B-138504, JAN 16, 1980

B-138504, JAN 16, 1980

SUBJECT: COMMENTS ON S. 203 (FPC-96-1-72)

ABRAHAM RIBICOFF, UNITED STATES SENATE:

THIS IS IN RESPONSE TO YOUR REQUEST FOR OUR COMMENTS ON S. 203, A BILL, "TO AMEND TITLE 5 OF THE U.S.C. TO ALLOW A RETIRED EMPLOYEE OR MEMBER, WHO, UPON REMARRIAGE, ELECTS TO HAVE HIS SPOUSE RECEIVE A SURVIVOR ANNUITY TO INCREASE THE AMOUNT OF SUCH ANNUITY OVER THE AMOUNT OF THE SURVIVOR ANNUITY ELECTED FOR HIS PREVIOUS SPOUSE."

UNDER THE CIVIL SERVICE RETIREMENT SYSTEM, RETIRING EMPLOYEES MAY ELECT TO PROVIDE BENEFITS TO THEIR SURVIVING SPOUSES BY ACCEPTING REDUCED ANNUITIES. THE RETIREE MAY SPECIFY ALL OR ANY PORTION OF HIS OR HER ANNUITY AS THE BASE FOR THE SURVIVOR BENEFIT, AND THE RETIREE'S ANNUITY IS REDUCED BY 2.5 PERCENT OF THE BASE UP TO $3,600 AND BY 10 PERCENT OF ANY AMOUNT SPECIFIED OVER $3,600. THE SURVIVING SPOUSE'S BENEFIT IS 55 PERCENT OF THE BASE AMOUNT SPECIFIED.

ACCORDING TO OFFICE OF PERSONNEL MANAGEMENT (OPM) RECORDS, ONLY A SMALL PERCENTAGE OF MARRIED RETIREES WHO ELECT SURVIVOR BENEFITS SPECIFY LESS THAN THEIR FULL ANNUITY AS THE SURVIVOR BENEFIT BASE. THE FOLLOWING TABLE SHOWS A BREAKDOWN OF THE SURVIVORSHIP OPTIONS THAT WERE ELECTED BY ALL MARRIED PERSONS WHO RETIRED DURING FISCAL YEAR 1978 AND ALL MARRIED RETIREES ON THE ROLLS AT THE END OF THE FISCAL YEAR.

MARRIED MARRIED

MEN WOMEN TOTAL

NEW RETIREES IN

FISCAL YEAR 1978

PERCENTAGE ELECTING

SURVIVORSHIP OPTION 93 60 88

PERCENTAGE OF THOSE

ELECTING SURVIVORSHIP

OPTION WHO SPECIFIED

THEIR FULL ANNUITY AS

THE SURVIVOR

BENEFIT BASE 95 87 94

ALL RETIREES ON

THE ROLLS AS OF

SEPTEMBER 30, 1978

PERCENTAGE ELECTING

SURVIVORSHIP OPTION 93 55 86

PERCENTAGE OF THOSE

ELECTING SURVIVORSHIP

OPTION WHO SPECIFIED

THEIR FULL ANNUITY

AS THE SURVIVOR

BENEFIT BASE 92 87 91

UNDER CURRENT LAW (5 U.S.C. 8339(J)), A RETIREE'S BENEFIT REDUCTION IS AUTOMATICALLY RESTORED IF THE MARRIAGE TERMINATES OR THE SPOUSE PREDECEASES THE RETIREE. UPON REMARRIAGE, THE RETIREE MAY, WITHIN 1 YEAR, ELECT SURVIVORSHIP COVERAGE FOR THE SECOND SPOUSE, AND HIS OR HER ANNUITY IS AGAIN REDUCED BY THE SAME PERCENTAGE FACTORS THAT WERE IN EFFECT FOR THE PREVIOUS SPOUSE. S. 203 WOULD AMEND THE LAW BY ALLOWING THOSE ANNUITANTS WHO HAD SPECIFIED LESS THAN THE FULL ANNUITY AS THE BASE FOR THEIR PREVIOUS SPOUSES' BENEFITS TO INCREASE THE BASE AND THEREBY PROVIDE A HIGHER ANNUITY TO THE SECOND SPOUSE. THE BILL WOULD ALSO REQUIRE THE RETIREE TO DEPOSIT INTO THE RETIREMENT FUND THE ADDITIONAL AMOUNT THAT WOULD HAVE BEEN PAID IF THE HIGHER BASE HAD BEEN SPECIFIED FOR THE PREVIOUS SPOUSE AT THE TIME OF RETIREMENT.

