Ask The Experts: Retirement

By Reg Jones

FERS sick leave credit

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Well, FERS employees, the long wait is over. Thanks to Public Law 111-84, you are entitled to get credit for your unused sick leave in your annuity calculation when you retire.

Previously, this benefit was available only to employees under the Civil Service Retirement System, not those under the Federal Employees Retirement System. There’s one hitch:You’ll get credit for only half of your unused sick leave until 2014. Still, half a loaf is better than none.

How will that benefit affect your annuity when you retire? I’ll give a few examples to illustrate that. But first I’ll explain how sick leave hours are added to your actual service when computing an annuity.

When you retire, you get credit for every year and full month of actual service. Any hours of actual service that don’t add up to a full month will be combined with any hours of unused sick leave and the total is converted to additional months of service.

You’ll receive an annuity payment at the beginning of each month that represents the benefit you earned during the preceding month. To assure that you receive 12 equal payments, each month is treated as if it were 30 days. Therefore, for annuity purposes, a year is 360 days.

To create additional months of service, 360 is divided into 2,087, the number of hours in a work year. The product is a day that equals 5.797 hours and a month that is 174 hours.

With that in mind, here are two examples to show how your annuity will be increased before and after 2014.

In both cases, you’ll need to start with your total years and months of creditable service, including any CSRS service and service for which a deposit or redeposit has been paid. The FERS portion of your annuity will be increased only by the amount of sick leave you earned while employed under FERS.

Half credit. Consider an employee retiring before 2014 at age 56 with 20 years of FERS service and 10 years of CSRS service, and with a high-three of $80,000, his average salary over his three consecutive highest-paid years. He has 1,460 hours of unused sick leave, including 1,100 earned under FERS.

The FERS annuity formula — 1 percent of the high-three, multiplied by years of FERS service — yields an annuity without the sick leave credit of $16,000 (0.01 x $80,000 x 20). Additionally, he will get credit for 550 hours — half — of his unused FERS sick leave hours. If 174 hours is considered one month, 550 hours would equal three months, with 28 hours left over and dropped. The additional three months, or one quarter year, would increase the time-in-service factor of the annuity calculation to 20.25, yielding an annuity of $16,200.

Full credit. Now consider the same scenario, but for an employee retiring in 2014 or later. He will get credit for all 1,100 hours of unused sick leave earned under FERS. Divided by the 174-hour month, that time gives him six extra months of credit, with 56 hours left over and dropped. The additional six months, or half year, would increase the time-in-service factor of the annuity calculation to 20.5, yielding an annuity of $16,400.

Note: Special category employees covered by FERS, such as law enforcement officers, firefighters and air traffic controllers, will need to substitute 1.7 percent, instead of 1 percent, as the multiplier for any years of FERS service up to 20; 1 percent is the multiplier for any additional years.

If you have a CSRS component in your annuity, you’ll need to do that computation and add the result to your FERS computation to come up with your total annuity.

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Retired annuitant act

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Q: Has the retired annuitant act — which proposes allowing federal employees to retire and work part-time as a retired federal employee without an offset of your pension — been passed into law? Where can I find more information on this subject?

A: That provision was included in Public Law 111-84, which was signed by the president at the end of October.

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How will medical procedure affect retirement, sick leave?

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Q: I am a federal employee covered under the Civil Service Retirement System and will be retiring on Jan. 3, 2011, with 42 years, 1 month of service and 2,700 hours of sick leave. I need knee surgery, which will require that I be off work for three months. Should I have the surgery before I retire and use my sick leave, or postpone the surgery until I retire and apply all the sick leave toward my annuity?

A: You are asking for advice, which I don’t give. The decision is up to you. However, assuming that you are going to retire on the same date, regardless of whether you have the surgery before or after retirement, the only difference is that if you have the surgery before you retire, your annuity will be about one-quarter of a percent less than it would be if you waited until after you retire. By the way, if you are planning on retiring in January 2011, you had better do it on January 1, which is the end of the leave year. If you retire after than date, you will lose any leave you have in excess of 240 hours.

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Is Social Security subject to windfall provision?

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Q: I plan to retire at age 63. I was in the Civil Service Retirement System for 11 years and did not take out my CSRS retirement contribution. I took a 14-year break. I re-entered the federal government under the Federal Employees Retirement System offset and was told that I should be in FERS. I agreed to be in FERS, as I wanted to be able to retire with a retirement system in place. I transferred to the FERS system and now have been in it for 13 years. I plan to retire in the next few years. Will I be part of the windfall provision? I was told that my Social Security monies will not be part of the windfall provision since I made the decision to transfer to FERS. What is the truth?

A: Because you will be receiving an annuity — in whole or part — from a retirement system where you didn’t pay Social Security taxes, you will be subject to the windfall elimination provision. The WEP reduces — but does eliminate — the Social Security benefit of anyone who has fewer than 30 years of substantial earnings under Social Security. On the other hand, because you have been covered by FERS for at least five years, you won’t be subject to the government pension offset.

