Retirement Benefits:

Modification of Civil Service Retirement Benefits for Part-Time Work

PEMD-86-2: Published: Jan 9, 1986. Publicly Released: Jan 9, 1986.

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GAO reviewed the current retirement rules used for calculating civil service benefits for federal employees and developed a modification to bring retirement benefits in line with work actually performed during a career. A similar provision has been included in the proposed Civil Service Pension Reform Act covering employees hired after 1983.

GAO found that retirement benefits for federal employees hired before January 1, 1984, are based on the highest average salary earned during any 3 consecutive years. The benefit formula has two major effects: (1) in some circumstances, employees with differing total hours of service are eligible for the same initial benefits; and (2) employees who want to reduce their working hours per week during the last few years of their careers lose a portion of their benefits. GAO developed a benefit formula modification that would calculate: (1) the retirement benefit as though the employee had worked full-time during all years of service; (2) the percentage of full-time hours worked during each year of service; (3) the average percentage for all years; and (4) the basic annuity by multiplying the full-time benefit by this average percentage. This would decrease benefits for part-time employees who switch to full-time before retirement and increase benefits for full-time employees who switch to part-time. GAO estimated the modification's financial effect and found that the government's retirement costs would be: (1) reduced for employees who phase their retirement without, in aggregate, either increasing or decreasing their years of service; (2) increased for employees who used phased-employment retirement to reduce their total years of service; and (3) substantially reduced for employees who use the proposed modification to increase their total years of service.

Matter for Congressional Consideration

  1. Status: Closed - Implemented

    Comments: A similar modification was included in the Federal Employees' Retirement System Act of 1986, which passed on June 6, 1986. Federal employees remaining under the Civil Service Retirement System were covered by a modification included under the Budget Reconciliation Act, passed on April 7, 1986.

    Matter: Since the provisions in S. 1527 to implement the modification do not cover the large majority of federal employees, Congress may wish to consider the need to make a similar modification covering employees who were hired before 1984.

 

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