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Employee Benefit Changes for 2023
How new pay rates, Social Security earnings limits and other factors could affect your retirement planning.
With the new year comes changes to employee benefits that can affect your retirement planning. Let’s take a look at some of them.
Civil Service Retirement System
Pay Raise: The General Schedule pay adjustment is important to future retirees, because it will be factored into the high-three average salary computation based on how many days the new pay rate is in effect prior to retirement. Assuming you’re in your peak earning years, for every day the 2023 rate is in effect, the pay rate in effect in 2020 will be eliminated, increasing the overall computation.
Late last month, President Biden issued an executive order formalizing an average 4.6% pay increase for civilian federal workers in 2023. The raise is split between a 4.1% across-the-board increase in basic pay and a 0.5% boost to locality pay.
Variable Interest Rate: This is used to compute the interest that accrues on unpaid civilian and military service credit deposits, and on voluntary contributions that are on deposit. For 2023, the rate will be 1.875%, up from 1.375% in 2022. If you have invested $50,000 in a voluntary contributions account, it will earn $937.50 in interest (tax-deferred) on Dec. 31, 2023. On the other hand, if you owe a balance of $50,000 on refunded CSRS contributions that you withdrew from a prior period of federal service, you will owe an additional $937.50 in interest on Dec. 31.
Federal Employees Retirement System
Pay Raise: As with CSRS, the 4.6% average increase—the largest since 2002—will likely boost the high-three average salary for federal employees, especially those on the verge of retirement.
Variable Interest Rate: As with CSRS, the rate for 2023 will be 1.875%, up from 1.375%.
Basic Employee Death Benefit: The initial $15,000 portion of the FERS death benefit, enacted when FERS was createdpayable to spouses, is increased by the CSRS cost of living adjustment. The CSRS COLA, effective Dec. 1, 2022, increases the death benefit for an employee who dies on or after that date to half of their final annual pay (or average pay, if higher), plus $40,279. This is only payable if an employee dies prior to separation from federal employment.
Social Security
Earnings Limits: The earnings limit for workers who are younger than full retirement age will increase to $21,240. For every $2 earned over this limit, Social Security will deduct $1 from benefits.
The earnings limit for people reaching their full retirement age in 2023 will increase to $56,520. For every $3 earned over this limit, Social Security will deduct $1 from benefits until the month the worker reaches full retirement age. There is no limit on earnings for workers who are at their full retirement age or older for the entire year.
Maximum Taxable Wage Amount: If you’re working with wages subject to Social Security tax withholding, the maximum amount of earnings subject to the tax will increase to $160,200 in 2023 from $147,000 in 2022.
Thrift Savings Plan
TSP Elective Deferral Limit: The annual IRS limit for elective deferrals—the amount that employees can contribute to their accounts—is increasing to $22,500 from $20,500 last year. The limit applies to the combined total of traditional and Roth contributions.
Catch-Up Contribution Limit: TSP participants aged 50 and older can make tax-deferred “catch-up” contributions from their basic pay to their TSP accounts. These supplement the participant’s regular employee contributions and do not count against the IRS elective deferral limit. The catch-up contributions have a separate annual limit and eligibility criteria. This limit has increased to $7,500 in 2023, up from $6,500 in 2022.