays all of the remaining
                           cost; there is no specified maximum.


Eligibility Requirements   Years of service. An employee must have at least 18 months of civil service
for Survivor Benefit       and contributions before becoming vested in the plan.
Coverage
                           Marriage duration. A surviving spouse must have been married to the
                           current or former employee or retiree at least 9 months or be a parent of a
                           child of the marriage; however, accidental death of an employee overrides
                           the marriage duration. A former spouse must have been married to the
                           employee or retiree at least 9 months.

                           Commencement/termination of benefits. Benefits commence on the date
                           after the employee or retiree’s death. If a surviving or former spouse
                           remarries before age 55, benefits for that spouse are terminated. The
                           benefits may be reinstated if the remarriage terminates.


Participation Election     Full surviving spouse benefits are effective at the time of retirement,
                           unless waived or reduced jointly by retiree and spouse or the Office of
                           Personnel Management (OPM) waives the spouse’s consent when all
                           reasonable attempts have been made to obtain such consent for the
                           surviving spouse benefit. If married after retirement, an election to
                           participate must be within 2 years of the marriage. An employee may
                           change the survivor annuity no later than 30 days after the date of the first
                           regular monthly retirement annuity payment. If no survivor benefits or less
                           than full benefits are selected, the retiree may elect to increase benefits up
                           to 18 months after retirement but may not elect to decrease the benefits.

                           Former spouse. The election must be made at time of retirement. If the
                           marriage terminates after retirement, a change in the participation election
                           must be made within 2 years after the marriage is dissolved.

                           Insurable interest. The election must be made at time of retirement and
                           does not require spousal consent.

                           Deferred retirement. For a Member of Congress eligible for deferred
                           retirement annuity, a surviving or former spouse is eligible for an
                           immediate survivor annuity. There is no spousal annuity for a former
                           employee who is eligible for a deferred retirement annuity and dies before
                           the deferred retirement annuity begins or before reaching age 62.



                           Page 39                                          GAO/GGD-97-87 Federal Pensions
                           Appendix I
                           Features of Selected Federal Survivor
                           Benefit Plans




Withdrawal of              The surviving spouse or former spouse annuity and insurable interest
Participation              elections may not be revoked later than 30 days after the date of the first
                           regular monthly retirement annuity payment, except, in the case of a
                           spouse, when OPM waives the spouse’s consent when all reasonable
                           attempts have been made to obtain such consent for the surviving spouse
                           benefit or where the employee ceases to be married. The exception to the
                           30-day rule, in the case of insurable interest, is when the beneficiary dies
                           or the surviving spouse benefit is elected after retirement. There is no
                           refund of contributions to the retiree even if there is no eligible surviving
                           spouse, child, or beneficiary.


Survivor Benefit Formula   After retirement. The full survivor spousal annuity is 55 percent of the
                           retiree’s annuity before the survivor contribution reduction. Less than a
                           full survivor annuity is 55 percent of the base amount selected, which is
                           any amount less than the full retiree’s annuity. The retiree’s annuity
                           formula is 1.5 percent of average salary22 for the first 5 years, plus
                           1.75 percent for the next 5 years, plus 2 percent for the remaining years.
                           For a Member of Congress, the retiree’s annuity formula is generally
                           2.5 percent of average salary or final salary times years of service. The
                           maximum retiree’s annuity is generally 80 percent of average salary.

                           Before retirement. The survivor spousal annuity is 55 percent of the
                           employee’s accrued retirement benefits at time of death, or if higher,
                           55 percent of the disability formula, the lesser of (1) 40 percent of average
                           salary or (2) the amount attained if the employee had worked until age 60.

                           Insurable interest. The beneficiary receives 55 percent of the retiree’s
                           self-only annuity after insurable interest reduction.

                           Deferred retirement. For a Member of Congress, the survivor spousal
                           annuity is 55 percent of a Member’s deferred retirement annuity. For a
                           former employee who dies before the deferred annuity begins or before
                           reaching age 62, the surviving spouse receives a refund of the retirement
                           contributions. For a former employee who dies after the deferred
                           retirement annuity begins or reaches age 62 and has filed an application
                           for retirement, the survivor spousal annuity is 55 percent of the deferred
                           retirement annuity.

