Retirement Benefits When Leaving Federal Service

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By on July 11, 2017 in Pay & Benefits, Retirement with 0 Comments

The words 'post-retirement benefits' on a sheet of paper next to books and a pen on an office table

In two previous articles we have looked at issues surrounding the White House’s proposed 2018 budget. One article was on being prepared in the event the changes to our retirement and benefits actually take place. The other was on weighing the pros and cons of staying in federal service versus leaving and finding work elsewhere.

This article will address what federal retirement benefits we will have if we decide to leave federal service, and yet another article will look at what happens to our other employee benefits.

We all need to keep in mind that the proposed budget is just that – a proposal. It is likely viewed as the starting point for negotiations during the budget process. It’s not out of the realm of possibility that very little, or even none, of the proposals will come to pass. Having said that, it’s better to be prepared for an event that doesn’t happen that to be unprepared for one that does.

Becoming Retirement Eligible

A substantial number of federal employees are already eligible to retire, especially if we consider the fact that much use will be made of Voluntary Early Retirement Authorities (VERA) when agencies reorganize. The tables that follow outline the eligibility criteria for both voluntary and early retirement.

CSRS

Most remaining CSRS employees are already able to retire voluntarily. The few who aren’t are certainly all eligible for early retirement.

CSRS Type of Retirement Minimum Age Minimum Service
Voluntary

55

60

62

30

20

5

Early

50

Any

20

25

 

Under CSRS, an individual who takes early retirement will suffer a 2% per year reduction in their pension for each full year they are under the age of 55 (1/6 of 1% per month).

FERS

The criteria for retirement under FERS are similar to those for CSRS, though FERS has an additional option for reduced (often called MRA+10) retirement.

FERS Type of Retirement Minimum Age Minimum Service
Voluntary

MRA (between 55 and 57)

60

62

30

20

5

Early

50

Any

20

25

Reduced MRA 10

 

Under FERS, an individual who takes early retirement will not face an age-based reduction, but one who takes reduced retirement will be subject to a 5% per year reduction for each full year they are under the age of 62 (5/12 of 1% per month).

So, if you meet any of the criteria in the above charts you are in a position where you can pull the plug at any time you want. Some people say they’ve “joined the club” when they reach retirement eligibility. You may not want to retire when you are first eligible, but you do have that option.

Federal Employees Who Are Not Retirement Eligible

What of the federal employees who do not meet the above criteria?

All a person needs to become eligible for a pension at a later date (called “deferred retirement”) is five years of creditable civilian service. Another requirement is that the person must have left their retirement contributions on deposit with OPM.

Almost all folks who choose to leave before retirement eligibility will be covered under FERS, and the criteria for deferred retirement under FERS are the same as the criteria for voluntary retirement.

So, for example, if a FERS employee who is age 42 with 19 years of federal service chooses to leave federal employment and leaves their FERS contributions on deposit, they will first become eligible for a deferred pension when they reach their Minimum Retirement Age (under the MRA+10 criteria) – but that deferred pension will be reduced 5% per year for each year they are under age 62. If they do not want to have their pension reduced, they will be eligible for an unreduced pension at age 62 (under the 62 + 5 criteria). Deferred pensions do not entitle the retiree to continue enrollment in FEHB or FEGLI.

Agencies can request to have John Grobe, or another of Federal Career Experts' qualified instructors, deliver a retirement or transition seminar to their employees. FCE instructors are not financial advisers and will not sell or recommend financial products to class participants. Agency Benefits Officers can contact John Grobe at [email protected] to discuss schedules and costs.

© 2017 John Grobe. All rights reserved. This article may not be reproduced without express written consent from John Grobe.

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About the Author

John Grobe is President of Federal Career Experts, a consulting firm that specializes in federal retirement and career transition issues. He is also affiliated with TSP Safety Net. John retired from federal service after 25 years of progressively more responsible human resources positions. He is the author of Understanding the Federal Retirement Systems and Career Transition: A Guide for Federal Employees, both published by the Federal Management Institute. Federal Career Experts provides pre-retirement seminars for a wide variety of federal agencies.

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