Retroactive Pay Affects Benefits

The retroactive payment is considered regular basic pay, subject to the same tax and other policies typically applying to basic pay. That means retirement contributions are withheld from the retroactive amount, and if the raise moves the individual into a new $1,000 bracket for Federal Employees Group Life Insurance Basic and Option B insurance, an additional amount will be withheld for that purpose. Thrift Savings Plan contributors will have contributions withheld as current contributions from the retroactive increase; however, lost earnings are not payable since the retroactive pay increase is not considered an “error” subject to restoration of lost earnings.