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Questions on Medicare and federal insurance

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Q: I am a 78-year-old federal employee and will retire at the end of this year. Medicare has been deducted from my paycheck for several years now. As I understand it, I am only eligible to benefit from Part A, which I also understand to be cost-free. As long as I am working, I cannot benefit from Part B. Why have I been charged for a plan that I cannot benefit from? I also carry federal Blue Cross/Blue Shield. After retirement, my BCBS premiums will remain the same, and I am wondering if it is advantageous to continue to pay the full premium for Medicare and be eligible for Part B. My civilian personnel office tells me that after retirement, I am responsible for 100 percent of the Medicare premiums and not just half, as it has been during my employment. If I do pick up Medicare, they will be the principal provider, with BCBS picking up the rest even though their premium is not reduced. I am very confused as to why I have been paying premiums for a non-beneficial Medicare plan all these years, and am wondering about the efficacy of continuing to have it.

A: Let me clear up some of the confusion. Everyone who receives earnings from wages or self employment pays for Medicare Part A (Hospital Insurance) regardless of their age. Once you reach age 65, you are eligible to receive Part A coverage. If you are still working, your Federal Employees Health Benefits Plan insurance remains primary and Part A is secondary. If you are no longer employed, your coverage under Part A becomes primary while your FEHB benefits insurance is secondary. Once you retire, there is no cost to you for your Part A coverage. On the other hand, the premium cost for Part B (Medical Insurance) coverage is borne entirely by those who elect to be covered by it. Employers don’t pick up a share of that cost. If you don’t elect that coverage, your FEHB insurance will be your only coverage for medical bills. Whether electing to be covered by Part B is a good idea is something you’ll have to figure out by comparing the total coverage you’d receive with it and without it. Note: By keeping the risk pool of those covered under the FEHB as broad as possible, the government has been able to keep the premiums of those who have the greatest expenses low while only increasing the premiums of the healthiest by a little. Further, it has been shown that even those who are retired and covered by both Medicare Parts A and B cost the FEHB more than those who are still in the workforce.

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Selling back annual leave

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Q: I am a letter carrier in the U.S. Postal Service. How much annual leave can I “sell” back at retirement?

A: Because you are a bargaining unit employee, you can only receive a lump-sum payment for any unused annual leave that does not exceed the carryover limit for your bargaining unit. As a rule, that limit is 440 hours.

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Retirement benefits under both systems

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Q: I plan to retire next year at age 62. I had 10 years of service under the Civil Service Retirement System. I took a 15-year break and returned under the Federal Employees Retirement System. I have 19 years under FERS. I will receive retirement benefits under both systems. I understand my Social Security benefits will be reduced due to the Windfall Elimination Provision. My question is, will the reduction be based on just the CSRS portion of my annuity or on the full annuity (FERS and CSRS)?

A: The reduction will be applied to your entire annuity, not just the CSRS component.

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Buyouts and Social Security supplements

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Q: My agency is considering offering buyouts. I am over 50 and have 26 years of government service. Typically, government buyouts are extended to those who have at least 25 years of service and are at least 50 years old. If I go to full retirement at 30 years of service, I would retire with a special federal Social Security supplement until I reach the age of 62, at which time the special supplement would end. If I accept a buyout, would I still get the special Social Security supplement with my federal retirement?

A: If you accepted the buyout, you would be eligible for the special retirement supplement beginning at your minimum retirement age. MRAs range from 55 to 57, depending on your year of birth. Because you were born between 1953 and 1964, your MRA would be 56.

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Sick leave credits for CSRS, FERS

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Q: How will the new rules that allow for crediting sick leave to Federal Employees Retirement System employees for retirement calculation purposes affect those who transferred from the Civil Service Retirement System to FERS during a previous open season?

A: For those CSRS employees who transferred to FERS, when they retire, any unused sick leave up to the amount they had when they transferred to FERS will be credited to the CSRS component of their annuities; half of any unused sick leave above that amount will be credited to the FERS component. Only those who retire after Dec. 31, 2011, will get full credit for that leave.

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Early outs and incentives

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Q: I retired back in February on an early out. Will we receive the incentive eventually that the union is fighting for all employees to receive? Plus, will we receive something for our unused sick leave?

A: I have no idea what incentive your union is fighting for; however, if they get it, it’s unlikely that it would apply to those who have already retired. The same goes for the unused sick leave credit for Federal Employees Retirement System employees. That credit is only available to those who retire after the effective date, and only half credit at that, until 2012.

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Postal Service retirement

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Q: If you retire, will you be paid for any earned hours over the 440 annual leave hours?