                           Minimum/maximum amount of benefit. For a full survivor spousal annuity,
                           the minimum amount of benefit is generally 22 percent and the maximum

                           22
                             Average salary is the highest basic pay over 3 consecutive years of creditable service.



                           Page 40                                                            GAO/GGD-97-87 Federal Pensions
                                  Appendix I
                                  Features of Selected Federal Survivor
                                  Benefit Plans




                                  is 44 percent of employee’s average salary. There is no guaranteed
                                  minimum for employees dying after retirement.


Reduction of Annuity for          The retirement annuity is reduced by 10 percent of any prior service
Unpaid Contributions for          deposits that were never withheld for service performed before October
Prior Service                     1982. To not incur the reduced annuity and to receive credit for service
                                  after September 30, 1982, the deposits plus interest must be paid by the
                                  employee prior to retirement. The survivor may elect to not count years
                                  for which no contributions were paid or to pay for prior service and not
                                  incur a reduced survivor annuity.


Children’s Benefits               Age of children. Surviving unmarried dependent children must be under
                                  age 18 or age 22 if full-time student or incapable of self-support due to a
                                  disability incurred before age 18.

                                  Benefit computation. If there is a surviving spouse, each child is to receive
                                  annually the lesser of

                              •   60 percent of average salary divided by the number of children,
                              •   $4,044 (as of 12/01/96) for each child, or
                              •   $12,132 (as of 12/01/96) divided by the number of children.

                                  If there is no surviving spouse, each child is to receive annually the lesser
                                  of

                              •   75 percent of average salary divided by the number of children,
                              •   $4,824 (as of 12/01/97) for each child, or
                              •   $14,472 (as of 12/01/96) divided by the number of children.


Cost-of-Living Adjustments        Survivors’ annuities are increased for full annual increase in CPI as
                                  described under JSAS.


Social Security Eligibility       Under CSRS for a Member of Congress, the survivors’ eligibility and benefits
and Benefits                      are the same as described under JSAS. An employee/retiree’s survivor is not
                                  eligible for Social Security benefits under CSRS.




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                           Appendix I
                           Features of Selected Federal Survivor
                           Benefit Plans




Federal Employees
Retirement System

Contribution Rates         Employee/retiree contribution rate. Employees generally contribute
                           0.8 percent23 (7 percent minus 6.2 percent for Social Security) of salary
                           toward the defined benefit plan part of the retirement program,24 with no
                           designated amount for survivor benefits. Retirees contribute 10 percent of
                           their annuities to receive full survivor benefits and 5 percent for reduced
                           survivor benefits. Insurable interest premiums are 10 percent of annuity
                           plus 5 percent for each full 5 years the beneficiary is younger than the
                           retiree. The total reduction for insurable interest may not exceed
                           40 percent. Only service performed before 1989 for which there are no
                           contributions may be credited if deposits equal to 1.3 percent of prior
                           salary plus interest as determined by the Secretary of the Treasury are
                           paid. Deposits of 3 percent of military base pay plus interest, as
                           determined by the Secretary of the Treasury, are required to receive credit
                           for post-1956 military service.

                           Government contribution rate. The government pays all remaining cost;
                           there is no specified maximum.


Eligibility Requirements   Years of service. An employee must have at least 18 months of civil service
for Survivor Benefit       and contributions before becoming vested in the plan.
Coverage
                           Marriage duration. A surviving spouse must have been married to the
                           current or former employee or retiree at least 9 months or be a parent of a
                           child of the marriage; however, accidental death of an employee overrides
                           the marriage duration. A former spouse must have been married to the
                           employee/retiree at least 9 months.

                           Commencement/termination of benefits. Benefits commence on the date
                           after the employee/retiree’s death. For the surviving or former spouse of a
                           former employee who is eligible for a deferred annuity, benefits
                           commence on the date after death or the earliest eligible retirement date.
                           If a surviving or former spouse remarries before age 55, benefits for that

                           23
                            Although most employees contribute 0.8 percent, law-enforcement officers, firefighters, air traffic
                           controllers, congressional employees, and Members of Congress contribute 1.3 percent. Bankruptcy,
                           magistrate, Court of Federal Claims, and Court of Military Appeals judges also contribute 1.3 percent.
                           24
                            FERS is a three-part retirement program that includes (1) a defined benefit plan, (2) a Thrift Savings
                           Plan, and (3) Social Security.



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                           Appendix I
                           Features of Selected Federal Survivor
                           Benefit Plans




                           spouse are terminated. The benefits may be reinstated if the remarriage
                           terminates.


