Is a Change to a 'High-Five' Calculation Likely to Happen?

March 30, 2016 7:18 AM , Updated August 25, 2016 4:23 PM
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Q.  I’ve heard rumors that Congress will be changing how our retirement is computed by mandating a “high-five” calculation, rather than a “high-three.”  Is this likely to happen and, if it does, what will it do to our pensions?

A.  I’ve heard threats emanating from Congress and other sources about changing to a high-five in the calculation of our CSRS or FERS annuities.  In fact, I first heard about the threat when I was 25 years old and a letter carrier for USPS.  It hasn’t happened yet.  Of course, my hindsight is 20-20, there’s no telling what Congress might do, but organizations such as NARFE and our federal employee unions will strongly oppose any changes.  I do not view this change as likely.

Even if there was a change that mandated a high-five, it is very likely that all current employees would be grandfathered in.  If you look at past changes (e.g., implementation of FERS, change in FERS retirement contributions, etc.), all employees who were already on the rolls were protected from those changes.  As federal employees we have had our benefits protected, at least to some extent, by “congressional insurance.”  Members of Congress are covered by federal retirement and would be highly unlikely to change their own benefits.

If a change to a high-five were implemented, the effect wouldn’t be as drastic as we might think, but it still would adversely affect the pocketbooks of future retirees.

Let’s assume a prospective retiree is making $100,000 five years before retirement and receives annual raises of 1.5% for the next five years.  He will have 30 years of service when he retires.  Under a high-three formula, a CSRS retiree would receive a pension of $58,818 and a FERS retiree (1% factor) would receive $31,370.  With a high-five formula substituted, the CSRS pension would be $57,949 ($869 less) and the FERS pension (1% factor) would be $30,906 ($464 less).  COLAs would compound the difference over time.

I wrote an article about proposed threats to our retirement and benefits that was posted on FedSmith on November 30, 2014. (See Worried About Cuts to Your Federal Benefits? Don’t Panic!)  It looks at the threat of a high-five, as well as other threats that were proposed by the Congressional Budget Office.  You can find it as well as all of my other articles on my author page.

Agencies can request to have John Grobe, or another of Federal Career Experts' qualified instructors, deliver a retirement or transition seminar to their employees. FCE instructors are not financial advisers and will not sell or recommend financial products to class participants. Agency Benefits Officers can contact John Grobe at [email protected] to discuss schedules and costs.

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John Grobe is President of Federal Career Experts, a firm that provides pre-retirement training and seminars to a wide variety of federal agencies. FCE’s instructors are all retired federal retirement specialists who educate class participants on the ins and outs of federal retirement and benefits; there is never an attempt to influence participants to invest a certain way, or to purchase any financial products. John and FCE specialize in retirement for special category employees, such as law enforcement officers.

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