The FERS 5% penalty for those who choose to retire under the provision for MRA+10 retirement is often the source of confusion. This penalty reduces the FERS annuity of a retiree who elects to retire under the MRA+10 provision by 5/12 of 1% per month (5% per year) for each full month the retiree is younger than age 62.
For those who are not familiar with the term MRA – you are probably CSRS. MRA is a concept that was introduced with the advent of the FERS system and does not apply to CSRS employees. Your MRA, or Minimum Retirement Age, is based on the year in which you were born. A FERS retiree who was born before 1948 would have a MRA of 55. However, if born in 1970 or later, the MRA would be 57.
Here is a chart that demonstrates how this works:
|Year of Birth||MRA|
|1948||55 and 2 months|
|1949||55 and 4|
|1950||55 and 6|
|1951||55 and 8|
|1952||55 and 10|
|1965||56 and 2|
|1966||56 and 4|
|1967||56 and 6|
|1968||56 and 8|
|1969||56 and 10|
|1970 and later||57|
First and foremost, the 5% penalty only applies to FERS retirees who leave under the MRA+10 provision. FERS employees who are under age 62 and retire under other provisions face no reduction at all. Examples of the other provisions being:
- MRA plus 30 years of service
- Age 60 plus 20 years of service
- Special category retirement (e.g., law enforcement, firefighter, etc.)
- Disability retirement
- Certain deferred retirements (this will be the subject of another article in the future)
The first three bullets above are sometimes referred to as “voluntary retirement”.
There is a way that some individuals who leave under the MRA+10 provision are able to avoid the penalty. This method, however, is not for everybody, as it required that you postpone the receipt of your annuity and give up some other retiree perks for a period of time. Here’s how it would work.
Let’s say you are age 60, neither disabled nor a special category employee, and have 15 years of service, but you really want to leave government service. As you need a full 20 years of service to qualify for voluntary retirement, 15 years won’t get you out the door unless you apply for MRA+10 retirement. When your MRA+10 retirement is approved, you tell the Office of Personnel Management (OPM) that you wish to postpone receiving your annuity. Upon reaching age 62, you contact OPM again and ask them to start your annuity. Because you are age 62 when the annuity begins, there will be no reduction in your annuity amount.
But wait, there’s more! Well, actually, there’s really less. Here are some reasons that the MRA+10 option is not more popular than it is (other than the fact you’ll not be receiving an annuity for two years).
- The high-three salary used to compute your annuity remains what it was when you left – it is not adjusted for inflation.
- You will be ineligible for health insurance through FEHB during the time your annuity is postponed. It will be reinstated when you begin collecting your annuity.
- You will not be eligible to receive the FERS Special Retirement Supplement.
CSRS employees do not have anything like MRA+10 available. If the person in the example used above were a CSRS employee, they would have to wait until age 62 to be eligible for retirement.