Participation Election     Full surviving spouse benefits are effective at the time of retirement,
                           unless waived or reduced jointly by retiree and spouse. If married after
                           retirement, an election to participate must be made within 2 years of the
                           marriage. An employee may change the survivor annuity no later than 30
                           days after the date of the first regular monthly retirement annuity
                           payment. If no survivor benefits or less than full benefits are selected, the
                           retiree may elect to increase benefits up to 18 months after retirement but
                           may not elect to decrease the benefits.

                           Former spouse. The election must be made at time of retirement. If the
                           marriage terminates after retirement, the change in the participation
                           election must be made within 2 years after the marriage is dissolved.

                           Insurable interest. The election must be made at time of retirement and
                           does not require spousal consent.

                           Deferred retirement. If the former employee was eligible for a deferred
                           annuity, the surviving or former spouse, as of date of separation from
                           service, may receive a spousal survivor annuity.


Withdrawal of              The surviving spouse or former spouse annuity and insurable interest
Participation              elections may not be revoked later than 30 days after the date of the first
                           regular monthly retirement annuity payment, except, in the case of a
                           spouse, when OPM waives the spouse’s consent when all reasonable
                           attempts have been made to obtain such consent for the surviving spouse
                           benefit or where the employee ceases to be married. The exception to the
                           30-day rule, in the case of insurable interest, is when the beneficiary dies
                           or the surviving spouse benefit is elected after retirement. There is no
                           refund of contributions even if there is no eligible surviving spouse, child,
                           or beneficiary.


Survivor Benefit Formula   After retirement. A full survivor spousal annuity is 50 percent of the
                           retiree’s unreduced benefits plus a special supplementary annuity, which
                           approximates the value of FERS service in a Social Security benefit, payable
                           until age 60 if the spouse will not be eligible for Social Security survivor




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                           Appendix I
                           Features of Selected Federal Survivor
                           Benefit Plans




                           benefits until then. A reduced survivor spousal annuity is 25 percent of the
                           retiree’s unreduced benefits.

                           The retiree’s unreduced benefit formula is 1 percent of average salary25
                           times years of creditable service. If employee retires at age 62 with at least
                           20 years of service, the factor is 1.1 percent. For a Member of Congress,
                           the retiree’s formula is generally 1.7 percent of average salary for each of
                           the first 20 years of congressional service and 1 percent for each
                           subsequent year of creditable service.

                           Before retirement. If the employee has less than 10 years of service, the
                           survivor spousal benefit is the lump-sum payment of $21,335.30 (as of
                           12/01/96) plus the greater of one-half of annual pay rate at death or
                           one-half of high-3 average pay. If the employee had 10 years or more
                           service, there is an additional survivor spousal annuity of 50 percent of the
                           employee’s accrued benefits.

                           Insurable interest. The beneficiary receives 55 percent of the retiree’s
                           self-only annuity after insurable interest reduction.

                           Deferred retirement. The survivor spousal annuity is 50 percent of the
                           retirement annuity that would have been paid if the former employee had
                           been eligible for an unreduced deferred annuity on the date of his/her
                           death. A surviving or former spouse may elect to receive a reduced
                           survivor annuity on the day after the former employee dies if the former
                           employee did not meet the age and service requirements for the deferred
                           retirement annuity. The formula for the reduced survivor annuity includes
                           a factor to account for the number of years after the death of an employee
                           before being eligible for the unreduced deferred retirement annuity.

                           Minimum/maximum amount of benefit. There is no guaranteed minimum
                           or maximum survivor annuity.


Reduction of Annuity for   To receive credit for unpaid service, the deposits must be paid by the
Unpaid Contributions for   employee prior to retirement. The survivor may elect not to count years
Prior Service              for which no contributions were paid or to pay for prior service and not
                           incur a reduced survivor annuity; however, credit is not allowed for prior
                           years of service after 1988 if no contributions were withheld or any
                           contributions withdrawn.


                           25
                             Average salary is the highest basic pay over 3 consecutive years of creditable service.



                           Page 44                                                            GAO/GGD-97-87 Federal Pensions
                                  Appendix I
                                  Features of Selected Federal Survivor
                                  Benefit Plans




Children’s Benefits               Age of children. Surviving unmarried dependent children must be under
                                  age 18 or age 22 if full-time student or incapable of self-support due to a
                                  disability incurred before age 18.

