Understanding the FERS Retirement Options

Federal employees who are covered by the Federal Employees Retirement System (FERS) have various retirement options. It is important for all FERS employees, no matter what stage of their federal service they are in — that is, recently hired, mid-career, or within five to 10 years of retirement age –to have a full understanding of their retirement options.

This will allow them to establish and hopefully meet their goal of retiring when they are ready to retire. This column presents and explains the various retirement options for FERS-covered employees.

SEE ALSO: How to Calculate a Retiring Federal Employee’s Starting FERS Gross Annuity

FERS Retirement Eligiblity

In order to be eligible to retire immediately under FERS, an employee must fulfill the employee must:

(1) Have at least five years of “creditable service”;

(2) Have reached a minimum age; and

(3) Be enrolled in FERS on the last day of service used to establish the employee’s retirement eligibility.

FERS Creditable Service

With respect to “creditable service,” this means that the employee contributed to the FERS Retirement and Disability Fund bi-weekly via payroll deduction. In particular, for non-Special Provision Employees, a percentage (0.8, 3.1, or 4.4 percent (the percentage depending on when the employee was initially hired) of the employee’s gross salary was deducted and deposited into the FERS Retirement and Disability Fund. For Special Provision Employees – this includes Law Enforcement Officers, Firefighters, Custom Border and Protection Officers, and Air Traffic Controllers – the percentage of the employees bi-weekly salary deducted is larger (1.3, 3.6 or 4.9 percent; the percentage depending in which year the employee was initially hired).

Another way that FERS-covered employee can count federal service as “creditable” is by making a full deposit for federal service that was considered temporary (“non-deduction” service) in which FERS retirement deductions were not made. This temporary service must have occurred before January 1,1989 and the employee made a full FERS deposit, including any interest charges. Note that a military deposit for FERS retirement does not count towards the minimum five-year creditable civilian service.

FERS Retirement Options

The various FERS retirement options (optional no reduction, MRA + 10, MRA + 20, optional early out, involuntary discontinued service, disability, deferred) for non-Special Provision Employees is presented in Table 1 below. The types of FERS retirement for Special Provision Employees is presented in Table 2 below.

Table 1. FERS Types of Retirement: Non-Special Provision Employees

Table 2. Types of Retirement: Special Provision Employees

The following is a discussion of each type of retirement option, first for non-Special Provision Employees followed by retirement options for Special Provision Employees.

Regular FERS Retirement Options

1. Optional, no age reduction retirement. The minimum age and service requirements are: (1) Age 62 and five years; (2) Age 60 and 20 years; and (3) Minimum Retirement Age (MRA) and 30 years. MRA is determined by the retiring employee’s year of birth, as shown below in Table 3.

Table 3. FERS MRA

Note that in order for a FERS employee to retire under optional, no age reduction, the employee must be of minimum age and have the minimum years of FERS creditable service as of the day of retirement. No credit for service time or age is given for unused annual leave hours or unused sick leave hours.

2. “MRA + 10”, “MRA + 20” optional retirement (with annuity reduction due to age). The MRA + 10 and the MRA + 20 retirement options allows a FERS employee who has reached his or her MRA to retire with fewer than 30 years of service. With the “MRA + 10” retirement, FERS employees with between 10 years and less than 20 years can immediately retire. With the “MRA + 20” retirement, FERS employees with between 20 years and less than 30 years of service can immediately retire. However, retiring under the “MRA + 10” and “MRA + 20” retirement provisions will result in a reduction to the FERS annuity due to an age penalty.

The age penalty associated with the “MRA +10” retirement is for every year the FERS employee is under age 62 when he or she retires, the FERS annuity will be permanently reduced by 5 percent per year. The age penalty in the case of the “MRA + 20” retirement provision is similar except that 5 percent per year permanent penalty is 5 percent per year for every year the FERS employee is under 60 when he or she retires. The age penalty for both the “MRA + 10” and “MRA + 20” retirements can be reduced (even eliminated) if the FERS employee elects to postpone the start of his or her FERS annuity until age 62 (“MRA + 10” retirement) or until age 60 (“MRA + 20” retirement).

3. Optional, authorized early retirement. If a federal agency is undergoing a reduction-in-force (RIF), transfer function, or reorganization, then the agency may ask permission from the Office of Personnel Management to offer optional, early retirement in the form of a Voluntary Early Retirement Authority (VERA), with no buyout. Or request permission for a Voluntary Separation Incentive Payment (VSIP), with a buyout.

Federal employees working in an agency which is given authority to offer early retirement can retire before their MRA with no reduction to their FERS annuity. They will also be able to keep their FEHB and FEGLI insurance benefits, they meet the requirements to keep their FEHB and FEGLI insurance benefits.

4. Involuntary, discontinued service retirement. An employee’s separation from federal service must be involuntary, not removed for misconduct or delinquency. Retiring employes younger than MRA will receive an unreduced annuity based on their years of service and can keep their insurance benefits if they meet the requirements to keep their insurance benefits.

5. Disability retirement. An employee must be disabled for useful and efficient service in his or her current position and any other vacant position at the same grade or pay level within the employee’s commuting area and current agency for which the employees is qualified. Employee must apply for Social Security disability benefits.

6. Deferred retirement. An employee leaves federal service before he or she is eligible to retire. When the employee leaves federal service, the departing employee does not request a refund of FERS contributions and deposits the employee made while in federal service. The departed employee will receive his or her deferred annuity upon applying for it via Form RI 92-19 (downloadable at www.opm.gov/forms) at the following dates: (1) With 30 or more years of service, a few months before the employee reaches his or her MRA; (2) With at least 20 years of service but fewer than 30 years of service, a few months before the employee’s 60th birthday; and (3) With at least five years of service but fewer than 20 years of service, a few months before the employee’s 62nd birthday. All insurance benefits (FEHB, FEDVIP and FEGLI) are permanently lost when the employee leaves federal service and not restored when the departed employee starts receiving his or her annuity. Any unused sick leave the employee had at the time of leaving federal service permanently is lost and will not be used in the calculation of the FERS annuity.

7. Special Provision Employees (Law Enforcement Officer, Firefighter, Customs, Border and Protection Officer and Air Traffic Controller). These employees must meet a minimum service time in one of these job categories in order to retire at the minimum age. There is also mandatory retirement (age 56 or 57) with a minimum of years of service. If a Special Provision Employee leaves his or her job before reaching the minimum years of service required to retire under Special Provisions, and takes a non-Special Provision employee job position, then the employee must meet the requirements for an optional, no age reduction retirement, or the “MRA + 10” reduced retirement in order to retire under FERS. There is no deferred retirement associated with Special Provision employment.