In my last two columns I described the kinds of active duty service in the armed forces that are potentially creditable in your CSRS or FERS annuity, and what you have to do to get that credit. This time I’ll quickly go over the rules governing the computation of CSRS and FERS annuities for most federal employees. That way you’ll be able to see what the difference would be between a pure civilian annuity and one that includes credit for active duty service for which you’ve made a deposit.
Under CSRS, you can retire immediately if you are age 55 and have 30 years of service, 60 with 20 or 62 with 5. Under certain circumstances, you can retire at age 50 with 20 years of service or, if you have 25 years of service, at any age. However, your annuity will be reduced by 1/6 of a percent for each month you are under age 55. That’s 2 percent per year.
Under FERS, you can retire immediately at your minimum retirement age (MRA) with 30 years of service, 60 with 20 or 62 with 5, You can also retire at your MRA with at least 10 years of service but fewer than 30. However, if you retire under the MRA+10 provision and have fewer than 20 years of service, your annuity would be reduced by 5 percent for every year you were under age 62, age 60 if you had at least 20 years of service.
You could also retire early at age 50 with 20 years of service or, if you have 25 years of service, at any age. However, unlike CSRS retirees, there wouldn’t be any age penalty.
Note: To find out which kinds of active duty service in the armed forces are considered creditable and under what conditions, go to www.opm.gov/retirement-services/publications-forms/csrsfers-handbook/c022.pdf. To find out the same thing about civilian service, go to www.opm.gov/retirement-services/publications-forms/csrsfers-handbook/c020.pdf.
Here’s how you compute a CSRS annuity:
* 1.5% x your high-3 x 5 years of service, plus
* 1.75% x your high-3 x 5 years of service, plus
* 2% x your high-3 x all remaining years and full months of service
This formula generates the basic annuity amount, which cannot exceed 80 percent of your average high-3 salary. However, unused sick leave is not included in that 80 percent limitation.
Two simple examples will illustrate the difference between making a deposit for four years of active duty service and not doing so. For simplicity’s sake, we’ll say your high-3 is $100,000 and you have 30 years of actual service.
* Without a deposit, your annuity would be $56,150.
* With a deposit, your annuity would be $64,250.
Here’s how to compute a FERS annuity:
.01 x your high-3 x all years of service
If you are age 62 and have at least 20 years of service, use this formula:
.011 x your high-3 x all years of service
Once again, some simple examples will illustrate the difference between making a deposit for four years of active duty service and not doing so. And I’ll use the same high-3 – $100,000 – and 30 years of actual service.
* Without a deposit, your annuity would be $30,000.
* With a deposit, your annuity would be $34,000.
If you were entitled to the .011 multiplier
* Without a deposit, your annuity would be $33,000.
* With a deposit, your annuity would be $37,400.
Note: Whether you are covered by CSRS or FERS, unused sick leave can’t be used to make you eligible for retirement. It can only be added to your years of service after you meet the age and service requirements.
The special retirement supplement
Because FERS is a retirement system that includes Social Security, if you retire before age 62, you’ll be entitled to the special retirement supplement, unless you are retiring under the MRA+10 provision.
The SRS approximates the amount of Social Security benefit you earned while a FERS employee. It doesn’t include periods of active duty service, whether or not you have made a deposit.
Using the FERS example above, if you are a FERS employee with 30 years of actual service and have made a deposit to get credit for your active duty service. That time will be included when determining your total years of service and used in your annuity computation. However only your actual service will be used in calculating your special retirement supplement. That’s because the SRS is paid out of the Civil Service Retirement and Disability Fund, not the Social Security Fund. However, when you apply for a Social Security benefit, it will be based on all your years of Social Security-covered employment.
A word about special category employees
Law enforcement officers, firefighters and air traffic controllers may retire at age 50 with 20 years of covered service. FERS employees may also retire at any age with 25 such years. All special category employees receive an enhanced benefit for which they pay by contributing more to the retirement system.
The rules for crediting are the generally the same for special category employees as they are for all other employees. However, there are a few variations on those rules. First, active duty service that precedes employment as a special category employee can’t be used to meet the years of service requirements for the enhanced benefit. Second, active duty service that interrupts a special category career is creditable toward the enhanced benefit, but only if the employee returns to a covered position and makes a deposit for that time.