United States 

Office of 

Personnel Management 

The Federal Government’s Human Resources Agency 

Benefits Administration Letter 

Number 10-101 Date: January 12, 2010

Subject: National Defense Authorization Act Retirement Changes

Purpose: The purpose of this Benefits Administration Letter (BAL) is to provide 

general guidance concerning the benefits under the Civil Service Retirement System 

(CSRS) and the Federal Employees’ Retirement System (FERS) that have been affected 

by the “National Defense Authorization Act for Fiscal Year 2010”, Public Law 111-84, 

signed on October 28, 2009. We are doing further analysis related to the effects of these 

changes. Informational materials and forms will be updated as needed. Additional BALs 

will be issued as warranted. 

Background: The “National Defense Authorization Act for Fiscal Year 2010”, 

Public Law 111-84, provides for the following benefits changes under CSRS and FERS. 

 Part-Time Reemployment 

 Credit for unused sick leave under FERS 

 Limited expansion of the class of individuals eligible to receive an actuarially 

reduced annuity under the CSRS 

 Computation of CSRS annuities based on part-time service 

 Authority to deposit refunds under FERS 

 Retirement credit for service of certain employees transferred from District of 

Columbia service to federal service 

 Non-foreign area retirement equity assurance 

General Guidance for Agencies: The following is general guidance for each provision 

in the order that they are listed in the bill. Please use this guidance in determining 

retirement eligibility and estimates for individuals retiring or considering retirement. 

Additional guidance and/or regulations will be provided by OPM after further analysis is 

completed. 

Section 1122 and 1123 – Part-Time Employment 

Section 1122 allows reemployment of CSRS and FERS annuitants on a limited basis with 

receipt of both annuity and salary. The provisions apply to Executive agencies 
(excluding the Department of Defense and General Accountability Office), the Postal 

Service, the Judicial Branch, and Legislative Branch agencies (other than GAO, which is 

excluded under both the Executive and Legislative Branch provisions). 

The authority may be used by agencies when they determine that use is necessary to– 

(A) fulfill functions critical to the mission of the agency, or any component of that 

agency; 

(B) assist in the implementation or oversight of the American Recovery and 

Reinvestment Act of 2009 (Public Law 111-5) or the Troubled Asset Relief 

Program under title I of the Emergency Economic Stabilization Act of 2008 (12 

U.S.C. 5201 et seq.); 

(C) assist in the development, management, or oversight of agency procurement 

actions; 

(D) assist the Inspector General for the agency in the performance of the mission 

of that Inspector General; 

(E) promote appropriate training or mentoring programs of employees; 

(F) assist in the recruitment or retention of employees; or 

(G) respond to an emergency involving a direct threat to life of property or other 

unusual circumstances. 

Individuals reemployed will serve under appointments limited to a year or less. An 

annuitant may not serve under the authority for more than 520 hours of service during the 

period ending 6 months following the individual’s annuity commencing date; for more 

than 1040 hours of service during any 12-month period; or for more than a total of 3120 

hours. Reemployment may not exceed 2.5 percent of the full-time workforce at any time, 

and if 1 percent is exceeded, agencies are required to provide an explanation and 

justification to the Congress and OPM. Individuals employed under these provisions 

will not be entitled to any additional annuity benefits based upon that employment. 

Agencies may begin using these waivers now. This authority expires on October 27, 

2014. 

Section 1901 – Credit for unused sick leave under FERS 

Section 1901 permits unused sick leave to be used as service credit in the computation of 

benefits under FERS, but not for establishing title to an annuity or in the computation of 

average salary. Sick leave will be used in the computations in the same manner it is used 

in CSRS computations. Effective October 28, 2009, individuals separating with title to 

an immediate annuity or who die leaving a survivor eligible for a survivor annuity 
will be entitled to credit for 50 percent of their unused sick leave. Effective for 

separations and deaths occurring on or after January 1, 2014, 100 percent of the 

unused sick leave will be available. 

The provisions apply to unused sick leave to the individual’s credit under a formal leave 

system and for which the employee has not received payment. In the case of individuals 

who have annuities computed under the provisions of both CSRS and FERS, only sick 

leave not included in the CSRS part of the calculation will be available under FERS. In 

addition, in the case of an employee who is excepted from subchapter I of chapter 63 

under section 6301(2)(x) through (xiii) of title 5, United States Code, (which applies to 

certain high level officers and employees) the days of unused sick leave include any 

unused sick leave standing to his or her credit when he or she was excepted from this 

subchapter. 

