How is My “High-3 Average Pay” Calculated? (Part 1)

The high-3 average pay is a basic component of an employee’s retirement contribution that federal employees often find confusing. The author offers some detailed explanation to take the mystery out of it.

Editor’s note: This is the first of a two-part series on the high-3 average pay.

One of the basic components of everyone’s retirement computation continues to confuse and confound employees.  Let’s take some of the mystery out of it.

By definition, the “high-3 average pay” is the “largest annual rate resulting from averaging an employee’s rates of basic pay in effect over any period of 3 consecutive years of creditable civilian service, with each rate weighted by the length of time it was in effect.”  Whew; that’s a mouthful.  Let’s see if we can break that down a little and give you a better understanding of this critical element of your retirement computation.

Rate of basic pay:  The “rate of basic pay” used to calculate most employees’ high-3 average pay is shown as the “Adjusted Basic Pay” in Box 20C on the Notification of Personnel Action (SF 50).  This rate includes the annual rate of “Basic Pay” plus the “Locality Adjustment,” resulting in the Adjusted Basic Pay.  (Yes, you get credit for your locality pay toward your retirement.)

You can also find the rate of basic pay used for retirement purposes on the appropriate locality pay chart on OPM’s website.

There are exceptions, of course, but these sources provide your most reliable basic pay figures for retirement purposes.  A common exception is federal Law Enforcement Officers, whose “Other Pay” shown in Box 20D can also be included in their rate of basic pay for retirement purposes.

You’ve probably noticed that neither your biweekly salary amount nor your W-2 figures match up with this annual basic pay figure.  Don’t worry about it; for retirement purposes, your official “rate of basic pay” will be used, regardless of how it is reflected on pay slips or tax records.  Always look for the applicable rate of basic pay on SF 50s or official pay charts.

Any period of 3 consecutive years of creditable civilian service:  This is literally the highest-paid 3 consecutive years of service that are creditable under your retirement system.  For most employees, this is the last 3 years of service, but your entire work history will be reviewed, and if another period produces a higher average rate of basic pay, that period of service will be used.

Example:  Sue worked continuously under FERS for the last 20 years, and was at her highest rates of pay during her last 3 years of service.  If Sue retired on October 31, 2010, then the “period of 3 consecutive years of creditable civilian service” would begin on November 1, 2007, and end on her retirement date, October 31, 2010.  Her high-3 average pay calculation would reflect all rates of basic pay received during that time period.  (If Sue was under CSRS and retired on November 3 instead of October 31, the high-3 period would begin November 4, 2007, and end November 3, 2010.)

You should note that the service in question must be consecutive, but does not have to be continuous.  That means the 3 years of service can be broken up by periods when you were not a federal employee or were not covered by FERS or CSRS.  If that is the case, the breaks in service are simply ignored, and 3 years of consecutive service time are used.

Leave Without Pay (LWOP) and other non-pay absences (such as furloughs) usually aren’t long enough to affect the high-3 average pay calculation.  More information about the impact of these absences will appear in Part 2 of this 2-part series.

Each rate is “weighted” by the length of time it was in effect:  A weighted average means an average in which more credit is given to events or items that lasted longer or were of more importance.  For our purposes, this means that a rate of basic pay you received for 11 months will have more impact on your high-3 average pay than a pay rate you had for only 2 months.

You must look at the annual rates of basic pay you were entitled to during your high-3 period, then multiply each rate by a time factor that reflects the amount of time you were at each pay rate.  This provides the “weighting” of the average.

The time factors used are from the 360-Day Factor Chart in the CSRS and FERS Handbook, Chapter 50 (page 50).  You simply multiply each rate of pay by the time factor (for the amount of time you were at each rate of pay), add together the 3 years of data, and divide the total by 3.

The high-3 average pay calculation for our employee “Sue” above would look like this:

Dates of Pay: Action: Rate of Pay: Time Factor
11/01/2007 01/05/2008 Starting pay $100,573 X 0.180556(for 2 mos, 5 days) = $  18,160.06
01/06/2008 06/21/2008 Gen’l Pay Adj $105,088 X 0.461111(for 5 mos, 16 days) = +  48,457.23
06/22/2008 01/03/2009 Step Increase $107,854 X 0.533333(for 6 mos, 12 days) = +  57,522.10
01/04/2009 01/01/2010 Gen’l Pay Adj $113,007 X .994444(for 11 mos, 28 days) = +112,379.13
01/02/2010 10/31/2010 Gen’l Pay Adj $115,742 X .830556(for 9 mos, 29 days) = +  96,130.21
Time factor total: 3.000004
Weighted total of rates of basic pay over high-3 period: $ 332,648.73
Division by 3 to obtain the average: ÷   3
High-3 average pay: $110,882.91


So there you have it:  the basics of the high-3 average pay calculation.  It’s not that mysterious, really; just somewhat detailed.  Your servicing personnel office has the resources to estimate your high-3 average pay, and will do so in connection with a request for a retirement estimate.

Watch for more information in Part 2!

About the Author

Ehren Clovis retired from federal service after a career as a Benefits Specialist. She dealt with the employees of many federal agencies, and acquired broad knowledge and experience with federal benefits, including the special retirement provisions for federal Law Enforcement Officers (LEOs). Now she presents retirement and benefits training for federal employees through Federal Career Experts, Inc., and counsels individual clients through her home business, Federal Benefits On Call.