Phased Retirement for Feds: Easing Into Retirement

OPM has issued rules on phased retirement—a new program that will allow federal employees to work part-time while also receiving a portion of their federal pension.

The Office of Personnel Management (OPM) has issued its long-awaited rules on “phased retirement.” The final rule was published in the Federal Register on Friday, August 8.

Under the new OPM rule,  a federal employee who enters phased retirement, with the approval of an authorized agency official, will be able to enter into a 50 percent working schedule and receive approximately 50 percent of his annuity (not including credit for sick leave), just as if the individual retired completely from Federal service without electing a survivor annuity.

Retirement-eligible employees will be able to submit applications for phased retirement on November 6, 2014, 90 days from the publication of the final regulations. An employee participating in phased retirement is still a federal employee for all practical purposes unless otherwise specified in law or regulation.

Phased retirement will potentially benefit both employees who are eligible for retirement and the federal government. Employees with experience and knowledge may remain at work for a longer time and employees in phased retirement will earn more money than they would by fully retiring.

OPM will be issuing separate guidance to assist agencies and employees with administrative and procedural matters, many of which have not yet been addressed by OPM. Many readers are likely to have questions about details of how this program will be implemented. Much of the information that readers will be seeking will not be available until OPM issues this additional guidance.

The new rules require than an employee work full time for the three years before retirement. Also, a person participating in this program must have accumulated enough years of federal service to qualify for retirement. One major benefit for those who elect phased retirement, is that “phased retirees” will accrue additional credit toward their federal pensions. While on the job, they will have to spend 20 percent of their time mentoring younger employees. These younger employees will presumably be those taking over the federal jobs of the phased retirees when they are fully retired.

CSRS employees will be eligible for phased retirement when they turn 55 or older with at least 30 years of service, or age 60 or older with 20 years of service. FERS employees will be eligible after 30 years of service or once they reach the minimum retirement age, or at age 60 or older with 20 years of service.

Employees who use the phased retirement program will have their annuity payments calculated on two occasions.  It will be calculated when they partially retire and calculated again when they enter full retirement.  They will be considered as part-time employees for most employment purposes, including leave and pay.

Phased retirees will also receive the full federal contribution under the Federal Employees Health Benefits Program.

Agencies are also required by the new OPM rule to draft a written plan when approving or denying applications for phased retirement. OPM is also advising agencies that some matters relating to phased retirement, including procedures and arrangements for adversely affected employees, may be subject to collective bargaining obligations with a union that represents bargaining unit employees.

Here are some of the most important features that those considering phased retirement will find of interest.

  • An employee is not automatically entitled to enter into phased retirement. Participating in phased retirement is voluntary but requires the consent of the employee and the employing agency.
  • The main purpose of phased retirement is to enhance the mentoring and training of employees who will be filling the positions of experienced federal employees who are retiring.
  • Employees in the phased retirement program may continue to contribute to the TSP, in accordance with TSP rules.
  • The normal leave accrual rules for part-time employees will apply to phased retirees.
  • Phased retirees will not be eligible for voluntary separation incentive payments (VSIP) when entering phased retirement or when leaving phased retirement to enter full retirement.
  • Employees eligible under an approved voluntary early retirement authority (VERA) are not eligible for phased retirement.
  • An employee in phased retirement is a part-time employee for the purposes of a furlough and as such, is subject to furlough in the same manner as part-time employees in regular employment.
  • During a period of phased employment, phased retirees are still employees, and are bound, as such, by ethics rules and any restrictions on outside employment.
  • Phased retirement and reemployment of annuitants are both programs an agency may use. Phased retirement is not meant to replace the reemployment of annuitants.
  • Employees who are excluded from Social Security coverage at the time they enter phased retirement continue to be excluded from Social Security coverage during phased retirement.
  • The law provides that employees subject to mandatory retirement (including Law Enforcement Officers, Firefighters, Nuclear Materials Couriers, Air Traffic Controllers, Customs and Border Protection Officers, or members of the Capitol Police or Supreme Court Police) may not participate.  However, “grandfathered” Customs and Border Protection Officers who are not subject to mandatory retirement may participate.

The Congressional Budget Office estimated in a May 2012 report that the phased-retirement program would save the government a considerable amount of money. The program was projected to decrease direct spending by $427 million between 2013-2022 period and increase revenues by $24 million during this same period as participants draw a lower retirement benefit than they would receive through the full retirement program.

As new information becomes available in OPM guidance, FedSmith will provide additional information to readers.

About the Author

Ralph Smith has several decades of experience working with federal human resources issues. He has written extensively on a full range of human resources topics in books and newsletters and is a co-founder of two companies and several newsletters on federal human resources. Follow Ralph on Twitter: @RalphSmith47