                                  Benefit Computation. If there is a surviving spouse, each child is to receive
                                  annually the lesser of

                              •   $4,044 (as of 12/01/96) for each child or
                              •   $12,132 (as of 12/01/96) divided by the number of children.

                                  If there is no surviving spouse, each child is to receive annually the lesser
                                  of

                              •   $4,824 (as of 12/01/96) for each child or
                              •   $14,472 (as of 12/01/96) divided by the number of children.

                                  Children’s annuities are reduced dollar-for-dollar by any Social Security
                                  children’s benefits that may be payable.


Cost-of-Living Adjustments        Survivors’ annuities are increased annually for increase in CPI. Spousal
                                  survivors, unlike retirees who must be age 62, receive either full or partial
                                  COLAs regardless of age. If the CPI increase is equal to or greater than
                                  3 percent, the COLA is 1 percentage point less than CPI increase. If CPI is at
                                  least 2 percent but less than 3 percent, the COLA is 2 percent. If the CPI is
                                  less than 2 percent, the COLA is equal to the CPI increase. Children’s benefits
                                  are increased for the full annual increase in the CPI.


Social Security Eligibility       Survivors’ eligibility and benefits under FERS are the same as those
and Benefits                      described under JSAS.


Military Retirement
System’s Survivor
Benefit Plan

Contribution Rates                Employee/retiree contribution rate. Active members do not contribute
                                  toward the retirement program or the Survivor Benefit Plan (SBP). Retired
                                  members contribute 6.5 percent of retirement annuity or a lesser elected




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                           Appendix I
                           Features of Selected Federal Survivor
                           Benefit Plans




                           base amount (cannot be less than $300 monthly) to provide for a surviving
                           spousal annuity in SBP. If monthly retirement pay or base amount is less
                           than $930 (as of 01/01/97), the contribution is 2.5 percent of the first $434
                           plus 10 percent of remaining amount. Supplemental SBP premiums for
                           former spouse, children coverage with spousal coverage, or children only
                           coverage are based on age of the retired member, spouse, and youngest
                           child. Insurable interest premiums are 10 percent of retirement annuity,
                           plus 5 percent for each 5 years the retired member is older than the
                           beneficiary, with a maximum premium of 40 percent.

                           Government contribution rate. The government pays all the remaining cost
                           of SBP; there is no specified maximum. The government does not
                           contribute to the Supplemental SBP or insurable interest coverage.


Eligibility Requirements   Years of service. A member must have 20 years of military service unless
for Survivor Benefit       retired for disability or specially enacted early retirement.
Coverage
                           Marriage duration. A surviving spouse must be married to member at
                           retirement or, after retirement, at least 1 year before death or be a parent
                           of a child of the marriage. A former spouse must have been married to the
                           member at least 1 year.

                           Commencement /termination of benefits. Benefits commence on the first
                           day after the member’s death. If a surviving or former spouse remarries
                           before age 55, benefits for that spouse are terminated. The benefits may be
                           reinstated if the remarriage terminates.


Participation Election     SBP and Supplemental SBP elections must be made at the time of
                           retirement. Full SBP benefits are in effect at time of retirement unless
                           waived or reduced jointly by the retiree and spouse. If member marries or
                           acquires a dependent child after retirement, the election must be made
                           within 1 year of the occurrence.

                           Former spouse. The election must be made at time of retirement. If the
                           marriage terminates after retirement, the change in the participation
                           election must be made within 1 year after the marriage is dissolved. If
                           married after retirement and the marriage dissolves, the marriage must
                           have lasted at least 1 year or the former spouse must be a parent of a child
                           of the marriage.




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                               Appendix I
                               Features of Selected Federal Survivor
                               Benefit Plans




                               Insurable interest. The election must be made at time of retirement. Only
                               unmarried members with no dependent children may elect insurable
                               interest coverage.

                               Deferred retirement. Not applicable.


Withdrawal of                  SBP and Supplemental SBP may be suspended upon dissolution of the
Participation                  marriage or if children become ineligible for benefits. Insurable interest
                               may be revoked at any time, except for a former spouse. There are no
                               refunds of contributions even if there is no eligible surviving spouse, child,
                               or beneficiary.