This new provision is not applicable to Veterans Health Administration nurses who are 

already entitled to full credit for unused sick leave under prior legislation. The 

amendments made by section 1901 apply only to annuities based on a separation from 

service occurring on or after October 28, 2009. 

Section 1902 – Limited expansion of the class of individuals eligible to receive an 

actuarially reduced annuity under the CSRS 

Under existing law applicable only to CSRS, individuals who received refunds of 

retirement deductions for a period of service ending prior to October 1, 1990, may make 

a redeposit of the refund by actuarial annuity reduction in lieu of cash redeposit. Section 

1902 now permits actuarial reductions in lieu of cash redeposit for refunds covering 

periods of service ending prior to March 1, 1991. 

The amendment applies only to non-disability annuities based on a separation from 

service occurring on or after October 28, 2009. 

Section 1903 – Computation of CSRS annuities based on part-time service 

Previously, individuals retiring under CSRS who were employed on a part-time basis 

during their final three years of service have had their annuities computed using two 

different high-three average salaries. The annuity calculation for service performed on or 

after April 7, 1986, utilizes what is referred to as a “deemed high-three” average salary 

which is computed using the full-time equivalent rates of pay for the high-three period. 

The annuity calculation for service performed before April 7, 1986, utilizes a high-three 

average salary based upon the highest rates of pay actually received by the individual, 

which may be for a period prior to the final three years of service. In other words, under 

law prior to this amendment, one high-three average salary was based on the pay actually 

received and the other based on pay the individual would have received assuming they 

worked full-time (the deemed high-three). 
Section 1903 provides that the “deemed high-three” average salary will be utilized 

for all service, regardless of when performed. Section 1903 does not change the other 

provisions applicable to calculation of annuities involving part-time service. The 

amendment applies only to annuities based on a separation from service occurring on or 

after October 28, 2009. 

Section 1904 – Authority to deposit refunds under FERS 

Since FERS was enacted, the law has provided that individuals who took refunds of their 

FERS employee contributions irrevocably lost service credit for the period of service 

covered by the refund. Section 1904 permits individuals who are subsequently 

reemployed to make a redeposit of the amount refunded, plus interest, and to have credit 

for the service reinstated. For the purpose of survivor annuities, redeposit may also be 

made by survivors. 

Interest will be based upon the same basic rules applicable to CSRS. OPM will 

issue new regulations and revised forms prior to the redeposits being accepted. 

Section 1904 applies to individuals who are employed under FERS on or after October 

28, 2009. Individuals retiring on or after October 28, 2009, and employed under FERS 

will be given the opportunity to make the redeposit upon the adjudication of their benefit. 

Section 1905 – Retirement credit for service of certain employees transferred from 

District of Columbia service to federal service 

Section 1905 is a new and unique provision under CSRS and FERS. It affects certain 

specified service performed in District of Columbia positions that were subsequently 

brought under Federal benefits, and that was not previously creditable under CSRS or 

FERS. Such specified service will now be creditable for retirement eligibility purposes 

only, including specified service being creditable towards law enforcement officer 

retirement eligibility. However, such service will NOT be creditable in the computation 

of annuity benefits. 

Credit for such service will be based upon certification of the appropriate personnel 

official of the government of the District of Columbia or other independent employing 

entity concerning whether an individual performed qualifying District of Columbia 

service and the length of the period of such service the individual performed. Individuals 

will be eligible for credit only if they are employed under CSRS or FERS on or after 

October 28, 2009. 
Section 1911-1919 – Non-foreign area retirement equity assurance 

For decades, individuals employed in certain non-foreign areas outside of the contiguous 

48 states (Alaska, Hawaii, Puerto Rico, and other U.S. territories or possessions) have 

been eligible for a non-foreign Cost of Living Allowance (COLA). While such nonforeign COLA payments are not subject to income tax, they are also not basic pay for 

retirement purposes. Individuals receiving non-foreign COLA payments have not been 

eligible for locality pay, with the result that their basic pay has fallen further behind the 

rest-of-US (RUS) locality pay each year. 

These provisions permit a phased conversion from non-foreign COLA to locality pay 

over a three year period beginning in 2010. Individuals who separate from service 

from 2010 through 2012 will have the right to elect to have the non-foreign COLA 

allowances received during that period count towards retirement credit, to the 

extent that the non-foreign COLA allowances plus any locality pay received do not 

equal more than the RUS locality pay. Such election must be filed not later than 

December 31, 2012. The statute makes provisions for agency and employee payments 

based upon those elections, which must be made to OPM. OPM will issue regulations to 

carry out the election and payment process.

 Kathleen M. McGettigan (Acting) 

 Associate Director 

 for Retirement & Benefits