Part-Time Work and the Impact on Federal Retirement Benefits

As a full-time federal government employee, you’re entitled to a retirement pension if you meet age and “years-of-career” criteria.

However, if you’re considering reducing your full-time workload to part-time, it’s essential to understand that this move will impact your pension payout.  

Understanding Government Pensions

According to the federal government, you’re a part-time employee if you work between 16 and 32 hours a week (or between 32 and 64 hours per pay period) on a pre-arranged schedule. You’re still eligible for fringe benefits, including a post-retirement pension.

There are many reasons why you might opt for part-time work:

• As a young professional, to get a foot in the door through an internship program
• As a parent, to raise a family without cutting off your salary
• As a soon-to-be retiree who wants to work, but not as often

Now, let’s talk about post-retirement pensions in general. The federal government offers two plans, both paying through an annuity. But they differ based on your date of hire.

The Civil Service Retirement System (CSRS)

If you joined the federal workforce before 1984, your retirement is covered through the CSRS.

This is a defined benefit, tax-deferred system in which you deposit between 7% and 10% of your pay into a voluntary contribution account; part of that amount can also go to a Thrift Savings Plan (TSP). Under the CSRS, you don’t pay into Social Security retirement, but you must pay Medicare tax.

The Federal Employees Retirement System (FERS)

If you were hired between 1984 and 1986, you could choose between CSRS or FERS. However, if you came on board after 1987, your only post-retirement payout option is the FERS.

This system directs contributions to the Basic Benefit Plan, Social Security and the TSP. Your employer withholds the Basic Benefit and Social Security costs from your salary and deposits an amount equal to 1% of your basic pay to the TSP account (this is separate from the employer match offered in TSP, which, for most Feds, is a 100% match for the first 3% of contributions and 50% match for the next 2% of contributions -- effectively, it's about a 4% match, but you have to contribute at least 5% to get the full amount.)

Retirement Payouts and the “High-3”

Whether your benefits come from FERS or CSRS, what you receive depends on your years of service, age, and high-3 average, whether you work full-time or part-time. That high-3 average represents an average of your highest three consecutive years of basic pay.

Here’s how a post-retirement FERS payout is calculated:

If you retire before age 62, or age 62 and above with less than 20 years of service (YOS):

YOS x 1% x high-3 average = annual pension payment

If you retire at age 62 and above with 20 years of service:

YOS x 1.1% x high-3 average = annual pension payment

Putting numbers to the formula, if you worked full-time for 25 years and retire at 62 with a high-3 average:

25 (years of service) x 1.1% (rate of pay) x $65,000 (high-3 average) = $17,875 per year

This will change if that 25 years includes part-time work. Your high-3 average stays the same, but the FERS proration factor comes into play. Proration is calculated by dividing your actual hours into the total full-time hours available to you.

So, if your career includes 90 hours of part-time work out of 100 possible hours, your prorated factor would be:

90 hours/100 = 90%

Using this percentage against your above-calculated $17,875 pension would look like this:

$17.875 x 90% = $16.087.50 per year

You don’t lose that pension. But you get less of it.

Non-Deduction Service: Another Potential Pension Impact

Something else to know is that retirement contributions come from your “creditable service” salary or unused sick leave.

Then there is optional service, also known as the non-deduction service, in which no retirement contributions come from your salary. It is possible to boost your retirement annuity payout through FERS account deposits. The deposit amount is generally 1.3% of your salary plus any interest.

But keep in mind two things:

• Non-deduction service was phased out in the late 1980s
• You can’t make a deposit for non-deduction services performed after Jan. 1, 1989