WE CANNOT RECOMMEND ENACTMENT OF S. 203 IN ITS PRESENT FORM. THE BILL ADDRESSES ONLY ONE OF SEVERAL EVENTS THAT MAY OCCUR IN AN ANNUITANT'S RETIREMENT YEARS AND WILL CREATE CERTAIN INCONSISTENCIES AND INEQUITIES WITH RETIREES IN OTHER CIRCUMSTANCES.

FIRST, ANNUITANTS WHO ARE UNMARRIED AT THE TIME OF RETIREMENT, BUT LATER MARRY, CURRENTLY HAVE 1 YEAR AFTER MARRIAGE TO ELECT A REDUCED ANNUITY WITH A SURVIVOR BENEFIT TO THEIR SPOUSES. THERE IS, IN THEIR CASE, NO REQUIREMENT TO DEPOSIT INTO THE RETIREMENT FUND THE DIFFERENCE BETWEEN WHAT THEY ACTUALLY RECEIVED AND WHAT THEY WOULD HAVE RECEIVED HAD THEY BEEN MARRIED AND ELECTED A SURVIVOR BENEFIT AT THE TIME OF RETIREMENT. UNDER S. 203, THE ANNUITANT WHO ACQUIRES A SECOND SPOUSE WOULD BE REQUIRED TO PAY BACK THAT DIFFERENCE. THUS, THE BILL WOULD REQUIRE A RETIREE TO CONTRIBUTE MUCH MORE INTO THE RETIREMENT FUND UPON REMARRIAGE THAN THE RETIREE WHO MARRIES FOR THE FIRST TIME AFTER RETIREMENT, YET BOTH WOULD BE PROVIDING THE SAME BENEFITS TO THEIR SPOUSES. ALSO, A MARRIED RETIREE WHO DOES NOT ELECT TO PROVIDE FOR A SURVIVOR ANNUITY AT THE TIME OF RETIREMENT IS NOT ALLOWED TO ELECT SURVIVOR BENEFITS FOR A SUBSEQUENT SPOUSE. PROVISION IS CURRENTLY AVAILABLE WHEREBY SUCH A RETIREE COULD PAY INTO THE FUND AN AMOUNT EQUAL TO WHAT HE WOULD HAVE PAID HAD HE ELECTED A SURVIVOR ANNUITY AT THE TIME OF RETIREMENT.

SECONDLY, THE BILL ONLY PERMITS A CHANGE IN THE SURVIVORSHIP ELECTION TO PROVIDE FOR A HIGHER SURVIVOR ANNUITY. IT SEEMS TO US THAT THERE COULD ALSO BE AN OPTION TO PROVIDE A REDUCED ANNUITY TO THE SECOND SPOUSE.

FINALLY, THE BILL WOULD GRANT THE OPTION TO CHANGE THE SURVIVOR BENEFITS ELECTION ONLY TO INDIVIDUALS ACQUIRING A SECOND SPOUSE. EVENTS OTHER THAN REMARRIAGE COULD PRESENT EQUALLY JUSTIFIABLE REASONS FOR RAISING OR LOWERING A RETIREE'S SURVIVOR BENEFIT PROVISIONS.

IT MUST ALSO BE RECOGNIZED THAT THE ANNUITY REDUCTION FORMULA IN THE CIVIL SERVICE SURVIVOR BENEFIT PROGRAM IS NOT AN ACTUARIAL EQUIVALENT. BE SO, THE REDUCTION WOULD HAVE TO BE TAILORED TO EACH INDIVIDUAL CIRCUMSTANCE TAKING INTO ACCOUNT THE AGES OF BOTH THE RETIREE AND THE SPOUSE. ACTUARIAL EQUIVALENCE WOULD REQUIRE THE RETIREE'S ANNUITY REDUCTION TO BE SUFFICIENT TO PAY THE SURVIVOR'S BENEFITS UPON THE RETIREE'S DEATH. PUT ANOTHER WAY, ACTUARIAL EQUIVALENCE WOULD MEAN THAT THE TOTAL AMOUNT PAID TO A RETIREE AND HIS OR HER SURVIVING SPOUSE WOULD BE NO GREATER THAN THE AMOUNT THAT WOULD HAVE BEEN PAID TO THE RETIREE ALONE IF THE SURVIVORSHIP OPTION HAD NOT BEEN ELECTED.

ADOPTION OF SOUND ACTUARIAL PRINCIPLES FOR THE SURVIVOR BENEFIT PROGRAM WOULD ALLOW FOR MANY OPTIONS, SUCH AS THAT PROPOSED BY S. 203, TO BE INCORPORATED INTO THE PROGRAM WITHOUT THE INHERENT INEQUITIES THAT WOULD OTHERWISE RESULT.