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The Confusing Factor in Calculating Your Retirement Benefit

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There are two big factors in computing the value of your federal retirement benefit: your high-three average salary and your length of creditable service. The first is fairly 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 pretty easy. But, of course, that’s often not the case. Here are some complicating factors in calculating length of service:

  • If documentation of past service has gone missing, making the service difficult or sometimes impossible to verify.
  • If interest on an unpaid balance of a deposit into the retirement system for service not covered by retirement deductions has grown to thousands of dollars more than the original deposit amount. Unpaid deposits can affect eligibility for retirement under both the Federal Employees Retirement System and the Civil Service Retirement System in certain circumstances. In other situations, if an employee doesn't pay a deposit, his or her retirement benefit is reduced by a percentage of the unpaid balance. And in some cases, the service won't be used in the computation of the benefit at all unless a payment is made.
  • If you had a 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 break in service between federal jobs of more than three days or multiple starts and stops in a career. Each new position will change your retirement service computation date and is an opportunity to apply for a refund of retirement contributions.
  • 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.

The issue of interest on unpaid balances of service credit deposits is particularly important. It can compound for decades from the period of service or refund to the date of retirement or when the deposit is paid. If you’ve filed for a refund of retirement contributions from past appointments or if you’ve paid a service credit deposit, it is a good idea to file a copy of the forms in your electronic official personnel folder.

For more information on creditable service, see Chapter 20 of the CSRS and FERS Handbook for Personnel and Payroll Offices. 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 doesn’t.

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. Here you can 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, you can address this issue early.

Service credit issues can be more important under FERS than CSRS. Under FERS, most federal service is not creditable for eligibility or computation of retirement benefits unless it has been subject to FERS contributions. Also, service performed after 1988 that was not subject to retirement contributions is not creditable for retirement and a deposit cannot be paid to get credit for it—even though this service is included when computing an employee's leave service computation date. CSRS is more lenient in crediting previous service, especially if it was performed prior to Oct. 1, 1982.

If you are nearing retirement, it is a good idea to explore any service credit issues with a retirement specialist to be sure there won’t be any snags in the processing of your future retirement benefit. It’s 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.

Tammy Flanagan has spent 30 years helping federal employees take charge of their retirement by understanding their benefits. She runs her own consulting business at www.retirefederal.com and provides individual counseling as well as online training for the National Active and Retired Federal Employees Association, Plan Your Federal Retirement and the Federal Long Term Care insurance Program. She also serves as the senior benefits director for the National Institute of Transition Planning Inc., which conducts federal retirement planning workshops and seminars.

For more retirement planning help, tune in to "For Your Benefit," presented by the National Institute of Transition Planning Inc. live on Federal News Radio on Mondays at 10 a.m. ET on WFED AM 1500 in the Washington-metro area. Archived shows are available on NITPInc.com.

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