The 1 percent across the board raise that took effect Sunday (January 3) will have a spillover effect on a number of federal benefits.
The increase will boost benefit calculations for those retiring in the future by increasing their “high-3” salary figure, which along with time of service is the two main elements in that calculation. The high-3 is based on the highest 36 consecutive months of salary, not the salary rate paid in three consecutive calendar years.
For those with life insurance under the FEGLI program, a pay raise may increase the amount of coverage, and thus the premiums, under both Basic and Option B coverage. The former provides coverage equal to annual pay rounded to the next $1,000, plus $2,000. The latter provides coverage of between one and five times annual salary after rounding to the next $1,000. A pay raise does not affect the cost of coverage under Option A (a flat $10,000 benefit) or Option C (coverage on a spouse and eligible children).
Under the Thrift Savings Plan, employees may invest by percentage of salary or by dollar amount per pay period. Investments based on a percentage of salary go up automatically with a raise, as do agency contributions for those under FERS. FERS employees making investments based on a dollar amount per pay period might wish to consider increasing their them to capture additional matching contributions (the automatic 1 percent of salary contribution will increase along with their salary rate even if they do not, however).
Employees under FERS further should note that to capture the maximum government contributions, they need to pace their investments so that they are able to invest at least 5 percent of salary each pay period throughout the year. If they hit the annual limit ($19,500 in 2021; an additional $6,500 for those who will be age 50 or older during the year) before that, their regular investments will shut off, and so will agency matching contributions (although the automatic 1 percent contribution would continue). Once lost, matching contributions can’t be recouped. There is no such consideration for CSRS employees, who get no government contributions.
For those who recently separated for retirement or other reasons the pay raise increases the value of payments for unused annual leave since those payments reflect what an employee would have been paid by remaining employed for an equivalent period.