Computing a Federal Annuity – Standard Rules

CSRS (Immediate or Early)

The amount of the basic federal annuity payable on retirement under CSRS is directly related to length of service and the average of the highest three years’ average salary. Once the basic annuity is computed, it may be reduced for any service for which retirement contributions were not made (“deposit service”).

The basic annuity also may be reduced to provide survivor benefits for a spouse or former spouse after the retiree’s death or because of a retirement before age 55 under an early retirement offer; the latter applies to relatively few new CSRS retirees since the system was closed to new entrants effective in 1984. Service for which a refund of retirement contributions has been received (“redeposit service”) will be used to determine eligibility for retirement but cannot be considered when computing a basic annuity, unless the entire redeposit due has been paid or the employee is eligible for, and elects, the Alternative Form of Annuity (except when the refund covered service that ended before March 1, 1991).

Annuities are expressed as a percentage of high-3 average salary. The high-3 average salary is the highest three years of base pay or salary earned in any consecutive three-year period (usually the last 78 pay periods). The high-3 percentage is determined by a three-part formula based on an employee’s length of creditable service:

• 1.5% x high-3 x first five years of service
• plus 1.75% x high-3 x next five years of service
• plus 2.0% x high-3 x all years of service over 10

Full months beyond the last full year are credited proportionately. Note: While unused sick leave cannot be counted toward the high-3 years of average salary or for establishing eligibility for retirement, it is used in the calculation as time actually served.

Example 1:

Age: 55
High-3: \$60,000
Service: 30 years
.015 x 5 x \$60,000 = \$ 4,500
.0175 x 5 x \$60,000 = \$ 5,250
.02 x 20 x \$60,000 = \$24,000
Result: \$33,750 (56.25% of high-3)

Example 2:

Age: 60
High-3: \$48,000
Service: 20 years
.015 x 5 x \$48,000 = \$ 3,600
.0175 x 5 x \$48,000 = \$ 4,200
.02 x 10 x \$48,000 = \$ 9,600
Result: \$17,400 (36.25% of high-3)

Note: CSRS employees who are under age 55 at retirement will have their annuities reduced by 1/6th percent for each month they are under age 55. That’s 2 percent per year.

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CSRS Offset (Immediate or Early)

The dollar amount of a basic annuity payable to a CSRS Offset employee is calculated in the same way as that for a regular CSRS employee as described above.

However, CSRS Offset employees who retire and are eligible for a Social Security benefit at age 62 (or later if they retire after age 62) will have their CSRS annuities reduced by the amount of the Social Security benefit that is attributable to their offset service. If they are not eligible for Social Security benefits at those points in time, there will be no offset to their CSRS annuities.

If a CSRS Offset employee is eligible for a Social Security benefit, SSA will take his or her earnings for the time covered by CSRS Offset and compute that Social Security benefit in two ways: with those earnings included and without those earnings. The two amounts will be sent to OPM to determine the correct offset.

The offset reduction is the lesser of:

• the difference between the Social Security monthly benefit amount with and without offset service; or
• the product of the Social Security monthly benefit amount, with federal earnings, multiplied by a fraction, where the numerator is the total offset service rounded to the nearest whole number of years and the denominator is 40—expressed as a formula, (Social Security Benefit x Total Years of Offset Service) divided by 40.

As a general rule, the net effect of the offset is a wash. In some cases, a retiree may even get a few more dollars in total.

If you don’t return to CSRS Offset employment, your CSRS annuity reduction will not change from what it was at age 62 (or whenever you became eligible for Social Security). Future employment in some other job covered by Social Security won’t change that reduction.

Note: If your survivors will be eligible for Social Security benefits based on your CSRS Offset service, the Office of Personnel Management will reduce the benefits paid to them in the same way that it reduced yours.

FERS (Immediate or Early)

FERS annuities are based on high-3 average pay. Generally, the benefit is calculated as 1 percent of high-3 average pay multiplied by years of creditable service. For those retiring at age 62 or later with at least 20 years of service, a factor of 1.1 percent is used rather than 1 percent.

One percentage point is added for periods of two months or longer than the employee was separated due to disability.

Full months beyond the last full year are credited proportionately. Note: While unused sick leave cannot be counted toward the high-3 years of average salary or for establishing eligibility for retirement, it is used in the calculation as time actually served.

FERS employees retiring with less than 20 years of service and before attaining age 60 will have their annuities reduced by 5 percent for every year they are under age 62. However, that reduction will be waived if the employing agency provides an opportunity to retire early.

Example 1:

Age: Minimum Retirement Age*
High-3: \$60,000
Service: 30 years
.01 x 30 x \$60,000 = \$18,000 (30% of high-3)

Example 2:

Age: Minimum Retirement Age*
High-3: \$60,000
Service: 15 years
.01 x 15 x \$60,000 = \$ 9,000 (15% of high-3)
35% reduction: – \$ 3,150 (7 years under 62) =  \$ 5,850 (9.75% of high-3)

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* FERS Minimum Retirement Age Table

Year of Birth    FERS Minimum Retirement Age
Before 1948                 55
1948                              55 and 2 months
1949                              55 and 4 months
1950                              55 and 6 months
1951                               55 and 8 months
1952                              55 and 10 months
1953–1964                   56
1965                              56 and 2 months
1966                              56 and 4 months
1967                              56 and 6 months
1968                              56 and 8 months
1969                              56 and 10 months
1970 and after             57

Note: FERS employees who accumulated five or more years of service under CSRS before transferring to FERS will have that component of their annuity calculated using the CSRS formula.

FERS employees who meet certain requirements will receive a Special Retirement Supplement, which is paid as an annuity until they reach age 62. This supplement approximates the Social Security benefit earned while employed by the federal government.

Special Retirement Supplements are provided to those employees who retire:

• after their MRA with 30 years of service;
• at age 60 with 20 years of service;
• upon early voluntary retirement (age 50 with 20 years of service or at any age with 25 years; if an agency is undergoing a major reorganization, reduction-in-force (RIF) or transfer of function the supplement begins at the MRA and continues until age 62); and
• upon involuntary retirement, beginning at the MRA until age 62.

Anyone transferring to FERS from CSRS/CSRS Offset must have at least one full calendar year of FERS-covered service to qualify for this supplement.

Note: FERS retirees who have earnings from wages or self-employment may have their Special Retirement Supplement reduced or stopped by the Social Security earnings test (see Social Security).

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