With major reorganizations pending throughout the government, many consider their options when facing a Reduction in Force or other adverse actions. Deferred and early retirements are viable options for those who don’t have the service time required to take an immediate Voluntary Retirement.
Unfortunately, I receive emails from former employees asking if they are eligible for retirement benefits. Many request a refund of their FERS and CSRS retirement contributions when they leave federal service, but are often unaware of the benefits of a deferred annuity.
Individuals who leave federal service can transfer their THRIFT savings 401c plan without impacting their ability to elect a deferred retirement. The THRIFT plan is totally separate from your retirement plan contributions.
WHAT IS A DEFERRED RETIREMENT?
If you don’t withdraw your FERS or CSRS retirement contributions when you leave federal service, you can apply for a deferred retirement/annuity. Former Federal employees covered by the Federal Employees Retirement System (FERS) or the Civil Service Retirement System (CSRS) may be eligible for a deferred annuity at age 62 with 5 years or more of creditable federal service or age 60 with 20 years or more of creditable federal civil service.
Deferred retirement is for former federal employees who were not entitled to an immediate voluntary retirement upon separating from Federal service but will become entitled to an annuity after reaching a certain age.
Former employees may opt for a deferred retirement if they aren’t eligible for an immediate annuity within one month of separation from their agency, meet the minimum civilian service requirements, and don’t request and receive a refund of their retirement contributions after separating from service or transferring to a non-covered position.
Your deferred annuity is based on the length of service and the high three-year average salary that is in effect when you are separated from federal service.
FERS REQUIREMENTS
A deferred annuity is available if you are 62 years old with 5 years of creditable service. If you have at least 5 years of creditable civilian service, you are eligible for a deferred annuity beginning the first day of the month after you reach age 62.
Those who reached their Minimum Retirement Age (MRA) with at least 10 years of creditable service, including 5 years of civilian service, are eligible for a deferred annuity beginning the first day of the month after they reach their MRA.
Under a deferred MRA + 10 retirement, your annuity will be reduced by 5/12 of 1 percent (5 percent per year) for each month by which your annuity commencing date precedes your 62nd birthday. However, you can postpone the commencing date of your annuity to reduce or eliminate this reduction.
If you decide to postpone the commencing date of your annuity, the age reduction will decrease based on how close your elected annuity commencing date is to your 62nd birthday. In other words, the closer your annuity commences to your 62nd birthday, the larger your annuity will be.
Special Circumstances
The age reduction is eliminated if you have 20 years of creditable service and elect to have your annuity commence at age 60. With 30 years of creditable service, your annuity will not have an age reduction.
Deferred Annuity Calculation
The FERS retirement annuity is calculated by multiplying 1% of your high 3-year average pay by years of creditable service. If you retire at age 60 or later with at least 5 years of creditable service, a factor of 1% is used. With a high three average salary of $78,000 when you leave federal service, a person with 10 years of service would receive $7,800 a year for a deferred retirement at age 60.
If you have 20 years and take your deferred annuity at age 62, a factor of 1.1% is used.
EARLY RETIREMENT OFFERS
Many agencies are now either considering or have already applied to OPM for approval to offer Voluntary Early Retirements (VERAs) and possibly Voluntary Separation Incentive Payments (VSIPs) as well.
Now is the time to assess whether a VERA, if offered, would be the right choice for you based on your circumstances and desire to leave early.
Most agencies try to accomplish reductions through attrition first or offer limited deferred resignations before initiating other actions that are more disruptive, costly, and challenging to implement. Agencies may also provide a Voluntary Separation Incentive Payment (VSIP) of up to $25,000 for select positions to encourage more to leave.
If all else fails, agencies may need to utilize Reduction-in-Force (RIF) procedures to meet their targets, stay within their allocated budgets, and continue to provide essential services.
WHY IS STAFFING AT THE TOP OF THE LIST?
The majority of an agency’s budget, up to 90% in many cases, is used for payroll, compensation, and benefits (PC&B). When I was with the FAA, I recall that PC&B consumed over 80% of the entire agency budget. When agencies need funds, they often delay hiring until the end of the fiscal year to use the money saved from PC&B to cover needed services, fund lower-priority projects, and purchase supplies that were put on hold.
That’s why, at the end of the year, many agencies have excess funds that they allocate to the field to purchase a laundry list of projects and items. One of my managerial tasks was to compile annually a comprehensive list of projects and supplies, and to be ready to spend the funds before September 30th.
Hiring was the same way; at the end of the fiscal year, we pushed to fill critical vacancies in fear of losing those funds next year if we didn’t fill the positions.
The high PC&B costs agencies naturally incur narrow their options when it comes time to cut. If only 10 to 20 percent of your entire budget funds operations, staffing reductions are often their only option to reduce costs and still provide required services.
THE LAST WORD
Anyone considering a significant move, such as accepting an early out, needs to investigate the opportunity from all perspectives. If you think early retirement will be offered in your agency, the earlier you start your research, the more prepared you will be when the offer is made.
Additionally, this early look at your finances and prospects will aid you in developing your overall retirement plans in the future. Perform a Retirement Cost Analysis and use our free downloadable spreadsheet to help with your personal review.
Leaving early can create new lucrative opportunities for highly skilled and qualified federal workers, including those with security clearances. As agencies cut staffing, one way for them to continue providing needed services is to contract out some of the work they can no longer do.
This happens more often than not, and contracting work out doesn’t come with added payroll, benefits, and annuities. Explore the numerous openings at contracting firms that serve the federal sector, and you will be surprised by the number of available positions.
