LEO Fair Retirement Act Fixes Overtime Cap Glitch, Boosts Federal Officer Annuities—But Only If They Pay Up First

The newly introduced LEO Fair Retirement Act of 2025 aims to fix a long-standing glitch in how federal law enforcement officers (LEOs) are compensated for their extremely demanding work hours. Right now, many LEOs work mandatory overtime, but due to federal pay caps (specifically 5 U.S.C. § 5547), they often don't receive compensation for all those extra hours. This bill steps in to ensure those uncompensated hours count toward their retirement, boosting their eventual annuities under both the Civil Service Retirement System (CSRS) and the Federal Employees Retirement System (FERS).

The Retirement Catch-Up: How to Buy Back Your Benefits

This is the core of the bill (SEC. 2). It says that if an LEO’s premium pay was capped because of existing rules, that 'lost' pay must now be included when calculating their average highest pay for retirement purposes. Think of it this way: your retirement check is based on your highest three years of salary. This bill lets LEOs retroactively inflate that three-year average by including the overtime they worked but never got paid for, leading to a bigger monthly retirement check. However, this benefit isn't free. To get this enhanced annuity, the officer must make a lump-sum payment to the Office of Personnel Management (OPM). This payment covers the difference between the retirement contributions they actually made and the contributions they would have made if the capped pay had been included in their salary all along. For a busy officer, OPM will provide an estimate of this payment and the resulting annuity increase 180 days before retirement, giving them 90 days to make a final, binding decision to pay the lump sum or not. If an officer can’t swing the lump sum, they can opt for a reduction in their monthly annuity instead, which essentially finances the contribution difference over time.

Expanding Availability Pay: Who Else Is Covered?

Beyond fixing the retirement calculation, the Act also expands who qualifies for “availability pay” (SEC. 3). This is the extra premium pay given to certain federal employees for being on call outside normal hours. Previously limited to specific criminal investigators, this bill extends availability pay to a new group of “covered employees.” This is a big win for federal roles like Postal Inspectors, Federal Air Marshals, Diplomatic Security Service special agents, and Probation and Pretrial Services officers. For these employees, this means they will now be treated like criminal investigators for the purpose of receiving this on-call pay, recognizing the high-stress, unpredictable nature of their work schedules.

The Tax Break That Helps Offset the Cost

Recognizing that the required lump-sum payment could be substantial, the bill includes a tax provision (SEC. 4) to help mitigate the financial hit. If an officer receives a lump-sum payment related to their annuity calculation (as defined in SEC. 2), they can claim a federal income tax credit equal to the amount of that payment. This credit is non-refundable, meaning it can reduce their tax bill down to zero, but they won't get any leftover credit back as a refund. For an officer facing a five-figure lump-sum payment to unlock their full retirement benefit, this tax credit makes the buy-in significantly more manageable, though officers with low tax liability won't be able to fully utilize the benefit.