The 80 Percent Limit

How many CSRS employees are still in the workforce? Not a huge number, down to around 5 percent of the workforce now. And many of those still on the job have already maxed out the amount of earned annuity they can receive when they retire.

It’s called the 80 percent limit, 80 percent of your high-3 salary figure. For most employees, that limit is reached when they have 41 years and 11 months of service. However, CSRS-covered law enforcement officers, firefighters, and Congressional employees can reach that limit a lot faster because their annuities are based on more generous formulas.

Note: There is no limit under FERS; as a practical matter, no one will work long enough to achieve an annuity anywhere near 80 percent of their high-3 under that system

If you are one of those who has already reached the 80 percent limit, retirement deductions are still being taken out of your salary. If you haven’t reached the limit, they will be when you do. But don’t worry, the government isn’t going to use those excess contributions to lower the national debt. Your excess contributions will be refunded to you when you retire. And you’ll be offered a choice. You can either accept them tax-free (because they were already taxed as a part of your earned income) or you can purchase additional annuity, which isn’t subject to the 80 percent limit.

Under rules mirroring those for the voluntary contributions program, anyone retiring at age 55 or younger can get $7 of additional annuity for every $100 in his account. The amount of annuity that $100 can buy increases by 20 cents for each full year you are over 55 when you retire. For example, if you were age 60, you’d get $8.00 more per year in your annuity. At age 62, it would be $8.40 more. At age 65, $9.00. And at age 70, $10.00. So, the older you are when you retire, the more additional annuity you’ll get. However, the choice is yours. You can either buy additional annuity or pocket the money.

What I’ve written about so far has focused on your earned annuity and what you can do with your excess contributions. However, there’s more good news for those of you who have reached the 80 percent limit. Any unused sick leave hours you have to your credit when you retire is exempt from that limit. Those hours will be converted into retirement months and used to increase your annuity.

For example, if you had 522 hours, your annuity would be increased by 1/2 of 1 percent, 1,044, 1 percent, 2087, 2 percent, and so on. The more unused sick leave you have at retirement, the greater the increase in your annuity. In short, unused sick leave is the gift that keeps on giving!