Locality pay

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Q. Is locality calculated separately from base pay for retirement? Is locality also a high-3 calculation, or is it based on locality of location when you retire, or is it the locality where you earned your high-3 base pay? If my locality is reduced because base pay plus locality exceed the cap, is retirement annuity calculated from the capped number or full base pay and full locality?

A. Your high-3 is based on the average of your highest three consecutive years of pay, regardless of when they occur in your career. Locality pay is a component of basic pay, and the total of these two is the amount from which retirement deductions are taken. Since you don’t receive any pay that falls above a cap, retirement deductions can’t be taken from it; therefore it plays no part in the determination of your high-3.

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Reg Jones was head of retirement and insurance policy at the Office of Personnel Management. Email your retirement-related questions to fedexperts@federaltimes.com.

7 Comments

  1. Kate Bradford on

    Would you please explain what this means? I don’t understand. Is retirement calculate on strictly base pay or is it based on the actual salary you get (which includes locality pay)? For instance, a GS-14, Step 5 has a base pay of $98,899. A GS-14 Step 5 in the Washington DC Metropolitan area is paid $123, 406 including locality pay. Assuming for example that this would be the ‘average high-three”, would the person be paid a percentage (based upon number of years worked and other variables like age) of the $98,899 or the $123,406?

    Thanks –

  2. Thanks for the clarification, William and Reg… Much appreciated. So – one can take the retirement pay they’re getting and conceivably move to an area with a lower cost of living and not have their retirement calculated on the lower cost area. Good to know since I’m contemplating doing so at some point in the future.

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