One of the most overlooked and least understood provisions of federal retirement is the annuity limit under CSRS.
Under CSRS, the dollar amount of your annuity cannot exceed 80 percent of your high-3 average salary. That’s the amount you would get if you had 41 years and 11 months of creditable service. Those who have worked in certain occupations in which the benefit formula is more generous—including work in personal or committee offices of Congress—reach the maximum sooner.
Since by definition no one joined CSRS after 1983, the CSRS contingent in the federal workforce now is mostly near, if not already over, that limit if they have worked continuously for the government since that time.
When you have reached that point, retirement contributions will continue to be taken out of your salary. However, at retirement, those excess contributions will be returned to you with interest, which is currently 3 percent per year. The Office of Personnel Management will also offer you an opportunity to buy additional retirement annuity with that refunded money.
The 80 percent limit does not apply to additional annuity purchased with excess contributions or through the Voluntary Contributions Program, cost-of living-adjustments, or as a result of additional retirement credit given for unused sick leave. The sick leave exception is an important one, since many long-service CSRS employees might hit the 80 percent limit though crediting of sick leave even though they fell short of serving nearly 42 years.
There is no annuity limit under FERS, which has a lower benefit calculation—1 percent of high-3 per year of service, 1.1 percent if retiring at 62 or older with at least 20 years of service. Thus, even if there were an 80 percent limit, it would take 73 years of service to get there.