New Law Benefits CSRS Employees With Part Time Service
As will be explained and illustrated below, CSRS employees with part time service and who retire after October 27, 2009 will receive a somewhat higher CSRS annuity under DAA's passage compared to what they would have received before DAA's passage.
It is important to first review the general rules for CSRS employees who have
worked on a part time schedule on or after April 7, 1986. Upon retirement, these
employees will receive a CSRS annuity consisting of:
- A pre-April 7, 1986 CSRS annuity component, using the employee's total service time through April 6, 1986. The employee's unused sick leave balance at the time of the employee's retirement is also included in the annuity calculation.
- A post-April 6, 1986 CSRS annuity component, using the employee's service from April 7, 1986 through the date of retirement plus any unused sick leave days leftover for the computation of pre-April 7, 1986 basic annuity. The result of this annuity computation is prorated using a "proration percentage" in order to take into account the employee's part time service.
Note that prior to DAA's passage, those CSRS employees with part time service after April 6, 1986 had both the pre-April 7 and post-April 6, 1986 annuity components subject to the "proration percentage". With DAA's passage, only the post-April 6, 1986 component is subject to the "proration percentage".
Only whole years and months of service (which includes the retiring employee's sick leave at the time of retirement) are used in the computation of the pre-April 7, 1986 basic annuity. Any "leftover" days (days totaling less than a month or 30 days) will be added to the length of service used to compute the post-April 6, 1986 basic annuity.
The following example illustrates:
Charles will be retiring from federal service under CSRS on Dec. 31, 2009. Charles started federal service June 19, 1977 and worked full time until converting to part time - 64 hours a pay period or 80 percent of full time - starting May 1, 1995. He has continued to work part time until his retirement date of December 31, 2009. At the time of his retirement, Charles will have 1680 hours of unused sick leave. Using OPM's sick leave conversion table (available here [PDF]), the 1680 hours of unused sick leave adds nine months and 20 days of service to Charles' service time for the purpose of calculating his CSRS annuity.
Step 1. Compute length of service for the pre-April 7, 1986 CSRS annuity:
Service history: 6 - 19 - 1977 to 5 - 01
-1995 full-time (80 hours each pay period)
5 - 02 - 1995 to 12 - 31 -2009 part-time (64 hours each pay period)
Unused sick leave at the time of retirement: 1,680 hours = 9 months and 20 days
Note: The Office of Personnel Management (OPM) operates on a 30 days per month, 12 months per year calendar year.
Add: Unused sick leave
9 years and 7 months = total creditable service for computation
purposes for the period
June 19. 1977 to April 6, 1986.
Step 2. Determine the employee's length of service from April 7, 1986 to the day of retirement:
Add the leftover days from pre-April 7, 1986 length of service computation (Step 1)
23 years and 9 months = total creditable service for CSRS computation purposes for the period April 7, 1986 to December 31, 2009.
Step 3. Compute the high-three average pay for the pre-April 7, 1986 basic annuity by using any period of three consecutive years of the employee's service, including service performed after April 6, 1986 that will produce the highest average pay. Under the pre-DAA passage, the CSRS annuity is prorated according to the employee's part-time service after April 6, 1986.
Returning to the example with Charles:
- 9 years and 7 months = full-time service before April 7, 1986
- 9 years and 1 month = full-time service between April 7, 1986 and May 1, 1995
- 14 years and 8 months = part-time (64 hours per pay period) service after May 1, 1995 through December 31, 2009 (date of retirement)
The "proration percentage" is calculated by computing the ratio of the number of hours actually worked between April 7, 1986 and the retirement date to the full-time equivalent number of hours. In this example, the number of hours actually worked between April 7, 1986 and Dec. 31, 2009 (23 years and 9 months) is equal to:
Total hours worked from April 7, 1986 through Dec. 31, 2009 = (2087 hours/year x 9 years) + (174 hours/month x 1 month) + (1,668 hours/year x 14 years) + (139 hours/month x 8 months) = 43,421 hours actually worked between April 7, 1986 and Dec. 31, 2009.
Full-time equivalent hours = (23 years x 2,087 hours/year) + (9 months x 174
= 49,567 hours
43,421 hrs worked/49,567 full time equivalent hrs=.8760 or 87.60% =
Assume Charles's high-three average salary is $100,000
Step 4. Calculate the total CSRS annuity that includes both part-time and full-time service. In doing this calculation, the CSRS computation chart, available for download at (www.opm.gov/retire/pubs/handbook/C050.pdf, page 54) will be utilized.
Note the following from the above table:
- The difference between the total CSRS annuity of pre-DAA ($55,589) and post-DAA ($57,514) passage is $1,925 per year, or $160.42 per month.
- If the individual in the example (Charles) had not converted to part time service during his federal service, his CSRS annuity would have been 0.629167 (from OPM's CSRS annuity table in the CSRS and FERS Handbook, Chapter 50 -CSRS annuity percentage that applies to 33 years and 4 months of total service) times $100,000, or $62,917. This is a difference equal to $62,917 minus $57,514 (under the new rules) or $5,403 per year or $450 per month. Under the old rules, the difference would have been equal to $62, 917 less $55,589 or $7,325 per year, or $610 per month.
In short, converting to part time service during federal service - whether a CSRS or a FERS-covered employee - will result in a reduced CSRS or FERS annuity. The rules for part-time FERS employees have not changed. FERS employees with part-time service will compute their FERS annuities by multiplying their high-three average salary times 1.0 or 1.1 percent times their total service time (in months and years) times the "proration percentage" (the ratio of total hours worked divided by the full time equivalent hours).
Nevertheless, DAA's passage has resulted in somewhat higher annuities for those CSRS employees with part time service after April 6, 1986 and who retire from federal service after October 27, 2009.
About the Author
Edward A. Zurndorfer is a Certified Financial Planner and Enrolled Agent in Silver Spring, MD. He is a seminar speaker at federal employee retirement seminars throughout the country for the National Institute of Transition Planning, Inc. , and an author of numerous publications on federal employee benefits.