Understanding Foreign Service Normal Cost: Definition and Importance
Definition & Meaning
The term foreign service normal cost refers to the percentage of payroll that must be contributed to the Foreign Service Retirement and Disability Fund. This amount is determined using standard actuarial practices based on the entry-age method. The normal cost is adjusted by subtracting the value of retirement benefits earned through other government retirement systems and the costs associated with credit for military or naval service.
Legal Use & context
This term is primarily used in the context of federal employment and retirement law, particularly concerning the benefits available to members of the Foreign Service. It is relevant in legal practices related to employment law, pension planning, and government benefits. Users may need to complete specific forms to manage their retirement benefits, which can be facilitated through resources like US Legal Forms.
Real-world examples
Here are a couple of examples of abatement:
For instance, if a Foreign Service employee earns a salary of $80,000 and the foreign service normal cost is determined to be 12 percent, the employee's agency would need to contribute $9,600 to the retirement fund for that year.
(hypothetical example) If another employee has previously earned retirement benefits under a different government system, that amount would be deducted from the total normal cost calculation.
Relevant laws & statutes
The primary legal reference for foreign service normal cost is found in 22 USCS § 4044, which outlines the requirements for the Foreign Service Retirement and Disability System. This statute provides the framework for calculating the normal cost and its components.