Expert's View

As CSRS employee population ages, an ever increasing number of them have accumulated 41 years and 11 months of creditable service. If you are one of them, you may not realize that you have reached a point where your earned annuity can’t go any higher. You have reached the 80 percent maximum set by law.

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The good news is that the 80 percent limit on earned annuities doesn’t apply to unused sick leave. It will be added to your service credit and used in the computation of your annuity. As a result, the more unused sick leave you have when you retire, the larger your annuity will be. For example, if you have a full year’s worth – 2,087 hours – your final annuity would be 82 percent of your high-3. For CSRS employees, unused sick leave is the gift that keeps on giving.

Despite the fact that your earned annuity can’t go beyond 80 percent, retirement deductions will still be taken out of your pay. In some cases, those excess contributions will be used to pay off any deposits you may owe for federal jobs, such as temporary appointments, where retirement deductions weren’t taken out of your pay, or to repay refunds you took when you left the government for a period of time. But in most cases, those excess contributions will simply build up, and, at retirement, you will be given a choice. You can either get a refund plus 3 percent interest compounded to the date you retire or you can use that money to buy additional annuity.

The method used to buy additional annuity is the same as that for the Voluntary Contributions Program. Each $100 of excess contributions will buy $7 per year of additional annuity at age 55. That amount increases by 20 cents for each year you are over 55. For example, if you retire at age 65, each $100 would buy $9 per year of additional annuity. At 70, $10. And so on. You can even elect to provide a survivor annuity with it.

Clearly the choice of whether to take the money – which is tax-free other than the interest portion – or buy additional annuity is a personal one. Either way, those excess contributions won’t have been made in vain.

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