A: No. Because you are a Postal Service bargaining unit employee with a maximum carryover limit of 440 hours, that’s the maximum amount for which you can receive a lump-sum payment.

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Converting from NSPS to FERS

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Q: I was hired by the Defense Department under the National Security Personnel System. Will I be converted to a Federal Employees Retirement System grade, and how will that grade be determined?

A: You’ll have to be patient. The law ending the NSPS was just enacted and the phase-out won’t be completed until Jan. 1, 2012. How grade levels will be determined has yet to be decided.

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Credit for sick leave

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Q: I transferred to the Federal Employees Retirement System from the Civil Service Retirement System during the 1998 open season. At the time of my transfer, I had accumulated 1,675 hours of sick leave. I understood at the time that the credit for sick leave to be applied toward my retirement would be the lesser of my balance at the time of my retirement or the 1,675 hours, whichever was less. This amount would be applied to the CSRS component. I now have 2,544 hours of sick leave accumulated. I have accumulated an additional 869 hours of sick leave since I transferred to FERS. Will I receive credit for the additional hours of sick leave accumulated toward the FERS component of my retirement calculations? I plan to retire in the spring of 2010. So I would assume that I would only receive half credit of the approximately 869 hours.

A: Your analysis is correct. Any unused sick leave that does not exceed the amount you had to your credit when you transferred to FERS will be applied to the CSRS component of your annuity; any hours above that amount will be divided by two and added to the FERS component.

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Money from retirement system conversion

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Q: My question is about the original conversion of retirement withholding, which was converted to Federal Employees Retirement System. I began working for the government in October 1984. So, I was hired as a FERS employee. In 1987, when FERS was officially set up and the money that had been withheld from our paychecks was placed in our FERS accounts, I had $660, which stayed in a Civil Service Retirement System marked account. It stayed there for many years until I switched agencies, and it was no longer listed on my Leave and Earnings Statement. My question is, what exactly is that money? I have asked this question many times over the years and no one has been able to answer it. Was it excess that should have been returned to me? Will it be credited interest if finally transferred into my FERS account? Did it just disappear into thin air? I hope to retire in the next two years and I’m hoping to have this figured out prior to leaving the government, or it probably will end up disappearing. Any ideas?

A: Because you were hired after Dec. 31, 1983, the deductions from your salary for coverage under CSRS were the same as those deducted when you were covered by FERS in 1987: 1.3 percent. Because you had fewer than five years of service under CSRS, you were automatically covered by FERS. Your CSRS time became FERS time, with your prior CSRS deductions being transferred to your FERS account. The financial outcome was a wash.

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Sick leave and TSP

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Q: Will civil service employees who have accumulated sick leave be able to roll this into their Thrift Savings Plan? If so, is there a limit?

A: No you can’t. Unused sick leave has no cash value. It can only be added to your actual service and used in the computation of your annuity.

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Redepositing retirement refunds

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Q: I read your Nov. 16 column about how Federal Employees Retirement System employees can redeposit retirement refunds. I’m a military retiree, but I spent approximately 5.5 years post-military time at the Small Business Administration and Department of Homeland Security. Unfortunately, I made the mistake of taking a very small refund for my retirement time at SBA, totaling about 18 months. That put me under the 5 years of federal service that I would need to qualify for a pension, albeit a small one. As I read your column, I gathered that I can repay the amount I received at SBA to establish my 5.5 years of service. Is it as simple as you suggest: I simply get the Office of Personnel Management form when it’s available and then redeposit the refund amount I received from SBA?

A: If you are a current employee of the federal government, you can make a redeposit for that refunded service. If you aren’t, you can’t. Based on what you wrote, I have the impression that you fit into the latter category.

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Insurance time limit

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Q: The Office of Personnel Management Web site states, “You only have 31 days from the date of your appointment to an eligible position to elect optional insurance.” I would like to know if that applies when you are moved to a new position with a new job identifier due to re-organization?

A: No, it doesn’t. The 31-day window only applies to a new employee of the federal government.

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Loan forgiveness for feds

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Q: Can you tell me if applications are now available for the newly announced public service loan forgiveness option? I heard that the Office of Personnel Management was supposed to have made an announcement on this subject several weeks ago.

A: This is not an OPM program. However, when I checked with them, they informed me that you can get information about it by calling 1-800-FED-AID or visiting www.studentaid.ed.gov.

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Calculating FERS retirement

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Q: I have 12 years of legislative work experience working for Congress and 10 years of administration work experience, and I’m in the Federal Employees Retirement System. For the FERS retirement formula, is it high-3 X 1.7% X 12, and then high-3 X 1% X 10? Are my 12 years of legislative experience treated with a different rate multiplier than administrative years?

A: Yes, your time as a Hill staffer will be computed using the 0.017 multiplier; all additional years of service will be multiplied by 0.01.

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Early outs

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Q. Is there any word on the federal government offering early outs?

A: No.

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