A Better Understanding of How the Discontinued Service Retirement Works

The only federal retirement offering not to be thought of a voluntarily is Discontinued Service Retirement, which a person becomes eligible for if they leave for reasons that don’t include delinquency or misconduct and meet both the length of service and age requirements such as:

• At least 50 years of age and 20 years of service
• Any age and 25 years of service

In the two cases above, a minimum of five years of creditable civilian service must be noted.
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While the Office of Personnel Management has final say in determining if a separation is voluntary or involuntary, the actions listed below are considered involuntary separation:

• Abolishment of position
• Incumbent’s term of office expires
• Failure to maintain position’s qualification requirements (given that the separation is non-disciplinary and the agency is the one who initiated the action)
• Little to no funds available
• Reduction-in-force
• Relocation outside commuting area without the existence of a mobility agreement
• Removal of Senior Executive Service for unsatisfactory performance (as noted by title 5, U.S.C., Ch. 43, Subchapter II
• Separation of National Guard technician due to loss of rank of military membership, as noted to hold such a position
• Separation while on probation for failing to meet performance level (not due to misconduct)
• Transfer of work outside the commuting area

The separation instances of unsatisfactory performance and misconduct are different. A person that can’t do something could be eligible for the Discontinued Retirement Service while the person who won’t do it is unlikely to qualify for it.

If the separation meets any of the criteria above, but an employee is offered a reasonable position and decline, they may not be entitled to the Discontinued Retirement Service. An offer is viewed as being reasonable if the offer is made within the same agency, same tenure group, same commuting region and is within two grades of the prior position held by the employee.

The DSR is similar to early retirement in that it offers up to two percent a year or 1/6 of one percent each month decrease in the CSRS retiree’s pension for every month under 55 years of age. A FERS DSR retiree has no age-based decrease in their pension but cannot get a cost-of-living increased until they turn 62 years old.

Barbara Haga, an employee with Federal HR Services, Inc., warns HR practitioners who deal with the inability to perform or poor performance cases need to be mindful of the extraordinary provisions that relate to the actions.

For example, an employee that can retire under the DSR for a disability or illness or unsatisfactory performance must have gotten notice of the agency’s decision to remove. If the performance action was made under the 5 CFR 432, it would have included given the employee a chance to show satisfactory performance but still were not able to meet the standards applied.

The action to remove is based for their retirement, which means the agency cannot settle the case and the decision notice gives them a clean record.

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Difference between CSRS and FERS

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TSP CSRS, or the Civil Service Retirement System, offers the Thrift Savings Plan as a supplement to your CSRS Annuity or military pay- as of January 1st, 2018, military employees also participate in a military TSP.

TSP and FERS, or Federal Employees’ Retirement System, makes your TSP one part of a three-part retirement plan. This also includes the FERS Basic Annuity and Social Security.

The difference between the FERS or CSRS Annuity and the TSP is that the annuity is based on your years of service, rather than how much you have contributed, and is also voluntary, as opposed to the annuity.

Regardless of which retirement system you qualify for, contributing to the Thrift Savings Plan is vital to your retirement, especially if you contribute early. TSP compound interest means that the earlier you start to make contributions, the better. However, if you did not start saving at an earlier point, committing to a steady and consistent contribution schedule will almost always produce positive results.

How does TSP work?

If you are a new federal employee, you most likely have an established account and were enrolled in a 3% payroll deduction. If you were hired before July 31st, 2010, you were not automatically enrolled in a TSP account and will need to create it yourself. For CSRS employees and members of the uniformed services, you must elect to contribute to the TSP. You are also not eligible for agency contributions.

You can elect to stop or change your contributions at any time. Check with your payroll office or agency to find out how to sign up for TSP. You may be required to use your agency or service’s electronic system, or you may have to submit Form TSP-1 (Form TSP-U-1 for uniformed services). The Thrift Savings Plan website has the forms available if your agency or service accepts them.

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TSP funds

There are five core funds in the Thrift Savings Plan- four of them are index funds, which mean that they are exactly matched to a broad market index.

  • G Fund (Government Securities Investment Fund)
    • This fund does not invest in an index. The only fund that it is connected to is a nonmarketable treasury security issued for the TSP by the U.S. Lowest return and risk
  • F Fund (Fixed Income Investment Index Fund)
    • Matches the Barclays Capital U.S. Aggregate Bond Index. Slightly higher return and slightly higher risk.
  • C Fund (Common Stock Index Investment Fund)
    • Out of the three stock funds in the TSP, the C is considered the most conservative. It is connected to the Standard and Poor’s 500 Index, which has greater volatility than either the G or F funds.
  • S Fund (Small Capitalization Stock Index Fund)
    • This fund is connected to the Dow Jones U.S. Completion Total Stock Market Index, which is a total of 4,500 companies that fall outside of the S&P 500’s list. Potential for large growth, but also large losses.
  • I Fund (International Stock Investment Fund)
    • The only internationally invested fund. High risk, but potentially high reward.

There is another option for Thrift Savings Plan investment funds- the L funds. These are funds that actually invest in a variety of all the other funds and target a specific retirement date, initially investing in the more aggressive funds and slowly moving into the more stable bonds funds as retirement approaches.

How to change my TSP contribution

If you have not made a contribution election through your agency to start contributions or change the way your contributions work, there are a few steps:

  1. Ask your personnel or benefits office whether your agency or service handles enrollments
  2. Determine the amount you want to contribute and whether you want a Roth or Traditional TSP
  3. Return your completed TSP-1 or TSP-U-1 to your employer to get your payroll deductions set up. Your election should be effective no later than the first full pay period after your agency or service receives it.
TSP and FERS are important parts of your retirement
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Withdrawing from the TSP

You have several withdrawal options that you can choose from. Partial withdrawals are allowed in a single payment. You can also make a full withdrawal with any one or any combination of the following methods:

  • A single (lump sum) payment
  • A series of monthly payments
  • A life annuity (Thrift Savings Plan Lifetime payment options).

A combination of any of these three full withdrawal options is called a “mixed withdrawal.” You can have the Thrift Savings Plan transfer all or part of any single payment or, in some cases, a series of monthly payments, to a traditional IRA or an eligible employer plan by completing the TSP-70 form. Payments to you can be deposited directly into your checking or savings account using electronic funds transfer (EFT).

Spouse’s Rights

If you are a married Thrift Savings Plan participant (even if you are separated from your spouse), spouses’ rights apply to annuity purchases. If you are a married FERS or uniformed services participant with a total account balance of more than $3,500 and you are making a full withdrawal of your account, your spouse is entitled by law to an annuity with a 50% survivor benefit, level payments, and no cash refund. If you choose any other withdrawal option or combination of options by which your entire account balance is not used to purchase this particular type of annuity, your spouse must sign the statement on your withdrawal form that waives his or her right to that annuity.

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