How federal retirement benefits are calculated and where estimates go wrong

In 2017, I wrote a column about factors that contribute to an accurate retirement estimate that I think is worth repeating this week. I have been learning about employees who have had to retire with very short notice who have not had time to do careful retirement preparations and are worried that they are not receiving the correct amount of their retirement benefit. If you have not taken the DRP and are planning to stay in federal service longer, it is time to begin planning and preparing now. Sometimes opportunities arise that do not allow time to do the preparations that provide you with the peace of mind of knowing how much your retirement will be worth.

The two main factors that affect the value of your federal retirement benefit are your high-three average salary and your length of creditable service. The first is straightforward, but the second can get confusing.

If all federal employees ended their careers exactly 30 or 40 years after they started, figuring length of service would be easy. But, of course, that is often not the case. Here are some complicating factors in calculating length of service:

• Documentation of your beginning and ending dates of federal service may be missing from your electronic Official Personnel Folder (eOPF). Solution: Review your eOPF to locate documents such as an SF 50, Notification of Personnel Action form, that indicates your date of entry in federal service and any changes to your employment such as a change in work schedule, a break in service, or a change in your retirement coverage. If you are unable to find documentation that clearly shows these important pieces of information, schedule an appointment to discuss your concerns with a retirement specialist in your human resources office.

• If you have completed active-duty military service, ensure that these periods are accurately documented and recognized for purposes of retirement eligibility and calculation. Remember that military service credit deposits must be completed before you separate from your federal career.

• You may owe money to the retirement fund if you have had a break in service and withdrew your retirement contributions from CSRS or FERS, or if you had a period of federal employment when you were not covered under CSRS or FERS. “Non-deduction” service may be credited if you pay a deposit payment. However, non-deduction service performed after 1988 is not creditable under FERS, and there is no option to pay a deposit to make this time count toward eligibility or computation of the FERS basic retirement benefit.

• Change in retirement coverage from CSRS to FERS or FICA to FERS or CSRS to CSRS Offset — or worse yet, an undiscovered error in your retirement coverage determination.

• If you had a change in your work schedule, such as from full time to part time. An intermittent (or “when actually employed”) work schedule or periods of leave without pay lasting longer than six months can change your length of service calculation.

For more information on creditable service, see Chapter 20 of the CSRS and FERS Handbook for Personnel and Payroll Offices and Chapter 21 for creditable military service. But due to the potential to misinterpret this guidance, decisions regarding creditable service and computation of unpaid deposits are best left to human resources professionals who can assist you in determining what counts and what does not.

Agencies should, and often do, address deposits and redeposits when employees are first hired. It is important for new hires to know how their past federal civilian and military service can be used in their future retirement benefit.

If you have a complicated service history, you should be proactive and contact a retirement specialist in your human resources office. They can help you find out how much you owe for a service credit deposit and learn about the impact to your future retirement if you leave the deposit unpaid. If there are missing service records from past appointments, it is important to address these issues early, if possible, to avoid unnecessary delays when you are ready to retire.

As important as it is to have your retirement accurately calculated, it is also critical to address the reductions and withholdings that will take your gross retirement benefit to a net amount that can be substantially less than you might have expected. Consider the following potential reductions:

• Age reduction: Reduction for age when retiring under early deferred retirement or MRA plus 10 provisions.

• Survivor reduction: Reduction to provide a survivor annuity to a spouse and or former spouse(s), and or reduction to provide a survivor annuity to a person with an insurable interest.

• Alternative annuity reduction: Reduction because of an alternative annuity election. See Chapter 53 of the CSRS and FERS Handbook for information about election of an alternative annuity.

Also, consider the following potential withholdings from your monthly retirement benefit:

• Federal income tax
• State income tax

Insurance:
• Federal Employees Health Benefits (FEHB) or Postal Service Health Benefits (PSHB)
• Federal Employees Group Life Insurance (FEGLI)
• Federal Employees Supplemental Dental and Vision Insurance Program (FEDVIP)
• Federal Long-Term Care Insurance Program (FLTCIP)

If you are nearing retirement, it is a good idea to explore any service credit issues with a retirement specialist to be sure there will not be any snags in the processing of your future retirement benefit. It is a lot better to correct a problem while you are receiving a paycheck every two weeks rather than when you are waiting for your retirement claim to be finalized.

In this time of massive agency downsizing and reorganization, it can be difficult to find someone knowledgeable and available to assist in your retirement preparations. Here is where you can find some resources that may help, including videos, pamphlets and publications.

Visit OPM for the agency benefits officers database, which may be helpful in locating your retirement specialist. If you need additional assistance, you may contact one of our experienced retirement and insurance professionals at www.retirefederal.com.

If you are looking for financial guidance to determine if you can afford to retire or whether this is a good time to consider TSP distributions or filing for Social Security benefits, you may also require assistance from a financial or tax adviser. You can learn more about working with these professionals at the Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC).