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New Proposal on Pension Calculation Using High-Fie Average Salary

One of the cost-saving proposals awaiting Congressional action is the change from the current high-three average salary to the high-five average salary in the calculation of a retiring federal employee’s CSRS or FERS annuity. Employees who are intending to retire within the next five years are very concerned with this possible change and how much of a negative effect this change will have on their CSRS or FERS annuities.

Federal employees should also beware that the proposed change to the high-five average salary has been around for years; in fact, it was first proposed in 1992. No action has been taken to date. But given the current budget/fiscal crisis facing the country, there is little doubt it will happen sometime in the near future. The question then becomes when it will be first used in calculating the annuities of retiring federal employees.

Most importantly, the question is how much will the average retiring federal employee lose in his or her annuity if the high-five average salary is adopted for purposes of calculating a CSRS or FERS annuity? To answer this question, this column looks at two examples of employees who retired earlier in 2017. One employee is a FERS employee who retired on Dec. 31, 2016 at a GS-12 step 10 grade level. The other employee is a CSRS employee who retired on Jan. 3, 2017 at GS-14 step 10 grade level.

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