Previous columns presented the advantages and disadvantages of MRA+10 and MRA+20 immediate and postponed retirement. These retirement options are available for those employees covered by the Federal Employees Retirement System (FERS) who could retire from federal service with as few as 10 years of federal service.
This column presents another retirement option for FERS employees called deferred retirement. The requirements for a FERS employee to elect a deferred retirement and the advantages and disadvantages of a FERS deferred retirement will be presented.
To help understand how a deferred retirement may be a FERS-covered employee’s only choice, two scenarios in which a FERS-covered employee may find himself or herself are presented:
Scenario 1. A FERS-covered employee is not eligible to retire and wants to leave federal service rather than work the additional years required in order for qualify for an immediate and unreduced FERS annuity retirement. Table 1 presents the three combinations of minimum age and years of service that allows a FERS-covered employee to retire under an immediate and unreduced FERS annuity retirement.
Scenario 2. A FERS-covered employee is younger than his or her MRA and the employee’s agency is going through a reduction in force (RIF), a major reorganization, or transfers of function. The employee is not eligible to retire and has no other choice but to leave federal service.
A FERS-covered employee is eligible for a deferred retirement in which the employee will receive his or her FERS annuity for the rest of his or her life if the employee fulfills the following prerequisites:
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• Meets the minimum civilian service requirement
• When leaving federal service, the employee does not request a refund of his or her FERS Retirement and Disability Fund contributions (made via payroll deduction while working under FERS)
• Upon the minimum age to start receiving his or her FERS deferred annuity, the employee formally notifies OPM’s Retirement Office of his or her eligibility to receive the deferred annuity
These requirements are discussed and explained below.
A FERS employee must have had at least 5 years of creditable civilian service in order to be eligible for a deferred retirement. Creditable civilian service for this purpose includes:
• Full-time or part-time permanent service in which full FERS contributions were made via payroll deduction to the FERS Retirement and Disability Fund
• “Nondeduction” (temporary or intermittent) service performed in which a full FERS deposit (including interest charges) for such service was made before separation from federal service.
• Service for which full Social Security (FICA) payroll taxes and full or reduced CSRS deductions were taken and not refunded, and
• For employees who are also eligible for a CSRS annuity component for their retirement (“Trans” FERS employees) for their deferred retirement;
(1) “Nondeduction” (temporary or intermittent) service subject to CSRS retirement rules whether or not a deposit for such service is made or is deemed under the alternative annuity provisions; and
(2) Service for which full CSRS retirement contributions, generally seven percent of one’s salary, were taken, even if CSRS contributions were refunded and not redeposited.
The following types of service performed under FERS may not be used in meeting the 5-year minimum civilian service requirement:
• Service under FERS for which a FERS-covered employee requested a refund of FERS contributions made via payroll deduction while the employee:
(1) Was previously in federal service;
(2) Left federal and requested a refund of FERS contributions (made via payroll deduction); and
(3) Returned to federal service but did not redeposit those contributions when the employee returned to federal service
• Any period of nondeduction (temporary or intermittent) service performed before 1989 in which a full FERS deposit required for FERS retirement eligibility purposes was not completed before separation from service, and
• “Nondeduction” (temporary or intermittent service) performed after Dec. 31, 1988 unless the service is included in a CSRS annuity component (applicable to a “Trans” FERS employee)
Note that as will be explained, any unused sick leave time at the time of separation from federal service will be permanently lost and therefore not creditable for FERS retirement eligibility and in the computation of the FERS annuity.
A FERS employee who leaves federal service under the deferred retirement option will be eligible to receive his or her deferred FERS annuity at a later date. The starting date of the departed employee’s deferred FERS retirement and first FERS annuity check will depend on how many years of creditable service the employee had at the time of the employee’s official departure from federal service.
Table 3 shows the combination of years of creditable FERS service and the earliest age the departed employee is eligible to receive his or her first deferred FERS annuity check.
The following examples illustrate:
Example 1. William has 32 years of FERS creditable service as of May 2022. William is age 51 and has an MRA of age 57 which he will attain in July 2028. If William leaves federal service under a deferred retirement, then his deferred retirement becomes effective July 2028, and he will be eligible to receive his first FERS annuity check in August 2028.
Example 2. Sylvia has 23 years of FERS creditable service as of May 2022. Sylvia is age 48 and will become age 60 in June 2034. If Sylvia leaves federal service under a deferred retirement, then her deferred retirement becomes effective June 2034, and she will be eligible to receive her first FERS annuity check in July 2034.
Example 3. Payton, age 38, left federal service in May 2017 after 6 years of FERS creditable service. Payton will become 62 in August 2046. Payton’s deferred retirement becomes effective August 2046, and he will be eligible to receive his first FERS annuity check in September 2046.
