Panicky employees are asking me if they should retire rather than face two proposals that have been made in deficit reduction and debt ceiling talks: a 5 percent increase in Federal Employees Retirement System employees’ payroll deductions for their defined-benefit pension plans; and a new calculation of pensions based on employees’ five highest annual salaries, instead of the current high-three.
We’ll have to wait until the deficit reduction and debt ceiling negotiations are completed to learn whether federal retirement benefits will be affected and, if so, how.
However, in the midst of uncertainty, what remains constant is the calendar. And, based on that, this is a good year to retire if you have the age and service to do so.
That’s because the 2011 leave year ends on Saturday, Dec. 31. In comparison, the 2012 leave year will end Jan. 12, 2013.
If you are a FERS employee, that Dec. 31 date is good news because you have to retire no later than the end of a month to be on the annuity roll in the following month. Step over the line by one day and you won’t be on the annuity roll until the following month. Retire by Dec. 31, 2011, and you’ll be on the annuity roll in January 2012. Retire at the end of the leave year in 2012, and you won’t be on the annuity roll until February 2013.
The 2011 calendar also is good news if you are a Civil Service Retirement System employee. Although you can retire up to the third day of a month and be on the annuity roll in that month, by retiring Dec. 31, you won’t lose 1/30th of that first month’s annuity payment for every day you are still on the payroll.
Any of you with work schedules that have you completing your tour of duty Friday, Dec. 30, or even earlier in the pay period if you have a flexible work schedule, can relax.
The Office of Personnel Management says that when you’ve completed your tour of duty, you are free to retire, no matter what day in the pay period your last day falls on. You’ll also get |credit for any annual and sick leave you earned during that pay period.
Moreover, by retiring at the end of a pay period, most of you will get paid for all your unused annual leave, including the so-called use-or-lose leave that |you would have forfeited if |you retired after the new leave year begins.
Note that I said most of you. That’s because there are limits on how much annual leave a U.S. Postal Service employee can cash in.
Unfortunately, the cash value of that annual leave won’t be maximized the way it has been in the past. Before the pay-scale freeze, your lump-sum payment would have been increased by the new, higher hourly rate |that would have gone into effect on the first pay period on or |after Jan. 1.
Of course, if you received a step increase before you retired, you will get credit for that in your lump-sum calculation.
Finally, there’s a tax benefit if your income in the year after you retire, including any lump-sum annual leave payment or buyout, is lower than it was while you were working. Not only is there a good chance that your tax bracket will be lower, but a portion of your annuity won’t be taxable.
You can find out how much of it will be nontaxable in Internal Revenue Service Publication 721, Tax Guide to U.S. Civil Service Retirement Benefits, available at the IRS’s website.
So, if you decide to retire, what can you do to assure that your retirement application will be processed smoothly and quickly? Make sure your application is complete and accurate.
