Ask The Experts: Retirement

By Reg Jones

Best date to retire

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Q. What are the best dates to retire for CSRS and FERS in 2012?

A. There are no such things as the best dates to retire. There are too many factors involved. However, if, as I suspect, you just want to maximize the amount of money you can get in a lump-sum annual leave payment, then you should retire on Dec. 29, 2012. You’d be on the annuity roll Jan. 1. That’s essential if you are FERS employee; otherwise your annuity wouldn’t begin until the following month. If you are a CSRS employee, you could delay your departure up to the third of the month; however, your annuity for that first month would be reduced by 1/30th for every day you were still an employee.

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CSRS retirement — lump-sum payment

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Q. I work for the Postal Service and am eligible to retire later this year. Can I request to receive a lump-sum payment of my retirement contributions and still receive my monthly annuity?  How would a lump-sum payment affect my monthly payment?

A. No, you can’t receive a refund of your retirement contributions.

 

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Lump sum after death

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Q. I’m a single CSRS retiree for two years with 29 years of service and an early out. I am dying and want to calculate what my lump sum might be for my beneficiary after my death. How does USPS calculate what is left of my lump sum with only two years in retirement. Is there a certain  percentage the Post Office puts in monthly and a certain percentage they take from my retirement contributions monthly for retirement funds?

A. The lump sum is the amount of your retirement contributions, minus any annuity that you have already received. For example, if you contributed $100,000 to the retirement fund and had received $30,000 in annuity payments, the remainder – $70,000 – would go to your beneficiary.

 

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Retirement date

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Q. I am planning to retire either at he end of 2011 or early 2012. Which is the best time to retire, should it be the end of December or early January? How would it affect my annuity if I set the retirement date for Jan. 3, 2012?

A. If your main concerns are to 1) get credit for all the annual and sick leave you earned by completing a pay period, and 2) maximize the size of your lump-sum payment for unused annual leave, and 3) walk off the employment roll and onto the annuity roll without the break of a single day, then you’d want to retire on Dec. 31, 2011. In 2012, the leave year ends on Jan. 12. To get close to the same benefits you’d have to retire on Dec. 29, 2012. In 2013, the leave year end on Jan.11, 2014. So Dec. 28, 2012, would be the optimal date. Of course, you could work up to the third day of January in the latter two years. However, while you’d gain a few more days of pay, you wouldn’t get partial credit for any annual or sick leave earned during those days and your first month’s annuity would be reduced by 1/30th for every day you weren’t on the annuity roll.

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Lump-sum payment for annual leave

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Q. I retired from Federal Civilian Service on June 3. I received my final pay check which included my lump-sum payment for annual leave on Friday June 10. I was paid my regular earnings at my pay grade, GS-12, but my lump-sum payment for unused annual leave was paid at the pay rate for a GS-09. Thinking it was a mistake I called the activity payroll office and to my surprise I was told this was because my promotion to GS-12 was temporary and when I retired I was reverted back to my permanent grade GS-09 in order to pay me for the unused annual leave. Prior to retirement I was never informed that this would happen by anyone involved in processing my paperwork. 

A: I checked with OPM and here’s what they had to say:  “Each agency has the discretion to return an employee from a temporary promotion to the official position of record before the employee separates. The temporary promotion regulations at 5 CFR 335.102(f) authorize temporary promotions and specify that an agency may—“(f) Make time-limited promotions …. for a specified period of not more than 5 years, unless OPM authorizes the agency to make and/or extend time-limited promotions for a longer period.(1) The agency must give the employee advance written notice of the conditions of the time-limited promotion, including the time limit of the promotion; the reason for a time limit; the requirement for competition for promotion beyond 120 days, where applicable; and that the employee may be returned at any time to the position from which temporarily promoted [emphasis added], or to a different position of equivalent grade and pay, and the return is not subject to the procedures in parts 351, 432, 752, or 771 of this chapter. When an agency effects a promotion under a nondiscretionary provision and is unable to give advance notice to the employee, it must provide the notice as soon as possible after the promotion is made.”

“So the agency did have the authority to return the employee to his/her official position of record before separating him or her. Once the employee was returned to the official position of record, then the lump-sum payment would be made at the rate of pay for the official position of record. The agency should have provided the employee information about the temporary nature of the promotion per the regulation cited above, but even if it did not, the regulations provide the authority for the agency to return the employee to the official position of record at any time.”

