Federal Employees May be Eligible for a Deferred Retirement

A recent column, “Options for Federal Employees Who Leave Federal Service Before Becoming Eligible for Retirement” discussed options for employees who leave federal service before becoming eligible for immediate retirement. One option discussed in that column was for a departing employee to request a refund of their CSRS or FERS retirement contributions. The other option discussed in this column was for a departing employee with at least five years of federal service to apply for a deferred retirement.

This column will present the rules for FERS deferred retirement. Deferred retirement for a CSRS or CSRS Offset employee is not discussed because current CSRS/CSRS Offset employees (the last of whom were hired over 40 years ago, before 1984) are most likely over age 62 and, with their service time (minimum five years), are eligible for immediate retirement. Because they are eligible for immediate retirement, they are ineligible for CSRS deferred retirement.

SEE ALSO: Understanding Your Federal Retirement Options

FERS Deferred Retirement Eligibility Rules and Benefits

A departing FERS employee must have at least five years of creditable civilian service in order to be eligible for deferred retirement. Creditable civilian service for this purpose includes:

(1) Service for which full FERS contributions were deducted via payroll deduction and deposited into the FERS Retirement and Disability Fund;

(2) Non-deduction (temporary or intermittent) service performed prior to January 1, 1989 for which a full FERS deposit including interest charges, was made;

(3) Service for which Social Security (FICA) taxes and full or reduced CSRS deductions were taken – sometimes called CSRS interim or CSRS Offset service – if the CSRS deductions were not refunded. Note that full military deposits resulting in active-duty time credit for FERS eligibility to retire are not used in the determination of the minimum five-year creditable FERS service requirement.

In addition to having a minimum of five years of creditable civilian service, a departing FERS employee who is requesting a FERS deferred retirement must not be eligible for an “immediate” FERS retirement. Immediate FERS retirement means that a FERS employe has met both the minimum age and minimum service time under FERS required to retire and will receive the first of lifetime monthly FERS annuity checks one to two months after the employee retires. On the other hand, with a FERS deferred retirement, an employee leaves federal service before reaching the minimum age to retire and will have to apply for his or her first FERS annuity check at a later date. The deferred annuity starting date will depend on the departing employee’s completed years of FERS service, as summarized in Table 1:

Table 1. FERS Deferred Annuity Commencing Dates According to Years of Completed FERS Service

Table 2. FERS MRA According to Birth Year

Procedures Involved in Effecting a FERS Deferred Retirement

The following steps and actions need to be taken by a FERS employee who is leaving federal service and requesting a deferred retirement.

1. The departing employee notifies his or her agency’s Personnel Office or Human Resources Office that the employee intends to leave federal service and qualify for a deferred retirement in which the departing employee will receive their first FERS annuity check at a later age.

2. The departing employee works his or her last pay period. The employee will get paid for the last pay period he or she works. Like an employee who retires on an immediate retirement, the departing employee will get paid in a lump-sum payment for all unused annual leave hours. Both the payment for the last pay period and for the unused annual leave hours are made by the departing employee’s payroll processing office. The payments are directly deposited into the departing employee’s bank account within two to four weeks after the employee leaves federal service.

3. The departing employee with post-1956 military service and who wants to make a military deposit must complete his or her deposit before separation from federal service. In so doing, the departing employee will receive credit for the years covering the military service in the computation of the departing employee’s FERS annuity.

4. The departing employee will need to file with OPM’s Retirement Office Form RI 92-19 (Application for Deferred or Postponed Retirement Federal Employees Retirement System) about two to three months before the deferred annuity commencing date, as shown in Table 1. Note that it is the departed employee’s responsibility to fill out and submit Form RI 92-19 at the appropriate time. If the departing employee is late in submitting Form RI 92-19, OPM’s retirement office cannot process the deferred retirement application and the departed employee will not receive a deferred FERS annuity monthly payment. If and when OPM’s Retirement Office does process the application for deferred retirement, the deferred retirement will not be made retroactive to the month it was supposed to have become effective. This means that the deferred annuitant will not receive any retroactive FERS annuity checks.

OPM Retirement Office Adjudication of the Employee’s Application for Deferred Retirement

Upon receiving a departed employee’s Form RI 92-19, OPM’s retirement office will calculate the deferred annuity. The deferred annuity amount is calculated based on the employee’s length of service and high-three average salary as determined on the employee’s date of separation from federal service. Unused sick leave at the time of separation is forfeited and not used for FERS annuity calculation purposes, as is done for FERS employees who retire under an immediate retirement or early retirement. The deferred annuity can include a survivor annuity, maximum or less than maximum, with a reduction to the annuity of 10 percent or five percent depending on the amount of a survivor annuity chosen.

How Deferred Retirement Affects Federal Employee Insurance and the TSP

Upon separating from federal service, a departing employee permanently loses his or her federal employee health insurance (FEHB) and federal employee group life insurance (FEGLI) benefits. Also lost are dental and vision insurance benefits offered though the Federal Employee Dental and Vision Insurance Program (FEDVIP). If the departing employee is currently enrolled in the Federal Long-Term Care Insurance Program (FLTCIP), then the FLTCIP long-term care insurance may be retained after the employee leaves federal service. However, the departing employee has to make arrangements with Long Term Partners to make arrangements to pay the monthly premiums. This is because the departing employee will not be receiving a federal paycheck from which the FLTCIP premiums can be deducted. More information can be obtained at www.ltcfeds.com.

Departing employees with Thrift Savings Plan (TSP) accounts can leave their TSP accounts, traditional and Roth, alone. Departing employees may not contribute to the TSP. They can make interfund transfers and can also make indirect contributions (from traditional IRAs and qualified retirement plans) to their existing traditional TSP and Roth TSP accounts via direct rollovers.

Those employees who depart from federal service before age 55 must wait until they are age 59.5 to withdraw their TSP accounts in order to not be subject to a 10 percent early withdrawal penalty.