Survivor Benefit Formula       After retirement. The monthly survivor spousal annuity is 55 percent of
                               member’s retirement annuity or the lesser elected base amount. The
                               monthly base amount, elected by member, cannot be less than $300 or
                               greater than full retirement annuity. The survivor annuity is reduced to
                               35 percent of base amount at survivor’s age 62 when Social Security
                               benefits are available. Supplemental SBP annuity is available in increments
                               of 5 percent up to 20 percent of retirement annuity for a survivor who is
                               age 62 and older with full SBP. There is a Department of Veterans Affairs’
                               Dependency and Indemnity Compensation survivors’ program for
                               service-related deaths. The Veterans Affairs’ program reduces the SBP
                               benefit dollar-for-dollar, but not Supplemental SBP.

                               There are three different retirement annuity formulas depending upon
                               when military service began:

                           •   Before September 8, 1980, retirement annuity is basic pay times
                               (2.5 percent times years of service).
                           •   After September 7, 1980, but before August 1, 1986, retirement annuity is
                               the average of the highest 36 months of basic pay times (2.5 percent times
                               years of service).
                           •   After July 31, 1986, retirement annuity is the average of the highest 36
                               months of basic pay times (2.5 percent times years of service minus one
                               percentage point for each year of service under 30). At age 62, the penalty
                               is removed and the retirement annuity is recomputed.

                               The multiplier (2.5 percent times years of service) cannot be greater than
                               75 percent. Basic pay does not include quarters, subsistence, or housing
                               allowances.



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                           Features of Selected Federal Survivor
                           Benefit Plans




                           Before retirement. No SBP benefits are available to survivors of a member
                           with less than 20 years of service unless retired for disability or special
                           Temporary Early Retirement Authority. The Department of Veterans
                           Affairs’ Dependency and Indemnity Compensation survivors’ program
                           protects against the service-related death of a member; and Social Security
                           benefits and life insurance, if purchased by the member, are available to
                           survivors. Monthly payments (as of 12/01/96) under the Veterans Affairs’
                           program begin at $833 to a surviving spouse and $211 for each child under
                           age 18. If there is no surviving spouse, the monthly payment for one child
                           is $354, $510 for two, $662 for three, and an additional $130 for each child
                           in excess of three.

                           Insurable interest. The beneficiary receives 55 percent of the member’s
                           retirement annuity after premiums for SBP are subtracted.

                           Deferred retirement. Not applicable.

                           Minimum/maximum amount of benefit. The survivor spousal annuity may
                           not be greater than 55 percent of the retirement annuity before survivor’s
                           age 62 or 35 percent of the retirement annuity beginning at age 62. The
                           minimum spousal annuity may not be less than 55 percent of the minimum
                           elected $300 base amount before survivor’s age 62 or 35 percent of the
                           minimum elected $300 base amount beginning at age 62.


Reduction of Annuity for   Not applicable.
Unpaid Prior Service
Children Benefits          Age of children. Surviving unmarried dependent children must be under
                           age 18 or 22 if full-time student or incapable of self-support due to a
                           disability incurred before age 18 or 22 if a student.

                           Benefit computation. If spouse and child coverage is selected and the
                           member is survived by a spouse, there is no separate children’s annuity. If
                           a surviving spouse dies and spouse and children coverage was selected,
                           children equally divide the survivor annuity equal to 55 percent of the base
                           amount. If children only coverage was selected, children equally divide the
                           annuity equal to 55 percent of the base amount.


Cost-Of-Living             Survivors annuities are increased each year for the full increase in the CPI
Adjustments                for those members entering service before August 1, 1986. For members



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                              Appendix I
                              Features of Selected Federal Survivor
                              Benefit Plans




                              entering service after July 31, 1986, survivors receive the CPI minus
                              1 percentage point. On the member’s 62nd birthday, survivors receive a
                              one-time restoral of the less than full COLAs; then the annual partial COLAs
                              continue.


Social Security Eligibility   At age 62, SBP benefits are reduced from 55 percent of base amount to
and Benefits                  35 percent when Social Security benefits become available and are
                              expected to be at least 20 percent of base amount.

                              If member dies before 20 years of service, Social Security survivors’
                              eligibility and benefits are the same as described under the JSAS.




                              Page 49                                          GAO/GGD-97-87 Federal Pensions
Appendix II

Comments From the Administrative Office
of the U.S. Courts

Note: GAO comments
supplementing those in the
report text appear at the
end of this appendix.




