586 Annuity Computation

586.1 Effective Date


Reference Note:

For additional material concerning the subject matter found in 586.1 through 586.32, refer to:

586.11 Commencement

Annuities based on optional retirement commence on the first day of the month following separation. Annuities based on discontinued service retirement commence on the day after separation from the service. Annuities based on disability commence on the day after the employee separates or the day after pay ceases and the employee meets the requirements for entitlement to an annuity.

586.12 Ending

Annuity payments end on the day of the retiree’s death or on the date the retiree becomes ineligible for a continuing annuity. Survivor annuities are paid through the last day of the month before death or any other terminating event, such as a survivor’s remarriage.

586.13 Employee’s Work and Leave Status
586.131 Use of Annual Leave Balance

Bargaining unit employees with leave balances subject to forfeiture must be counseled to use the excess annual leave prior to the effective date of their retirement.

586.132 Continuing Leave Status

Employees who have applied for disability retirement and who are unable to work while their applications are under review by OPM continue on the rolls in a leave status (either with or without pay) pending notification by OPM of its decision on the application.

586.2 Factors Affecting Annuity Computations

586.21 Primary Factors

Primary factors are:

  1. Length of Creditable Service.
  2. High–3 Average Pay.
586.22 Other Factors

Other factors are:

  1. Retirement at MRA with less than 30 years service.
  2. Failure to make a pre–1989 deposit.
  3. Withdrawal of contributions for a prior period of service.
  4. Election of Survivor Annuity or Insurable Interest Annuity.
  5. Election of Alternative Annuity.
586.23 Determining Length of Service

For annuity computation purposes, length of service is determined by adding together all periods of the employee’s creditable civilian service where deductions were not refunded and all creditable military service where a deposit was completed for post–1956 service as well as pre–1957 service where no deposit is required. After obtaining total service the fractional part of a month is dropped because the annuity is computed on the basis of years and months.

586.24 Determining High–Three–Year Period
586.241 Dates Included

The 3–year period starts and ends on the dates producing the highest average pay. The period need not start on the first day of any month or on the date of a pay change.

586.242 Consecutive

The 3–year period need not be continuous but must be consecutive.

Example: Two or more separate periods of employment may be joined provided there is not an intervening period of service to be considered.

586.25 Determining High–Three Average Pay Computation
586.251 Computation

The high–3 average pay is determined by averaging the rates of an employee’s basic pay over a period of 3 consecutive years of creditable service, with each rate weighed by the period of time during which it was in effect.

586.252 Basic Pay

Basic pay for retirement purposes includes higher level pay but does not include Territorial Cost of Living Allowances, overtime pay, night differential, military pay, allowances, premium pay, or lump-sum terminal leave benefits.

586.3 Formula

586.31 Basic

The annuity of an employee is 1 percent of the high–3 average pay multiplied by total creditable service.

586.32 At Age Sixty–Two

If a retiring employee is at least age 62 and has at least 20 years of creditable service, the annuity is 1.1 percent of the high–3 average pay multiplied by total creditable service.

586.33 Annuity Supplement


Reference Note:

For additional material concerning the subject matter found in 586.33, refer to:

586.331 Eligibility

An employee who retires optionally at the MRA with at least 30 years of service, or who retires at age 60 with at least 20 years of service, is eligible for the annuity supplement. Law enforcement personnel who retire under the law enforcement provisions receive the annuity supplement beginning at retirement. Employees who retire under the discontinued annuity provisions will receive the annuity supplement beginning no sooner than the month in which they reach the MRA. The annuity supplement ends the last day of the month in which the employee becomes 62.

586.332 Amount

The supplement is computed by estimating the amount of a full Social Security benefit and multiplying it by a fraction comprised of the number of years of FERS creditable civilian service divided by 40. This benefit is then actuarially reduced by a percentage based on the retiree’s year of birth.

586.333 Reduction Based on Excess Earnings

The supplement may be reduced depending on the amount earned after retirement. Any earnings above the amount set by the Social Security Administration each year will reduce the supplement by $1 for every $2 earned. This reduction does not apply to an individual who retires under the law enforcement provisions until he reaches the MRA.

586.4 Transferees to FERS


Reference Note:

For additional material concerning the subject matter found in 586.4, refer to:

Individuals who retire with frozen CSRS service as well as FERS service will have their annuity calculated under both retirement systems. The frozen CSRS service will be calculated using CSRS rules (see 566.3). The FERS portion will be computed using the FERS rules. Only a career high–3 average salary will be used for both calculations. The beginning and ending date of the total annuity are based on FERS rules. The FERS reduction for a survivor annuity will be applied to the total annuity, and the amount of the survivor annuity is determined by FERS rules. The annuity supplement is applicable only to the time actually served under FERS.

586.5 Disability Retirement


Reference Note:

For additional material concerning the subject matter found in 586.5, refer to:

586.51 Initial Computation — Under Age Sixty–Two
586.511 First Year of Disability

During the first year of disability the retiree will receive an amount equal to 60 percent of the high–3 average salary minus 100 percent of the Social Security benefit received.

