By: Reg Jones
I had thought I’d never need to write another article about what happens when CSRS employees continue working beyond the point where they hit the maximum earned annuity amount (80 percent) they can receive under the law. But I was wrong. Within the last month, I’ve had three inquires from people who fit that bill. So, here I go again.
To recap: Under the standard CSRS formula, employees hit that maximum once they have served for 41 years and 11 months. However, the maximum is reached earlier by those with service time under one of the exceptions providing for a higher rate of benefits accumulation, such as law enforcement officers and employees of Congress.
If you have already reached the earned 80 percent limit, retirement deductions continue to be taken out of your salary. Those excess contributions will be refunded to you, with interest, when you retire. Then you’ll be offered a choice. You can either accept that money tax-free (because it was already taxed as a part of your earned income) or you can purchase additional annuity, which isn’t subject to the earned 80 percent limit.
See also Calculating a Federal Annuity at ask.FEDweek.com
So how is that additional annuity figured? Under rules designed for the voluntary contributions program. I’ll spell those out for you, even though the earliest levels of return won’t apply to anyone who is old enough to have over 40 years of service. Anyone retiring at age 55 or younger can get $7 of additional annuity for every $100 in his or her account. The amount of annuity that $100 can buy increases by 20 cents for each full year you are over 55 when you retire. For example, if you were age 60, you’d get $8.00 more per year in your annuity. At age 62, it would be $8.40 more. At age 65, $9.00. And at age 70, $10.00. The choice is yours. You can either buy additional annuity or pocket the money.
There’s more good news for those of you who have reached the earned 80 percent limit. Any unused sick leave hours you have to your credit when you retire will be exempt from that limit. Those hours will be converted into retirement months and used to increase your earned 80 percent annuity. For example, if you had 522 hours, your annuity would be increased by 1/2 of 1 percent; if 1,044, 1 percent; if 2087, 2 percent, and so on. The more unused sick leave you have at retirement, the greater the increase in your annuity. In short, as I’ve said before, unused sick leave is the gift that keeps on giving!
See also Many under CSRS are reaching their limit at ask.FEDweek.com