Federal employees would receive smaller pensions under a proposal being considered in Congress that would change the formula for calculating annual retirement benefits. Under the change, employees would have to delay retirement for up to nine months to become eligible for the same pensions they would receive using the current formula, the General Accounting Office has found.
Currently, the size of a federal employee's annuity is calculated using a formula that considers the average salary for the last three years of his or her career. The formula is called the "high three." Under the proposal, the formula would instead factor the average salary for the last four or five years of service.
Most federal employees would find their pensions reduced because they received pay increases during the extra year or years, meaning the average used to calculate pensions would come out smaller.
GAO found that employees would have to delay retirement for three to nine months if the formula were changed to a high four or high five system in order to receive the same pensions they would have received under the high three formula.
Under a high four formula, employees would have to work from three to five months longer to get the same pension they would have under the high three, GAO calculated. Under a high five, employees would have to work from five to nine months longer. During those extra months, employees receive pay increases and extra time is added to their creditable service, thereby reducing the length of time they must work to bring their pensions up to the same level as they would be using the high three formula.
Rep. John Mica, R-Fla., chairman of the House Government Reform and Oversight Committee's Subcommittee on the Civil Service, commissioned the GAO study. Ned Lynch, a staffer for the subcommittee, said Mica wanted to disprove rumors that if the formula changed, federal employees would have to work for years to get the pensions they would get under the high three formula.
Lynch said no legislation has been introduced to make the formula change and Mica is not currently planning on introducing such a measure.
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