Reg Jones Expert's View

This week I want to write about a really determined group of workers. I’m talking about Civil Service Retirement System employees who have – or will have – 41 years and 11 months of service. That’s the amount of service typically needed to reach the maximum initial CSRS benefit of 80 percent of your high-3 salary average.

(I say “typically” because that limit can be reached earlier with certain types of service in which the benefit accumulation rate is higher. These include, most commonly, work on the staff of a member of Congress or of a congressional committee, and work as a law enforcement officer, air traffic controller or firefighter—although not enough of such work to be subject to mandatory retirement under those latter three systems. Also note this: there is no annuity limit under FERS.)

I get about one e-mail a week from one of them who is about to hit that mark, has just met it, or is now well beyond it. And they all have two questions:

* Will retirement contributions continue to be taken out of my pay after I reach 41 years and 11 months of service?
* If they are taken out of my pay, what will happen to those excess contributions when I retire?

The answer to the first question is yes, retirement contributions will continue to be taken out of your pay, no matter how long you work. The answer to the second question is a little more complicated.

When you retire, OPM will let you know the amount of your excess contributions, including accrued interest. Then it will give you a choice. You can either get a refund of that money or use it to buy additional annuity, which isn’t subject to the 80 percent cap on an earned annuity.

If you take a refund, your contributions will be tax free, because that money was already taxed when you were working. However, any interest it earned will be taxable.

If you decide to use the money to buy additional annuity, the amount will depend on your age. Under the law, anyone retiring at age 55 or younger can get $7 of additional annuity for every $100 in his account. The older you are when you retire, the more additional annuity you’ll get because the amount increases by 20 cents for every full year you are over 55. If you are age 60, you’ll get $8.00 more per year. At age 62, it would be $8.40 more. At age 65, $9.00. And at age 70, $10.00. The only downside is that this additional annuity won’t be increased by annual COLAs like your basic annuity.

Speaking of your basic annuity. If you have unused sick leave when you retire, it will be used to increase your annuity. There is no cap on the amount that can be used in that calculation, and the increase isn’t subject to the 80 percent cap on your earned annuity. So, the more sick leave you have, the greater the increase in your annuity will be.

Because you are a CSRS employee, every 174 hours of sick leave will bump it up by one-sixth of one percent. If you have 2,087 hours of sick leave when you retire, your annuity will be 80 percent plus 2 percent, for a grand total of 82 percent. Not bad!