A Risk in Going Part-Time

(This article appeared in the Jan./Feb. 2005 issue of The American Postal Worker magazine)

John R. Smith, Director

“What is the Part-Time Pro-ration Factor?” This continues to be the most-asked-about and talked-about subject in our retirement seminars.

It is important that every member who is considering changing to part-time work late in a career be familiar with the following:

With the intent being to fix an inequity in how retirement annuities are calculated for part-time postal and federal employees, a federal law was changed in 1986. In instituting the change to solve a problem, however, Congress wound up creating, for many older workers, a new problem. Many postal workers found that their retirement benefits were drastically reduced because they finished out their careers by working part-time.

Before the law was changed, federal retirement annuities were based on the amount of money employees earned during their “high three years” of service. For most employees, these are the last three years of full-time work before retirement.

The law was changed because government accountants pointed out that employees who worked part-time most of their careers could “game” the system by switching to full-time status for their last 36 months of work: Their pension annuity would be based on their average annual salary during the high three years – they would get credit for full-time work for each of the years they worked, even if all but three were only part-time.

The law Congress passed in 1986 (P.L. 99-272) has changed the way federal annuities are calculated for part-time employees. Under the new rules, the high three salary years are still used in the calculation, but annuities are pro-rated, with the calculation based on the actual number of hours worked. This accounts more accurately for periods when employees worked part-time.

The new problem is the reverse of one that existed before 1986: Employees who switch to part-time status at the end of their careers can find their annuities substantially reduced because their “high three” salary years no longer are their last three.

Working part-time lowers the multiplier used for calculating annuities based on the average number of hours worked during the years since 1986.

Congress often passes vague laws, then leaves it for the federal agencies to sort things out and to develop regulations to properly implement the new laws. In this case, many blame the Office of Personnel Management (OPM) for today’s convoluted, irrational, and inequitable way of calculating annuities.

The main complaint is that OPM solved only half of the problems. While OPM ended part-time workers’ ability to game the system, it perpetuated and exacerbated existing injustices for employees converting from full-time to part-time.

The way it has worked out is that employees who convert from a long career as a full-timer to a few years as a part-timer get roughly the same retirement annuity as those who work part-time their entire careers.

Since most part-time employees are women, insult has been added to injury: The glass ceiling that has kept many women out of management is complemented by a “glass wall” for part-timers.

Needless to say, many full-time workers made the conversion without knowing how it would affect their annuities, which last the rest of their lives. If you feel you are being adversely affected by this law, write to your senators and congressional representatives to encourage them to introduce corrective legislation.