Federal employees hired into federal service after Dec. 31, 1983 as permanent employees are placed in the Federal Employees Retirement System (FERS). FERS employees who are eligible to retire under the immediate retirement rules receive an unreduced FERS annuity if they meet the minimum age and years of service requirements.
Table 1 summarizes the three combinations of minimum age and years of service that will allow a FERS employee to retire under an immediate retirement and receive an unreduced annuity.
There are FERS employees who have reached their MRA but they do not have at least 30 years of service allowing them to retire under the immediate retirement rules and receive an unreduced FERS annuity. They have reached their MRA but have between 10 and 29 years of service.
This column discusses the rules that apply to a reduced optional retirement referred to as an MRA+10 or an MRA+20 FERS retirement. This type of immediate retirement allows an eligible FERS employee to receive an immediate FERS annuity as early as the employee’s MRA and with as little as 10 years of FERS service.
An employee is eligible to retire optionally under FERS with an immediate (but as will be explained – reduced) FERS annuity if he or she meets all of the following requirements:
(1) Minimum civilian service;
(2) Has reached his or her MRA;
(3) Minimum 10 years of creditable FERS service;
(4) Separated from a civil service job subject to FERS coverage; and
(5) No entitlement to an immediate annuity based on meeting minimum age and service. These requirements are now discussed.
Minimum Civilian Service
An employee must have at least five years of creditable civilian service to be eligible for an MRA + 10 or MRA + 20 FERS retirement. Creditable civilian service for this purpose includes:
• Service for which full FERS contributions made via payroll deduction (equal to (a) 0.8 percent of gross pay each pay period if the employee was hired before 1/1/2013, 3.1 percent of gross pay each pay period if the employee was hired during 2013, and 4.4 percent of gross pay each pay period if the employee was hired after 12/31/2013) were made to the FERS Retirement and Disability Fund (and not refunded).
• “Nondeduction” service – temporary or intermittent service (performed prior to January 1, 1989) – for which a full deposit including interest charges was made, and
• Service for which full Social Security taxes and full or reduced CSRS deductions taken. This assumes the CSRS deductions were not refunded after the employee became covered by FERS.
The following types of service performed under FERS are not creditable toward the five-year minimum service requirement:
• Service performed for which a refund of FERS deductions was taken
• Any period of nondeduction service performed before 1989 for which a full deposit including interest charges was not made, and
• “Nondeduction” service performed after Dec. 31,1988 in which a deposit is not permitted.
Minimum Retirement Age (MRA)
MRA is the earliest age at which an employee may retire with an immediate (reduced) FERS annuity after 10 to 29 years of service or with an unreduced annuity a minimum 30 years of service. A FERS employee’s MRA is between age 55 and age 57 depending on which year the employee was born. The MRA is presented in Table 2. above. The following two examples illustrate:
Example 1. Caroline was born March 17,1965 and is currently 57 years old. She entered federal service as a FERS employee on June 22,2000 and has worked continuously until now. She will have 22 years of federal (FERS) service as of June 22,2022. Caroline is eligible for an “MRA+20” optional retirement because: (1) She has reached her MRA of 56 years and 2 months; and (2) She has between 20 and 29 years of creditable FERS service.
Example 2. Craig was born Feb. 2,1966 and is currently 56 and 3 months old. His MRA is 56 years and 4 months. Craig entered federal service in January 2016. He also served in the military with five years of active duty for which he made a full FERS military deposit. As of May 10, 2022, Craig has a total of 11 years of creditable FERS) service – six years FERS service (in which 4.4 percent of his payment was deducted and contributed to the FERS Retirement and Disability Fund) and five years of “bought-back” military service. Craig will be eligible for an MIRA+10 optional retirement as of June 2,2022 because: (1) Craig will have reached his MRA of 56 years and 4 months; and (2) Craig will have at least 10 years of FERS service of which the minimum five years are civilian service in which FERS deductions were made from Craig’s paycheck.
Ten-Year Service Requirement
An employee must have at least 10 years of creditable combined civilian and “bought -back” military, service to be eligible for an MIRA+10 retirement under FERS. Note the following:
• Creditable civilian service is explained above under “Minimum Civilian Service”
• Under FERS, post-1956 military service cannot be used to meet the 10-year service requirement unless the employee makes a full deposit (including any interest due) before separation from federal service, and
• When the employee reaches his or her MRA and is eligible for the “MRA+10” retirement, the employee must be separated from federal service is a job positions covered by FERS.
No Entitlement Under Regular Immediate FERS Retirement
In order to apply for the MRA+10 or the MRA+20 optional retirement, a FERS-covered employee cannot be entitled to an immediate retirement under the regular voluntary rules of FERS. For example, an employee who reaches age 60 with has 20 years of FERS service is eligible for an immediate (and unreduced FERS annuity) retirement. This means that the employee has met one of the age and service requirements shown in Table 3 below at the time of separation from federal services.