586.512 Second and Succeeding Years

In the second and following years the amount of the disability annuity is 40 percent of the high–3 average salary minus 60 percent of the Social Security benefit received.

586.513 Exceptions

The above percentages do not apply to any individual who is eligible for optional retirement. In those cases the amount will be the same as an optional retirement.

586.52 Computation — Age Sixty–Two and Over

Employees who are age 62 or older at the time they are approved for disability retirement will have the annuity computed as though it were an optional retirement.

Example: John Doe age 63 is approved for disability retirement. He has four years of service. He receives 4 percent of his high–3 average salary.

586.53 Recomputation — Age Sixty–Two

All disability retirees will have their annuity recomputed at age 62. The annuity will be recomputed as though it were an optional retirement on the day prior to the retiree becoming age 62. The creditable service used will consist of the retiree’s total service prior to the disability retirement plus the years between retirement and age 62. The high–3 will be the high–3 average salary at retirement increased by all intervening FERS COLAs.

586.6 Reemployed Annuitants — Additional Annuity


Reference Note:

For additional material concerning the subject matter found in 586.6, refer to:

586.61 Salary Payable

When a FERS retiree is reemployed in the federal government, the salary for the position is reduced by the annuity the retiree is receiving.

586.62 Eligibility

Retirees whose annuity continues upon reemployment are eligible for an additional annuity if they work the equivalent of 1 full year. If retirees work the equivalent of 5 full years, they may elect either the additional annuity or a recomputation of their total annuity.

586.63 Reemployed Less Than One Year

When retirees are reemployed for less than the equivalent of 1 full year, the retirement deductions withheld during their reemployment are, upon proper application, refunded to them.

586.64 Reemployed One Year or More

When retirees are reemployed for at least 1 full year or its equivalent they receive, upon separation from reemployment, an additional annuity based on the period of reemployment. The additional annuity is based on the same formula as a regular annuity but uses the average basic salary while reemployed rather than a high–3 average salary. If the retiree had a survivor annuity with his previous annuity, the additional annuity will be reduced to provide an additional survivor annuity.

586.65 Reemployed Five Years or More

When retirees are reemployed for at least 5 full years, or its equivalent, they may elect either an additional annuity or a redetermination of their annuity. The redetermination will include all prior creditable service plus the creditable service for the current reemployment.

586.7 Alternative Form of Annuity


Reference Note:

For additional material concerning the subject matter found in 586.7, refer to:

586.71 Eligibility

Employees diagnosed with a life–threatening medical condition who are eligible to retire under an optional retirement may choose the Alternative Form of Annuity (AFA). This option allows a refund of all employee contributions made to the FERS retirement fund in addition to an actuarially reduced monthly benefit. This option is not available to those employees filing for disability retirement. Also, even if the conditions for this alternative annuity (as outlined above) are met, if a court order has been established to provide annuity benefits for a former spouse, this election is not allowed. Married employees must have the current spouse’s consent to elect an AFA.

586.72 Computation

To compute the AFA, the normal monthly annuity is first calculated. That monthly rate is then reduced by an amount equal to the retiree’s lump–sum credit divided by the applicable present value factor for the retiree’s attained age (in full years) at the time of retirement. A table of present value factors is published periodically.

586.73 Survivor Annuity

Election of an AFA has no impact on a survivor annuity. The survivor annuity is determined based on the retiring employee’s unreduced annuity.

Note: The lump sum payable to nondisability retirees whose annuities commence after January 3, 1988, and before October 1, 1989, will be broken into two portions. The first is payable at retirement and represents 60 percent. The remaining 40 percent, with interest, is paid 1 year after retirement. If no congressional action is taken, the lump sum returns to 100 percent on October 1, 1989.

586.8 Cost–of–Living Adjustments (COLA)


Reference Note:

For additional material concerning the subject matter found in 586.8, refer to:

586.81 Amount

The amount of the COLA is determined based on the growth in the Consumer Price Index (CPI). The COLA is generally 1 percent less than the increase in the CPI.


CPI Change



Same as CPI



Over 3%

CPI Minus 1%

If a retiree’s first increase falls within the first year after she or he begins to receive benefits, the increase will be prorated to cover the portion of the year in which benefits were paid.

586.82 Eligibility
586.821 Optional Retirement

Those retiring optionally (see 583.1) are eligible for COLA at age 62.

586.822 Involuntary Separation

Those retiring on a discontinued annuity (see 583.21) are eligible for COLA at age 62.

586.823 Disability

Those retiring on a disability (see 583.23) are eligible for COLA in the second year after the disability annuity begins.

586.824 Law Enforcement

Those retiring under the law enforcement provisions (see 583.22) are eligible for COLA at retirement.

586.825 Transfers to FERS

Those retiring with a combined frozen CSRS annuity and a FERS annuity are eligible for the CSRS COLA on the CSRS portion of the annuity from retirement, and the FERS COLA on the FERS portion of the annuity at age 62.