Phased Retirement: How Would It Impact Your Federal Annuity?
by Robert F. Benson |
The Senate has passed a bill (S. 1813) providing for what the bill refers to as “phased retirement.” So far, details are lacking, but for comparison, let’s take a look at what is already available for federal employees; specifically, for employees late in their careers who would like to work fewer hours while still contributing to their pension, and Social Security, and Thrift Savings account. What is this existing program? How does it work?
It’s called part-time. To enroll – at any age – just ask your supervisor. Once your new hours are approved, your hourly rate will be multiplied by the actual hours you work, to arrive at your new gross pay.
This is the arithmetic process that corrects for reduced contributions to the pension fund, in calculating your annuity.
Here is a simplified example: An employee wants to work part-time his last year and then retire. For the first six months he works 32 hours weekly and for the final six months he works 24 per week, then he retires. Divide the hours he actually worked in his career by the number of hours he could have worked, if he had been full-time all the way.
61,776 (62,400 – 624 hours “missed” in final year) / 62,400 (30 * 2,080) = 0.99
The 0.99 is the proration factor.
Now calculate the annuity the usual way, then multiply by the proration factor to get the corrected annuity. Example: He has 30 years service (30%) and a high-three salary of $70,000.
This yields an annuity of $21,000.
Multiply the 21,000 by 0.99 and the annuity becomes $20,790. The annuity decrease in this case is $210 annually, or $17.50 per month.
The new phased retirement will allow older employees to work part-time, paying into the retirement fund in the usual way, and simultaneously provide a pension for the years already worked. That’s right – put money into the pension fund every two weeks for working and take money out of the pension fund once each month, for retiring (part-time)! Sort of like a piggy bank. But pension funds do not usually operate this way!
Details are lacking
How will they figure the part-time pension? How will the pension be affected when the person retires? Will this replace the current proration provision? How much additional time & effort wlll this take for payroll offices and OPM? OPM in particular, as we all know, is already struggling to catch up with a crushing backlog of retirement cases. All they need is one more complication!
Will this be a net benefit for employees? Hard to say, but we already have a pretty good clue. According to the Federal Times article:
The amendment, sponsored by Sen. Max Baucus, D-Mont., would use the estimated $465 million saved by allowing semi-retirements to pay for public roads, schools and forest-related economic development projects in rural areas.
How long will it take to “save” the $465 million? Where is the $465 million coming from? I think you know. (Hint: federal employees.)
This is just my opinion, but it seems the current part-time program is comparatively clear and equitable.
It is uncertain at this point, but I hope that if the detailed reality of ”phased transition” is as complexly bleak as it seems so far, older employees will stay away from this initiative!
Note: all the above applies to FERS employees, not to CSRS. Reference: Chapter 55, CSRS and FERS Handbook.
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© 2013 Robert F. Benson. All rights reserved. This article may not be reproduced without express written consent from Robert F. Benson.
by Robert F. Benson |