The length of time you worked is one part of the formula used in computing an annuity. The other is the average of your highest three consecutive years of basic pay—your “high-3.”

Federal employees can receive compensation in a variety of forms, but for these purposes, not all forms are equal. Some count toward basic pay, some don’t.

Simply stated, basic pay is the amount you are paid for your position and level. It includes:
• locality pay, including any portion of non-foreign cost-of-living adjustments that has been converted to locality pay under recent legislation;
• special salary pay for recruiting and retention purposes;
• within-grade and quality-step increases;
• premium pay, such as standby time, which primarily affects firefighters, and administratively uncontrollable overtime (AUO), which is paid to certain law enforcement officers;
• environmental differential pay for employees exposed to various degrees of hazard, physical hardship, and working conditions of an unusual nature; and
• night differential pay for wage employees.

However, basic pay doesn’t include:
• overtime (except as noted above);
• payment for credit hours;
• holiday pay;
• military pay;
• bonuses or cash awards;
• allowances;
• night differential pay for GS employees;
• lump-sum payments for unused annual leave; or
• supplemental payments from the Office of Workers’ Compensation.

To find out what you basic pay is, look at your pay slip and find out how much of it was subject to retirement deductions. Only pay from which retirement deductions are taken is considered to be basic pay. If the percentage of your pay that had retirement deductions taken out of it doesn’t look right, you’ll need to visit your payroll office and get some answers from them.

Once you know what your basic pay is, you can estimate what your high-3 is. The three-year period doesn’t start on the first day of a year or month or day on which you receive a pay increase. It begins and ends on the dates that produce the highest average pay.

For most of employees, it will be the three years before the day on which you retire. In rare cases, that high-3 will lie in the past. Either way, when OPM receives your retirement application, it will have access to your entire pay record, from which it can extract the three years of data needed to construct your high-3.

While the three years that make up your high-3 have to be consecutive, they don’t have to be continuous. This is especially important if you left government and then returned at a later date. In that case, those periods of service would be joined together to produce a high-3.

Your high-3 also won’t be affected if you were on leave without pay during the three year period when your pay was at its highest, so long as that period of LWOP didn’t exceed six months in any of those calendar years.

If for some reason you had a period of LWOP beyond six months during a year in that span, your three years would be extended by however long you were on LWOP in excess of six months. For example, if you were on LWOP for nine months, your high-3 would be based on a period of time that was three years and three months long.