                             Page 50   GAO/GGD-97-87 Federal Pensions
                Appendix II
                Comments From the Administrative Office
                of the U.S. Courts




Now figure 1.




                Page 51                                   GAO/GGD-97-87 Federal Pensions
Appendix II
Comments From the Administrative Office
of the U.S. Courts




Page 52                                   GAO/GGD-97-87 Federal Pensions
                Appendix II
                Comments From the Administrative Office
                of the U.S. Courts




Now figure 1.




                Page 53                                   GAO/GGD-97-87 Federal Pensions
                 Appendix II
                 Comments From the Administrative Office
                 of the U.S. Courts




See comment 1.




Now table 2.


See comment 2.




                 Page 54                                   GAO/GGD-97-87 Federal Pensions
                 Appendix II
                 Comments From the Administrative Office
                 of the U.S. Courts




See comment 3.




                 Page 55                                   GAO/GGD-97-87 Federal Pensions
               Appendix II
               Comments From the Administrative Office
               of the U.S. Courts




               The following are GAO’s comments on AOUSC’s April 25, 1997, letter.


               1. AOUSC prepared a revised table 2 (our original table 2 is now figure 1 in
GAO Comments   the report) that included Social Security survivor benefits and TSP
               investments in the replacement rates for surviving spouses. As described
               below, the table minimized the difference in Social Security survivor
               benefits between JSAS and FERS general employees, double-counted Social
               Security benefits for military members’ surviving spouses, included
               Department of Veterans Affairs’ survivor benefits that are not part of the
               military’s SBP plan, and implied that a large number of JSAS participants
               were receiving matching TSP government contributions.

               Social Security retirement and survivor benefits computations are
               complicated and vary widely, depending on many factors. These factors
               include the employee’s date of birth, earnings averaged over an employee’s
               working years, the ages of the deceased employee and surviving spouse,
               and the presence of dependent children. Social Security is designed to
               provide benefits that replace a greater percentage of earnings for
               lower-paid employees than for higher-paid employees. Therefore, unlike
               the specific spousal benefit replacement rates for the various federal
               survivor benefit plans that we provided in figure 1 in the report,
               replacement rates for Social Security survivor benefits for each of the
               years of service in figure 1 would vary widely because of the many factors
               noted above.

               The information presented in AOUSC’s revised table 2 required that certain
               assumptions be made in order to estimate Social Security survivor
               benefits. AOUSC’s assumptions maximized benefits to the surviving spouse
               of FERS general employees and therefore minimized the difference between
               JSAS and FERS general employees’ surviving spouses. AOUSC’s assumptions
               included that (1) JSAS and Members of Congress under FERS and CSRS would
               be receiving benefits based on the maximum taxable earnings under Social
               Security, and FERS general employees would be receiving benefits based on
               one-half of Social Security taxable earnings and (2) participants for all
               these plans are age 62 or older—because JSAS participants’ average age is
               63.

               Based on these AOUSC assumptions, JSAS and Members of Congress
               surviving spouses would have received the maximum Social Security
               benefits, and their replacement rates of salary from Social Security alone
               would be lower than for FERS general employees because of the Social



               Page 56                                          GAO/GGD-97-87 Federal Pensions
Appendix II
Comments From the Administrative Office
of the U.S. Courts




Security formula. The Social Security formula provides a higher
replacement rate for lower-salaried workers. The magnitude of the effect
that earnings can have on replacement rates is best illustrated with an
example. The Social Security replacement rate of final salary for a FERS
general employee at age 62 with 30 years of service is 26 percent with final
year earnings of $30,000 and 14 percent with final year earnings of
$100,000.26 The range of Social Security replacement rates, for this
example, is 14 to 26 percent, depending on the earnings levels of the
employee. Therefore, the replacement rate should decrease by
12 percentage points in AOUSC’s revised table 2 for a higher-salaried FERS
general employee with 30 years of service.

AOUSC also assumed that the participants for its Social Security
computations were age 62 or older. This assumption provided a higher
benefit level to FERS general employees than would be expected. In reality,
JSAS surviving spouses are more likely than FERS surviving spouses to
receive the full survivor benefits because the JSAS participants on average
are older than FERS participants. While the average age of JSAS participants
is 63, the average age of FERS general employees is 40, and the average age
of death for employed FERS participants is 51. Under Social Security
guidelines, a surviving spouse age 65 or older receives 100 percent of the
employee’s Social Security benefits, and those ages 60 to 64 receive about
71 to 94 percent. A surviving spouse under age 60 with a dependent child
receives 75 percent of the employee’s Social Security benefits. A surviving
spouse under age 60 with no dependent child generally receives no
benefits until age 60.