Upon leaving federal service under a FERS deferred retirement, the departing FERS employee will be paid in a lump sum payment for all unused annual leave hours. This lump sum payment for unused annual leave hours, together with the departing employee’s last paycheck for the last pay period worked, will be directly deposited into the employee’s designated bank account. That is, the account used for direct deposit of the employee’s prior paychecks during the year the employee is leaving federal service.
For any unused sick leave hours, the departing employee has accumulated on the day of officially leaving federal service, the employee will neither get paid nor will the unused sick leave hours be converted to months and days of service time to be used in calculating the employee’s deferred annuity. In other words, the departing employee will lose all of the unused sick leave hours and not get paid or get credit.
With respect to the Thrift Savings Plan (TSP), the departing employee can keep both the Traditional TSP and the Roth TSP within the TSP and is not required to transfer either TSP account or withdraw either TSP account. Once separated from federal service, the departed employee cannot contribute to either TSP account. The departed employee can make penalty-free withdrawals (no 10 percent early withdrawal penalty), starting when the departed employee is age 59.5. The departed employee will be subject to minimum required distributions (MRD requirements with the TSP account). The first MRD is due no later than April 1st following the year the departed employee becomes age 72.
Upon leaving federal service, a FERS employee who elects a deferred retirement will permanently lose his or her enrollment in the Federal Employees Health Benefits (FEHB) program, the Federal Employees Group Life Insurance (FEGLI) program and the Federal Employees Dental and Vision Insurance Program (FEDVIP). Note that none of these insurances will be reinstated when the departed employee starts receiving his or her deferred FERS annuity.
An employee who leaves federal service and who is enrolled in the Federal Long-Term Care Insurance Program (FLTCIP) may retain his FLTCIP insurance after leaving federal service. However, since the departed employee will not be receiving a paycheck or an annuity check from a federal agency or from OPM, the departed employee must make arrangements with the FLTCIP (https://www.ltcfeds.com) to have the individual’s FLTCIP premiums deducted from a personal checking or savings account.
A departed FERS employee who elects a deferred retirement must notify OPM’s Retirement Office two to three months before the employee is eligible to receive his or her first FERS annuity check. To do so, the departed employee must download from www.opm.gov/forms Form RI 92-19 (Application for Deferred or Postponed Retirement).
Form 92-19 must be filled out and mailed to OPM’s Retirement Processing office located in Boyars, PA (address is on the form). Note that if the departed employee does not complete and submit to OPM’s Retirement Office a complete Form RI 92-19, the departed employee will not receive his or her deferred annuity. The following example illustrates:
Example 4. Jessica left federal service in 2014 with 24 years of federal service. Jessica was age 50 when she left federal service. She will become 60 years old on June 26, 2024. Jessica will need to download Form RI 92-19 sometime in early April 2024, complete and submit Form 92-19 to OPM’s Retirement Office in order for OPM’s Retirement Office to calculate her deferred FERS annuity. Jessica’s first deferred FERS annuity check should be dated July 1, 2024.
In adjudicating a departed employee’s retirement application and calculating the FERS annuity, OPM’s Retirement Office uses the departed employee’s:
(1) Years/months of federal service at the time of the employee’s departure; and
(2) High-three average salary at the time of the employee’s departure from federal service. Note any unused sick leave on the day a federal employee leaves federal service will not be used in the calculation of the deferred annuity.
If a former employee who had less than 10 years of creditable service at the time of leaving federal service and dies before he or she has reached age 62, then no survivor annuity will be paid. In that case, the deceased former employee’s FERS contributions (that remained in the FERS Retirement and Disability Fund) are paid to beneficiaries via Form SF 3102 (Designation of Beneficiary of FERS Contributions).
If a former employee dies before applying for a deferred annuity and had at least 10 years of creditable service (including five years of creditable civilian service and a surviving spouse who was married to the employee at the time of the former employee’s separation from federal service (or an eligible former spouse to whom he or she was married for at least 9 months while in federal service), then the surviving spouse or former spouse is entitled to a spousal survivor annuity.
No children survivor annuity is payable to the children of a former employee who dies before receiving his or her first deferred annuity check.
Former employees eligible for a deferred retirement and who will receive a deferred FERS annuity are not eligible for the FERS retiree annuity supplement.
FERS annuitants are eligible to a receive cost-of-living adjustment (COLA) to their FERS annuity starting on January 1 after the year they become age 62. This means that a former FERS-covered employee with more than 19 years of service who is eligible for a deferred retirement and is eligible to start receiving his or her FERS annuity before age 62 will not be eligible to receive a COLA to their FERS annuity until January 1 after the year after they become age 62.
Former FERS-covered employees with less than 20 years of service, and therefore are not eligible to start receiving their FERS annuity until the month after they become age 62, will therefore be eligible for their first COLA January 1 the year after their deferred annuity starts.