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Annual leave lump sum payment consideration

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Q. I’m a FERS DoD employee, planning to retire on Dec 31, 2011 to maximize my annual leave lump-sum payment.  Dec 31 is the end of a pay period, and the end of the leave year.  It’s also the end of my 104 week waiting period for my step increase from step 5 to step 6, which is due on Jan. 1, 2012.  I understand that annual leave lump-sum payments are calculated based on what I would have earned had I stayed in federal service. Am I considered to have fulfilled my waiting period, since the step increase would become effective the next day, or do I need to be “on the job” on Sunday, Jan 1 in order to have my annual leave payment calculated at my step 6 pay rate? I realize that this sounds like a special case, but many of us who came out of NSPS in 2010 have a “Date of Last Equivalent Increase” of Jan 3, 2010, the effective date of the NSPS payout, not the date of our re-entry into GS.  There may be someone else in the same boat as I am, considering how many of us exited NSPS in 2010.

A. You would only be eligible to have the step increase included when calculating your lump-sum payment if the waiting period was met on date of separation, not after. See www.opm.gov/leave/HTML/lumpsum.htm.

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Retirement dates and leave payouts

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Q: I am an employee under the Civil Service Retirement System, 6C, facing mandatory retirement the second week of January 2012. I anticipate finishing 2011 with 448 hours of annual leave on the books. Jan. 1, 2 and 3 would be the ideal retirement dates. In 2011, Pay Period 26 ends on the last day of the year. I’m now looking at Dec. 31, a Saturday, as the retirement date on the paperwork in order to receive the full annual leave 448-hour lump-sum payment.

Do you see any problem with that date given the information provided? Additionally, I would imagine the lump-sum payment, which will be a direct deposit sometime in January 2012, will be counted as 2012 income and not in the 2011 tax year. 

A: No, I don’t see a problem with retiring on that date; and yes, your lump-sum payment will be taxed in the year it’s received.

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Annual leave buyout

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Q: How is an annual leave buyout calculated? Is it “accumulated hours x current hourly wage”? Is this considered unearned income? I have also heard they take 40 percent in taxes for this.

A: Lump sum annual leave payments are calculated using the hourly rate of basic pay you would have received had you remained on the agency’s rolls. Therefore, if you were to retire before the annual pay adjustment becomes effective, any hours before that will be computed at the old rate and those after on the new rate. Any step increase that would have occurred after you retired won’t be included; you have to actually be on the job to receive that. For tax purposes, lump sum payments are treated as earned income. Check with your agency to find out what it will deduct from your payment.

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Realignment, relocation and leave time

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Q: I am at an activity that was to be realigned and relocated from California to Virginia. The realignment was completed, and the relocation is in process. I will be relocating to Virginia in the first week of January, prior to the end of the leave year. Will my use-or-lose annual leave hours, as of my relocation date, be restored under 5 U.S.C. 6304(d)(3)?

A: If you accompany your organization to its new duty location. you will receive a lump-sum payment for hours in excess of the 240 at the time of your move and will no longer be eligible for the use-or-lose provision. Further, you will no longer be authorized to accumulate leave in excess of 240 hours.

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Rumored changes to lump-sum payouts

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Q: There are several of us around the office who are close to retirement (i.e., the next three or four years), and we’ve heard rumors that lump-sum settlements will change starting in 2013 and that the calculation will result in reduced lump-sum payment amounts. Are there any changes coming in 2012 and beyond that will affect our lump-sum payments? When I go to my Fidelity website and look at my projected lump-sum payments in 2012, 2013 and 2014, I don’t see any reductions. I’m wondering whether it has something to do with taxes changing on the lump-sum amounts starting in 2013.

A: Rest easy. The rumors you heard have no basis in fact.

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Unused credit hours

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Q: I know that unused annual and compensatory leave is paid in a lump sum upon retirement. Are unused credit hours also paid out as lump sum?

A: Yes. Up to 24 credit hours may be paid in a lump sum at the hourly rate of pay you were earning on the day you retired.

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Re-employment consequences

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Q: Can an offer be made and accepted on a federal position prior to an effective retirement date?

A: There’s no prohibition against accepting another federal position prior to retiring from your current position, as long as the reporting date is after you retire. However, you need to consider the potential consequences of becoming a re-employed annuitant.

For example, if you retired on an immediate unreduced annuity, the salary of your new position would be reduced by the amount of that annuity, unless you were being hired into one of those rare positions where you are allowed to keep both. If you left under an early retirement authority before meeting the age and service requirement for an immediate annuity, your annuity would stop and you’d be treated like a regular employee. In that case, you’d only be able to retire again when you met the age and service requirements.

Also, if you received a buyout when you retired and returned to work for the government within five years, you’d have to repay every penny of that amount. Further, if you received a lump-sum payment for unused annual leave, you’d have to repay the portion that wasn’t covered by the days you were retired before being re-employed. That’s because annual leave is projected forward as if you were still on the agency’s rolls. Of course, those aren’t the only things to consider, so I suggest that you check out OPM’s website on re-employed annuitants.

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