AOUSC’s revised table 2 also double-counted Social Security survivor
benefits for the surviving spouses of military members. AOUSC added the
Social Security benefits on top of the military’s SBP benefits to arrive at
their revised replacement rates. Throughout the report, we noted that the
military’s SBP benefits are reduced to 35 percent of the military member’s
retirement pay when the surviving spouse reaches age 62 to reflect the
availability of Social Security benefits. Therefore, the Social Security
benefits should not have been added to the military’s SBP benefits; they
should have replaced a portion of them when the surviving spouse reached
age 62. Including Social Security benefits overstated the military’s
replacement rates, increasing them, for instance, from 16 to 43 percent for
a member with 20 years of creditable service.



26
 Federal Pensions: Thrift Savings Plan Has Key Role in Retirement Benefits (GAO/HEHS-96-1, Oct. 19,
1995).



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Appendix II
Comments From the Administrative Office
of the U.S. Courts




Additionally, AOUSC added an amount for the Department of Veterans
Affairs’ Dependency and Indemnity Compensation survivors’ program
benefits for service-related deaths if a military member has less than 20
years of service. We acknowledged the availability of these survivor
benefits in the report, but we did not include them in the replacement rate
computations because they are not part of the military’s SBP survivor
benefit plan.

AOUSC’s revised table 2 also included JSAS judges participating in TSP with
matching 5 percent government contributions. Although AOUSC noted that
most JSAS judges may participate in TSP by contributing up to 5 percent of
their salary with no matching government contributions, a lesser number
of JSAS judges—those who are also covered by FERS—may participate in
TSP up to 10 percent of salary or a maximum of $9,500 with matching
government contributions up to 5 percent. According to an AOUSC official,
there are 143 Bankruptcy, Magistrate, and Court of Federal Claims judges
who currently participate in both JSAS and FERS. AOUSC’s presentation in the
revised table 2 did not note that only about 10 percent of JSAS participants
receive the 5 percent government matching, and thus implied that a large
number of JSAS participants receive the matching government
contributions, when in fact, the numbers are relatively small.

2. AOUSC prepared a revised table 3 (our original table 3 is now table 2 in
the report) to show participants’ combined contributions to Social
Security, TSP, and the federal survivor benefit plans. There are flaws in
AOUSC’s revised table 3. Its revised table (1) did not include, as it should
have, participant contributions to the survivorship portion of Social
Security for active participants—except for CSRS general employees’ who
do not contribute to Social Security—and (2) did include, when it should
not have, the Tax Court judges’ contributions to TSP because—as stated in
the report—Tax Court judges cannot participate in TSP. Additionally, JSAS’
enrolled actuary provided AOUSC with estimates of the percentages of
employee contributions attributable to FERS and CSRS survivor benefits.
However, OPM, the plan administrator of CSRS and FERS, does not identify
the portion of CSRS and FERS contributions that are attributable to survivor
benefits, as we had also stated in the report.

3. AOUSC prepared a new table 2a to replace its own revised table 2 to show
a comparison of surviving spouse benefits derived solely from the
contributions of the federal government for the federal survivor benefit
plans, including Social Security benefits and TSP investments. We believe
that the same reasons for caution, as stated in our comment 1 and 2,



Page 58                                          GAO/GGD-97-87 Federal Pensions
Appendix II
Comments From the Administrative Office
of the U.S. Courts




should be used in drawing conclusions from this table because AOUSC’s
underlying methodology was the same.




Page 59                                       GAO/GGD-97-87 Federal Pensions
Appendix III

Major Contributors to This Report


                        Margaret T. Wrightson, Assistant Director, Federal Management and
General Government        Workforce Issues
Division, Washington,   Robert E. Shelton, Assistant Director, Federal Management and Workforce
D.C.                      Issues
                        Ronald J. Cormier, Assignment Manager
                        Jeffery A. Bass, Evaluator-in-Charge


                        Robert J. Heitzman, Senior Attorney
Office of General
Counsel, Washington,
D.C.




(410001)                Page 60                                      GAO/GGD-97-87 Federal Pensions
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