The CSRS Maximum Annuity

There are still a lot of employees covered by CSRS, many of them determined to keep on working until they maximize their earned annuities.

Quite a few of them actually have already reached that maximum—80 percent of high-3—usually reached upon completing 41 years and 11 months of CSRS service. (Those who worked in certain occupations where benefits accumulate faster—at the cost of making higher contributions, incidentally—reach it earlier.)

So what happens if you are one of them, reach that target, and don’t retire? Will retirement contributions continue to be taken out of your pay? If they will, what happens to those excess contributions when you retire?

First, retirement contributions will continue to be taken out of your pay, no matter how long you work past the point of reaching the maximum percentage. Second, when you retire, OPM will let you know the amount of those excess contributions, including accrued interest. Then you’ll be given a choice. You can either receive a refund of that money or you can use it to buy additional annuity, which isn’t subject to the 80 percent cap on your earned annuity.

If you ask for a refund, the excess deductions will be tax free. That’s because the money was already taxed when you were working. On the other hand, the interest it earned will be taxable.

If you want to buy additional annuity, the amount you get will depend on your age. If you are age 60, you’ll get $8.00 more in annuity per year for each $100 of excess contribution. The amount increases by 20 cents for every additional full year: at age 62, it would be $8.40 more, for example, at age 65, $9.00, etc. FYI: This additional annuity won’t be increased by annual COLAs like your basic annuity.

If you have any sick leave when you retire, it will be used to increase your CSRS annuity. Since that increase isn’t subject to the 80 percent cap on your earned annuity, the more sick leave you have, the greater the increase in your annuity will be. Every 174 hours of sick leave will bump it up by one-sixth of one percent.

For many in this position who have used sick leave sparingly over long careers, this can turn into a substantial added benefit. For example, if you have 2,087 hours of sick leave when you retire, your annuity will be increased by two percentage points.

Note: There is no maximum percentage under FERS; the lower benefit accumulation rate makes it effectively impossible to reach an 80 percent of high-3 benefit.