How to Deal With OPM’s Delay in Retirement Application Processing

Over the years, federal retirees have realized that when an employee retires, the time from the date of retirement to the date the newly retired employee receives his or her first full CSRS or FERS annuity check may be in the range of three to ten months. While a newly retired employee will receive “interim” annuity checks (equal to about 30 to 80 percent of the full amount), these “interim” annuity checks for many new retirees may result in a cash-flow problem.

This column discusses some of the problems causing the delays in full annuity payments and what soon-to-be retiring employees should do in anticipation of receiving interim annuity checks and possible cash flow problems.

SEE ALSO:  Update on OPM’s Retirement Application Backlog

The Office of Personnel Management (OPM) retirement office processing center in Boyers, PA is responsible for adjudicating retirement applications. OPM is well aware of the processing delays for retirement applications. OPM keeps a monthly tab on retirement application processing and delays. OPM periodically publishes updates on its monthly retirement application processing. One reason for delays in retirement plan adjudication is that some Personnel and Human Resource Offices (who are responsible for mailing employee retirement applications to OPM) delay (for as much as a month) mailing the applications to OPM’s retirement processing center.

Some retirement applications are adjudicated faster than others. This means that some retirees receive their first full annuity checks sooner than other annuitants. According to OPM, the one thing that retiring employees can do to expedite the time for OPM to adjudicate their retirement applications is for employees to make sure that the portion of the retirement application they are responsible for is fully complete.

Necessary Forms for Retirement Applications

The following is a list of the necessary forms that are submitted in order to fully adjudicate a CSRS or FERS retirement application. Some of the items on the list are the responsibility of the retiring employee.

1. Application for immediate retirement – for CSRS/CSRS Offset employees – Form SF 2801; for FERS/ “Trans” FERS employees – SF 3107.

2. The notarized consent of a spouse if the spouse has agreed to receive less than the maximum spousal survivor benefit.

3. In case a retiring employee has been divorced and a former spouse was awarded a portion of the employee’s CSRS or FERS annuity, a certified copy of the divorce decree or court order.

4. Documentation of five years of coverage (during the last five years of service ending on the date of retirement) under the Federal Employees Health Benefits program in order to maintain health insurance coverage throughout retirement.

5. Documentation of five years of participation during the last five years of service ending on the retirement date, in the Federal Employees Group Life Insurance (FEGLI) program.

6. FEGLI life insurance form SF 2818 (Continuation of Life Insurance as an Annuitant or Compensationer)

7. Documentation of creditable civilian service that provides evidence of an employee’s federal service.

8. Documentation of military service, if any.

9. Updated beneficiary designation forms including for CSRS and CSRS Offset employees Form SF 2808; for FERS employees Form SF 3102; and for employees enrolled in the FEGLI program Form SF 2823.  The other major beneficiary form is for the Thrift Savings Plan (TSP) – Form TSP-3 should already be on file with the TSP Service Office.

10. Voluntary contribution election for CSRS and CSRS Offset employees who have established a Voluntary Contributions Program (VCP) account – Form RI 138-24 (Voluntary Contributions Election)

Reasons for Delay in Retirement Applications

OPM cites three main reasons for delay in retirement applications.

They are:

(1) The retirement package is incomplete. For example, important documentation is missing or documents are missing a signature;

(2) The retirement application contains elements that create additional processing requirements such as a court order; and

(3) The applicant has to make multiple decisions such as whether to pay a deposit for temporary (non-deposit) Federal service or prior military service, to make a redeposit for withdrawn CSRS or FERS contributions, or to make voluntary contributions to the CSRS Retirement and Disability Fund under the Voluntary Contribution Program.

It is important to keep in mind that OPM’s Retirement Services unit tries to process cases in the order in which they arrive. But retirement application processing can take longer in the case of retirement applications accompanied by a court order to pay benefits to a former spouse.

Given the reality of the situation and accepting the fact that OPM’s Retirement Services unit will be facing a retirement application backlog for most probably a few more years, what should employees who intend to retire within the next five to 10 years do in order to solve a cash flow problem while waiting for their first full CSRS or FERS annuity check? The following are some suggestions:

What Retiring Employees Should Do to Minimize Cash Flow Problems

1. Build up unused annual leave hours. When an employee retires from federal service, any unused annual leave hours will be paid to the retiring employee. This lump sum payment, while fully subject to income and payroll taxes, is paid by the retiring employee’s payroll office within a few weeks after the employee retires. Some employees will get paid for as much as six to seven weeks of unused annual leave and can use these funds to help pay their bills while waiting for their first full annuity check.

2. Seek employment, at least on a temporary basis. Many employees after retiring from Federal service seek employment in the private sector, at least for a few years. In so doing, they can earn as much as they want without affecting their CSRS or FERS annuities. The only federal retirement income that is affected by salary or self-employment income is the FERS annuity supplement (available to FERS employees who retire between their minimum retirement age and age 62). Note that the FERS annuity supplement is not paid during the “interim” retirement period and will be paid when the retiring FERS employee’s retirement application has been fully adjudicated.

3. Start Thrift Savings Plan (TSP) withdrawals. A retiring employee can start withdrawing from his or her TSP account starting 30 days after his or her retirement date. With the more flexible TSP withdrawal rules, annuitants have more flexibility in withdrawing from their TSP accounts. Annuitants should be aware that since the TSP has to last throughout a retired employee’s retirement years, newly retired employees should attempt to limit their TSP withdrawals during the early years of their retirement. Penalty-free traditional TSP withdrawals can be made if the annuitant retires from Federal service sometime during the year the retiring employee becomes age 55. Roth TSP withdrawals should not be made until a retired employee is age 59.5.

4. Start receiving Social Security benefits, as early as age 62. Annuitants should be careful about starting to receive their Social Security monthly retirement benefit at age 62 since starting one’s Social Security before full retirement age (FRA) (ages 65 to 67, depending on which year an individual was born) will result in a permanent reduction to one’s Social Security monthly retirement benefit. Drawing Social Security before one’s FRA and working could also reduce or eliminate one’s monthly benefit due to the Social Security “earnings” test.

5. Increase the amount of one’s “liquid” assets (cash), to as much as one year’s worth of one’s average monthly expenses. In general, both employees and retirees should have liquid assets – money invested in a passbook savings account or money market account. Ideally there should in the liquid account an amount equal to at least three to six months of their average monthly expenses. Retiring employees are advised to have in the order of six months to a year’s worth of their average monthly expenses. These liquid asset funds will help pay expenses during the “interim” annuity period.

What Retiring Employees Are Advised Not to Do

Taking out short-term loans such as home equity loans is not recommended. Adding more debt to one’s retirement is not a good move. Under the Tax Cuts and Jobs Acts of 2017 all home equity loan interest is nondeductible for federal income tax purposes if the home equity loan proceeds are not used to improve one’s home.