After more than a year, the Office of Personnel Management is finally issuing the final rules on the phased retirement program for federal employees.
A group of lawmakers recently sent a letter prodding the agency to issue the rules, saying in the letter that “many federal employees have given up hope that OPM will ever take final action” and that “these employees are choosing to completely retire in frustration that they will never have the opportunity to support their agencies in mentoring and training the next generation of civil servants on a part-time basis.” Perhaps the letter worked as OPM announced today that it will post a final rule in the federal register on August 8.
OPM said in the memo released today that it will initially implement the phased retirement program as described in the statute, hence the regulations will require an eligible employee who enters phased retirement, with the approval of an authorized agency official, to enter into a 50 percent working schedule and receive approximately 50 percent of what his or her annuity would have been (not including credit for sick leave), had the individual retired completely from Federal service, without electing a survivor annuity. Entry into phased retirement is not guaranteed and must be mutually agreeable to the eligible employee and the employing agency.
OPM’s memo highlighted numerous comments and questions it received from individuals and organizations interested in the phased retirement program. The agency addressed many of the comments in the memo which ranged from questions such as the role of the Thrift Savings Plan in phased retirement to how it would affect CSRS pensions to how holiday pay would work.
A few of the comments/questions from the memo are highlighted below along with OPM’s responses.
- The role of the Thrift Savings Plan in phased retirement – some commenters described their plans to rely on withdrawals from the TSP in retirement, particularly prior to age 62. The Federal Retirement Thrift Investment Board is responsible for administering the TSP. Therefore, TSP withdrawal rules and guidelines are outside the scope of this rule. OPM notes that this rule clearly states that participants in phased retirement are still Federal employees; therefore, they may continue to contribute to the TSP, in accordance with TSP rules, during phased employment.
- Social Security and WEP – several commenters suggested that OPM include more information about the interplay between OPM’s benefits and the Social Security Administration’s (SSA) benefits within the phased retirement regulations. Commenters requested information about the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO) as it applies to phased retirement. The SSA is responsible for applying the WEP and the GPO. OPM cannot address these comments.
- Income taxes – The Internal Revenue Service (IRS) is responsible for the tax code, tax regulations and official guidance. To the extent that OPM is responsible for providing information about taxes to annuitants, we will do so in guidance.
- Leave accrual – a phased retiree is treated like any other employee on a part-time tour of duty. The normal leave accrual rules for part-time employees apply to phased retirees. Leave accrual for part-time employees is prorated based on hours in a pay status. An employee does not receive a lump-sum payment for annual leave upon electing phased retirement. The lump-sum annual leave payment would be made in full when the phased retiree fully retires. Therefore, an employee would maintain his or her annual leave balance upon transition to phased retirement.
- Holiday pay – Some commenters questioned whether or not a phased retire is eligible for holiday pay. Under 5 CFR 831.1715(g) and 848.205(i), except as otherwise expressly provided in law or regulation, a phased retiree is treated as any other employee on a part-time tour of duty. The normal rules for part-time employees and holidays apply to phased retirees. A part-time employee is entitled to a holiday when the holiday falls on a day when he or she would otherwise be required to work or take leave. If a holiday falls on a non- workday, part-time employees are not entitled to an “in lieu of” holiday.
- VSIP – Multiple commenters inquired about eligibility for receiving voluntary separation incentive payments (VSIP) when entering phased retirement or when leaving phased retirement to enter full retirement. The VSIP authority, also known as buyout authority, allows agencies that are downsizing or restructuring to offer employees lump-sum payments of up to $25,000 as an incentive to voluntarily separate from Federal service. An employee entering phased retirement is not separating from Federal employment and is not eligible for a VSIP. An employee leaving phased retirement to separate and enter full retirement may be eligible for a VSIP if the eligibility criteria in 5 U.S.C. Chapter 35, subchapter II, and the implementing regulations are met at that time.
- CSRS pension – one commenter, presumably a CSRS employee, asked OPM to clarify whether he would be able to receive more than 80 percent of his pension after phased retirement. In general, under CSRS an annuity may not exceed 80 percent of the average pay of the employee (see 5 U.S.C. 8339(f)). Therefore, the amount of the phased retirement annuity computed under 5 U.S.C. 8339, before it is multiplied by the phased retirement percentage, cannot exceed 80 percent of the employee’s average pay. Likewise, the amount of the fully retired phased component of the composite annuity computed under 5 U.S.C. 8339, before it is multiplied by the working percentage, may not exceed 80 percent of the employee’s average pay (unless credit for the employee’s unused sick leave raises the annuity above the 80 percent threshold). If a CSRS employee exceeds the 80 percent limitation either before or during phased retirement; his excess contributions will be refunded back to him at his full retirement.
The full memo from OPM outlining the rules and regulations for the phased retirement program is included below. For additional information about phased retirement, see these previous articles on FedSmith.com:
