The Basic Employee Death Benefit (BED) – everything a federal employee under FERS needs to know about what happens if they pass away while still working for the Government
by Edward A. Zurndorfer- For employees covered by the Federal Employees Retirement System (FERS) and who die while still in federal service, there are death benefits payable to certain relatives and other designated beneficiaries. This is the first of three columns discussing death benefits for FERS employees who die while in federal service. This column discusses the Basic Employee Death Benefit (BEDB).
BEDB- Surviving Spouse
The BEDB is a death benefit paid to the current spouse (or former spouse if there is a court order and certain conditions are met) of a deceased employee covered by FERS who has met certain eligibility requirements on the date of death. The following are the requirements to be met in order for the BEDB is to be paid to the surviving spouse: (1) The employee had completed at least 18 months of creditable federal service at the time of his or her death; (2) the employee died while FERS deductions were being deducted from his or her paycheck; (3) the deceased employee was married to the surviving spouse for at least nine months, or the employee’s death was accidental, or there was a child born of the marriage to the employee and surviving spouse.
Note that a deceased employee includes an employee who had applied for retirement under FERS but had not separated from federal service prior to his or her death. This is the case even if the individual’s retirement would have been retroactively effective upon separation.
The minimum 18 months of potentially creditable service includes all prior: (1) Service included in a CSRS component including refunded CSRS service; (2) CSRS Offset service for which the employee received a refund before being covered by FERS; (3) FERS service for which retirement contributions remain to the employee’s credit; and (4) “nondeduction” service – usually temporary service- in which FERS retirement contributions were not deducted from the employee’s paycheck and the service occurred prior to Jan. 1, 1989, regardless of whether a deposit for such service has been made.
However, for purposes of the 18-month requirement, creditable civilian service does not include:
(1) “Refunded” FERS service, in which a FERS-covered employee left federal service and withdrew his or her FERS contributions;
(2) “nondeduction” service, usually temporary service performed after Dec. 31, 1988; or
(3) service performed after Dec. 31, 1988, under another retirement system for federal employees. Such service is not creditable under FERS for any purpose.
BEDB- Amount Paid to Surviving Spouse
The BEDB is equal to: (1) $15,000, increased by all CSRS COLA’s beginning Dec. 1, 1987; plus (2) 50 percent of the employees’ final SF 50 salary, or the high-three average salary, if higher. Note that as of Jan. 1, 2019, the $15,000 has increased to $33,998.05. This is a result of increasing the original $15,000 by the annual CSRS COLA’s between Dec. 1, 1987, and Dec. 1, 2018. The high-three average salary for BEDB purposes is computed the same way as it is for FERS annuity purposes. If the deceased had less than three years of service at the time of his or her death, then the salary is simply averaged for the total period of service.
Payment of the Basic Employee Death Benefit
The surviving spouse has three options with respect to how to receive the BEDB, namely:
- Lump-sum payment, fully federal and state taxable in the year received; or
- Direct transfer to surviving spouse’s traditional IRA, or if the surviving spouse is a federal employee with a Thrift Savings Plan (TSP) traditional account, direct transfer into the traditional TSP account; or
- 36 monthly installment payments.
The surviving spouse’s election as to which option to use to receive the BEDB is made on Form SF 3104B (Documentation and Elections in Support of Application for Death Benefits When Deceased Was An Employee at the Time of Death – Section 5). The election is done after the employing agency inserts the lump sum amount payable.
To determine the amount of each monthly installment payment, one needs to multiply the total amount of the BEDB by the factor appropriate for the date of death of the employee. The current factor for deaths occurring on or after Oct. 1, 2017, is 0.0299522. Additional information about this factor can be found here in the November 7, 2014, Federal Register.
The following is an example:
Basic Employee Death Benefit $90,000
Times Factor x 0.0299522
Monthly Installment Payment $2,695.70
The total amount paid in 36 installments (in this example, 36 times $2,695.70, or $97,045.13) is larger than a single lump-sum payment (in this example $90,000) because the total of 36 payments includes interest.
A surviving spouse may at any time elect to stop receiving the BEDB in installment payments and receive a lump payment of the remaining balance. The amount of the lump sum payment will be less than the sum of the remaining payments because the interest stops as of the date of the last payment.
Finally, spouses and former spouses have the opportunity to directly transfer taxable lump-sum payments such as the BEDB into a traditional IRA or to the traditional TSP. The latter can be done can only be done if the spouse or former spouse is or was a federal employee with an existing traditional TSP account. If not directly transferred, the lump sum payment paid directly to a spouse or former spouse is subject to a mandatory 20 percent federal income tax withholding.
A direct transfer election can be submitted with the application for death benefits, Form 3104B, Section 5, for those individuals who would like to make their direct transfer elections at the time they apply for death benefits. Any amount directly transferred is not subject to mandatory withholding. While OPM will withhold 20 percent in federal income taxes in the case of a lump sum payment made directly to a spouse or a former spouse, the latter are responsible for paying any state income tax due.
If no direct transfer election is made with Form SF 3104B, then OPM will send the surviving spouse or former spouse of a deceased federal employee the direct transfer information after OPM computes the benefit. This normally takes 30 to 60 days after OPM receives Form 3104 (Application for Death Benefits –FERS) and supporting documentation.
*** Written by Edward A. Zurndorfer, who is a Certified Financial Planner™, Chartered Financial Consultant, Chartered Life Underwriter, Certified Employee Benefits Specialist and Enrolled Agent in Silver Spring, MD. He is the owner of EZ Accounting and Financial Services, an accounting, tax preparation, and financial planning firm also located in Silver Spring, MD. He is a seminar speaker at Federal employee retirement seminars throughout the country for the National Institute of Transition Planning, Inc. He is also a weekly columnist for MyFederalRetirement.com. Raymond James is not affiliated with and does not endorse the opinions or services of FEDZONE or Edward A. Zurndorfer or any of the above listed organizations. Raymond James is not affiliated with and does not endorse the opinions or services of Edward A. Zurndorfer and/or EZ Accounting and Financial Services. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. While the employees of Serving Those Who Serve are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. Telephone number, 301-681-1652.
Death Benefits FERS