Pension Calculation Changes
One of the costsaving proposals awaiting Congressional action is the change from the current highthree average salary to the highfive 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 highfive 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.
Federal Pension Calculation Example
Most importantly, the question is how much will the average retiring federal employee lose in his or her annuity if the highfive 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 GS12 step 10 grade level. The other employee is a CSRS employee who retired on Jan. 3, 2017 at GS14 step 10 grade level.
In both examples, assume that the employees were earning their highest salaries at the end of their federal service, whether in the last three years or in the last five years. Also, it is important to know that there were General Schedule pay raises that took effect during the years 2012 through 2016. To make the calculations simpler, any locality pay adjustments are not considered. Finally, while governmentwide (General Pay) pay increases become effective on the first day of the new leave year in January, assume that in the examples here governmentwide pay increases become effective each year on January 1.
General Pay Increases 2012 – 2016 

Effective Date 
Amount of Increase (%) 
Jan. 1, 2012 Jan. 1, 2013 Jan. 1, 2014 Jan. 1, 2015 Jan. 1, 2016 
0.0 0.0 1.0 1.0 1.0 
Federal Employee #1 (FERS): GS12 Step 10 as of 12/31/2011. Retires on 12/31/2016. The employee’s SF 50 salary history used to determine the highthree average salary or the highfive average salary is as follows:
Date 
SF50 Salary 
Jan. 1, 2012 Jan. 1, 2013 Jan. 1, 2014 Jan. 1, 2015 Jan. 1, 2016 Dec. 31, 2016 
$90,136 $90,136 $91,037 $91,954 $92,883 $92,883 
Federal Employee #2 (CSRS): GS14 Step 10 as of 12/31/2011. Retires on 1/3/2017. The employee’s SF 50 salary history used to determine the highthree average salary or highfive average salary is presented under “SF 50 Salary”.
Date 
SF 50 Salary 
Jan. 4, 2012 Jan. 4, 2013 Jan. 4, 2014 Jan. 4, 2015 Jan. 4, 2016 Jan. 3, 2017 
$128,560 $128,560 $129,852 $131,170 $132,495 $133,833 
Federal Employee #1. FERS employee retires on 12/31/2016 with 32 years of service, including one year’s worth of unused sick leave, at age 60.
Calculation of FERS Annuity
(1) Using highthree average salary
Computation of HighThree Average Salary 

From 
To 
Total Time YrMoDay 
SF 50 Salary X  Time Factor* Equals 
Total Basic Pay 
12/31/2013 1/1/2014 1/1/2015 1/1/2016 
12/31/2013 12/31/2014 12/31/2015 12/31/2016 
00001 01200 01200 01129 
90,136 91,037 91,954 92,883 
.003 1.00 1.00 .997 
$270 $91,037 $91,954 $92,604 
30000 
3.00 
$275,865 
* For Computing Total Amount for Any Period of Time at a Given Annual Rate. Found at https://www.opm.gov/retirementservices/publicationsforms/csrsfershandbook/c050.pdf
HighThree Average Salary = $275,865/3 = $91,995
(2) Using highfive average salary
Computation of HighFive Average Salary 

From 
To 
Total Time YrMoDay 
SF 50 Salary X 
Time Factor* Equals 
Total Basic Pay 
12/31/2011 1/1/2012 1/1/2013 1/1/2014 1/1/2015 1/1/2016 
12/31/2011 12/31/2012 12/31/2013 12/31/2016 12/31/2015 12/31/2016 
00001 01200 01200 01200 01200 01129 
90,136 90,136 90,136 91,037 91,951 92,833 
.003 1.00 1.00 1.00 1.00 0.997 
$270 $90,136 $90,136 $91,037 $91,954 $92,604 
06000 
5.00 
$456,137 
*For Computing Total Amount for Any Period of Time at a Given Annual Rate. Found at https://www.opm.gov/retirementservices/publicationsforms/csrsfershandbook/c050.pdf
HighFive Average Salary = $456,137/5 = $91,227
Difference in highthree average salary versus highfive average salary is
$91,955 – $91,227 = $728
The difference in the FERS annuity for an employee who retires from federal service with 32 years of service for computation purposes:
FERS annuity using highthree average salary = $29,426
FERS annuity using highfive average salary = $29,193
Difference in FERS annuity = $233/year, or $11.65 per month
Federal Employee #2. CSRS employee retires on 12/3/2017 with 41 years 11 months of service and two years’ worth of unused sick leave at the age of 67.
Calculation of CSRS Annuity
(1) Using highthree average salary
Computation of HighThree Average Salary 

From 
To 
Total Time YrMoDay 
SF 50 Salary X 
Time Factor* Equals 
Total Basic Pay 
1/4/2014 1/4/2015 1/4/2016 1/1/2017 
1/2/2015 1/3/2016 12/31/2016 1/3/2017 
01200 01200 01127 00003 
129,852 131,170 132,495 133,833 
1.00 1.00 0.992 0.008 
$129,852 $131,170 $131,435 $1,071 
03600 
3.00 
$393,528 
*For Computing Total Amount for Any Period of Time at a Given Annual Rate. Found at https://www.opm.gov/retirementservices/publicationsforms/csrsfershandbook/c050.pdf
HighThree Average Salary = $393,528/3 = $131,176
(2) Using highfive average salary
Computation of HighFive Average Salary 

From 
To 
Total Time YrMoDay 
SF 50 Salary X 
Time Factor* Equals 
Total Basic Pay 
1/4/2012 1/4/2013 1/4/2014 1/4/2015 1/4/2016 1/1/2017 
1/3/2013 1/3/2014 1/3/2015 1/3/2016 12/31/2016 1/3/2017 
01200 01200 01200 01200 01127 00003 
128,560 128,560 129,852 131,170 132,495 133,833 
1.00 1.00 1.00 1.00 0.992 0.008 
$128,560 $128,560 $129,852 $131,170 $131,435 $1,071 
06000 
5.00 
$650,648 
*For Computing Total Amount for Any Period of Time at a Given Annual Rate. Found at https://www.opm.gov/retirementservices/publicationsforms/csrsfershandbook/c050.pdf
HighFive Average Salary = $650,648/5 = $130,130
Difference in highthree average salary versus highfive average salary is
$131,176 – $130,130 = $1,046
The difference in the CSRS annuity for an employee who retires from federal service with 41 years and 11 months of service, with two years’ worth of unused sick leave :
CSRS annuity using highthree average salary = $110,188
CSRS annuity using highfive average salary = $109,309
Difference in CSRS annual annuity = $879; difference in CSRS monthly annuity – $73.25
Various other examples of highthree versus highfive average salaries were performed. The difference between the highthree average salary and highfive average salary ranged from $500 to $1,500. This leads to a financial decrease in the annual CSRS annuity of a maximum of $1,200 ($100 per month) (assuming 41 years and 11 months of CSRS service) and in the annual FERS annuity of a maximum $600 ($50 per month) (assuming 40 years of FERS service). These differences are not that significant. Furthermore, if the change to the highfive average salary becomes law in the near future, employees can likely make up the annual and monthly differences in their annuity payments by contributing more to the TSP and to their IRAs.