By: Bob Braunstein, Federal Benefits Specialist
Published: November, 2021
Believe it or not, there was a time when the calculation of Federal retirement annuities made no distinction between part-time work and full-time work. Under the old Civil Service Retirement System (CSRS), you could retire after the same time as one with the same number of years who had worked full-time. And, even though you had worked fewer hours, your annuity would have been the same as it would have been had you always worked full-time. This inherent inequity – paying the same annuity to those who work fewer hours due to part-time work schedules – led to the Office of Personnel Management’s (OPM) changing its annuity calculation rules. The change became effective on April 7, 1986, and created “part-time proration,” which reduces retirement annuities.
While still eligible to retire at the same time as those who were full-time throughout their careers, part-time work documented on SF 50s in your official personnel file (OPF or eOPF) will result in a part-time proration to your annuity. This is because when you work part-time, you work fewer hours than full-time. Part-time proration takes the fewer than full-time hours you worked over your career because of part-time schedules, and divides them by the full-time hours you could have worked, and reduces your annuity by the resulting fraction – the part-time proration factor. Here is an example of how this works:
Mary and John, both FERS employees, are retiring on the same day. They each worked 30 years and have the same high-3 salary of $100,000. Mary was full-time her entire career; John was full-time for 27 years and worked 20 hour a week during his last three years of employment. Both John and Mary receive 1 percent for each year of their 30 years of service, or 30%. This percentage is multiplied times their high-3 average salaries of $100,000 resulting in unreduced annuity amounts of $30,000 (unreduced means the gross annual amount before election of survivor benefits and other deductions). Their $30,000 unreduced annuities are reduced as follows:
- Mary elects a full survivor benefit for her spouse reducing her annuity reduced by 10 percent to $27,000 per year, or $2,250 per month. This monthly amount is then further withheld for taxes and benefit premiums.
- John’s annuity of $30,000 is pro-rated for his part-time work schedule. The total hours he could have worked (30 years @ 2087 hours per year) is 62,610 hours. The actual hours he due to his part-time schedule is 59,480. When 59,480 is divided by 62,610, the resulting fraction of 95% is John’s part-time proration factor. This factor, when multiplied times John’s $30,000 annuity, prorates it to $28,850. Like Mary, John elects a full survivor benefit for his spouse, reducing his prorated annuity by 10 percent to $25,965, or $2,163.75 per month ($86.25 less per month than Mary’s).
Note again that Mary and John have the same 30 years of service for retirement eligibility and the same high-3 average salary of $100,000. All annuities are initially calculated based on your working full-time. Part-time proration, where applicable, is then figured as a percentage adjustment to the full-time annuity based upon the lesser hours worked. Therefore, part-time work schedules do not affect retirement eligibility or high-3 average salaries (even if you work part-time during these highest earning years). But, if you are considering switching from full-time to a part-time schedule, be mindful of the following effects this may have on your pay and benefits:
- Part-time schedules of fewer than 32 hours per week will require you to pay a portion of the government share of your Federal Employees Health Benefit (FEHB) Plan. For example, if your part time schedule is 20 hours per week, or 40 hours a pay period, you will pay the employee share of your FEHB premium and 50% of the government share.
- Part-time schedules cause you to earn leave on a prorata basis. For example, if you are working half-time, you accumulate half as much annual and sick leave per pay period.
- Part-time schedules will reduce life insurance awards to beneficiaries. For example, if the life insurance award would be $100,000 if you were full-time, your beneficiaries would receive $50,000 if you passed away while working half-time.
Finally, whenever you work more hours than your part time schedule, keep leave and earnings statements for those pay periods. The additional hours will ultimately reduce your part-time proration when your annuity estimate is calculated. Also take comfort in the fact that higher premium costs for health insurance and lower life insurance awards while working part-time will not follow you into retirement.
(Important sidebar: If you are in the CSRS retirement plan or transferred to FERS with a component of 5 or more years of service under CSRS, any part-time work performed during your CSRS service prior to April 7, 1986, will not be prorated when calculating your retirement annuity. Conversely, all CSRS part- time work that occurred on or after April 7, 1986, and all FERS part-time service will result in annuity proration.)
For more information on working part-time, please reference the following OPM links:
Bob Braunstein is a retired Federal employee who was last employed as a Senior Human Resources Consultant with the Office of the Comptroller of the Currency (OCC) at the Department of the Treasury. During his Federal career, he served in a full range of HR positions spanning recruitment, staffing, employee relations, retirement and benefits, and position classification/management disciplines. He is a retirement and benefits presenter for NITP.