Application for an MRA+10 or MRA+20 FERS Retirement and Commencing Date of Retirement
A FERS employee who is eligible for and decides to retire under the MRA+10 or MRA+20 FERS retirement option must download from www.opm.gov the FERS “Application for Immediate Retirement” form (Form SF 3107) and fill out the application. Once the employee has completed the application form, he or she should submit the form to his or her Human Resources or Personnel Office.
The commencing (the “effective”) date of an MRA +10 or MRA+20 retirement is the first day of the month following the employee’s separation from federal service. The following two examples illustrate:
Example 3. Judy, age 57, retired from federal service on Jan. 31, 2022, with 12 years of FERS service under the “MRA + 10” retirement option. Judy’s retirement became effective on Feb. 1, 2022, and she received her first FERS annuity check on March 1, 2022.
Example 4. Howard, age 57, retired from federal service under FERS with 22 years of federal service on Feb. 3,2022 under the “MRA+20” retirement option. Howard’s retirement started on March 1,2022 and he received his first FERS annuity check on April 1, 2022.
FERS Annuity Reduction for Age
For employees under age 62 who retire under the MRA+10 immediate retirement option with 10 to 19 years of service, the basic FERS annuity is reduced by 5/12 of 1 percent for each full month (5 percent per year) by which the commencing date of the FERS annuity precedes the 62nd birthday of the employee. The reduction is permanent and does not stop when the retiree reaches age 62. The following example illustrates:
Example 5. Madeline is a FERS employee who will retire on May 31, 2022. Madeline was born January 31, 1966. At retirement, Madeline will be 56 years and 4 months old and have 15 years of creditable service and a high-three average salary of $100,000. She also has six months of unused sick leave that will be used in the calculation of her FERS annuity. She will become age 62 on January 31, 2028.
Madeline’s unreduced starting FERS annuity is 15.5 years (15 years of service and 0.5 year of unused sick leave) times 1 percent times $100,000 equals $15,500. Madeline will not be 62 years old for 5 years and 8 months (or 68 full months). The reduction in her annuity is therefore equal to:
68 months times 5/12 times 1 percent equals 28.33 percent
28.33 percent times $15,500 equals $4,392.
Madeline’s FERS annual annuity will be permanently reduced by $4,392.
For employees under age 60 who retire under the “MRA + 20” immediate retirement option with 20 to 29 years of service, the FERS annuity is reduced by 5/12 of 1 percent for each full month by which the commencing date of the FERS annuity precedes the 60th birthday of the employee. The reduction is 5 percent per year the employee is under age 60. The reduction is permanent and does not stop when the employee reaches age 60.
The following example illustrates.
Example 6. Shawn is a FERS employee who will retire on July 30, 2022. At retirement, Shawn will be 57 years old (born July 25, 1965), have 23 years of creditable FERS service, and have a high-three average salary of $150,000. He will also have a year’s worth of unused sick leave that will be used in the calculation of his FERS annuity. He will retire on July 30,2022 under the “MRA + 20” retirement option with an effective retirement date of Aug. 1, 2022.
Shawn’s unreduced starting FERS annuity will be:
24 years (23 years of service and 1 year worth of unused sick leave) times 1 percent times $150,000
equals $36,000
Shawn will not be 60 years old for three years: The reduction in his FERS annuity will therefore be equal to:
36 months (3 years) times 5/12 of 1 percent per month
equals 15 percent
15 percent times $36,000 equals $5,400
Shawn’s FERS annuity will be permanently reduced by $5,400 per year.
Continuation of FEHB, FEGLI, FEFDVIP and FLTCIP Insurance Benefits Under the MRA+10 and MRA+20 Retirement Option
FERS employees who retire under the MRA+10 or MRA+20 retirement options are eligible to keep their federal employee insurances in retirement. These insurance benefits include health insurance offered through the Federal Employee Health Benefits or FEHB program, life insurance offered through the Federal Employee Group Life Insurance or FEGLI program, dental and vision insurance offered through the Federal Employee Dental and Vision Insurance program or FEDVIP, and long-term care insurance offered through the Federal Long Term Care Insurance Program or FLTCIP.
However, the FEHB program and the FEGLI program do require that a retiring employee must have been a participant in the respective programs for all of the last five years of the employee’s federal service continuously ending on the effective date of employee’s retirement. The other two insurance programs (FEDVIP and FLTCIP) require no amount of participation prior to the employee’s retirement from federal service.
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Edward A. Zurndorfer is a CERTIFIED FINANCIAL PLANNER®, Chartered Life Underwriter, Chartered Financial Consultant, Registered Health Underwriter and Enrolled Agent in Silver Spring, MD. Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, located at 833 Bromley Street Suite A, Silver Spring, MD 20902-3019