Part 1
This article explores a retirement option for FERS employees known as deferred retirement. We’ll talk about the requirements for a FERS employee to choose deferred retirement and the benefits and drawbacks of it.
Some of the Reasons a FERS Employee Might Choose Deferred Retirement
To help understand how a deferred retirement might be the only option for a FERS-covered employee, we’ll look at two scenarios:
Scenario 1: A FERS-covered employee is ineligible to retire and wishes to leave federal employment rather than work the extra years required to qualify for immediate and unreduced FERS annuity retirement. Table 1 shows the three minimum age and years of service combinations that enable a FERS-covered employee to retire under an immediate and unreduced FERS annuity retirement.
Scenario 2: A FERS-covered employee is younger than their MRA, and their agency is undergoing a reduction in force (RIF), a substantial reorganization, or function transfers. The employee is ineligible for retirement and must quit government employment.
A FERS-covered employee is qualified for deferred retirement, and will receive a FERS annuity for the remainder of their life if they meet the following requirements:
• Satisfies the minimal criteria for civilian service.
• The employee doesn’t request a refund of their FERS Retirement and Disability Fund contributions while leaving federal service (made through payroll deduction while working under FERS).
• When the employee reaches the requisite age to begin collecting their FERS deferred annuity, they formally inform OPM‘s Retirement Office of their eligibility for the deferred annuity.
These requirements are explored and clarified more below.
Minimum Civilian Service
A FERS employee must have at least five years of creditable civilian service to be eligible for deferred retirement. Examples of creditable civilian service for this purpose include:
• Full-time or part-time permanent service in which full FERS payments were made to the FERS Retirement and Disability Fund through payroll deduction.
• “Nondeduction” (intermittent or temporary) service for which a total FERS deposit (including interest charges) was made before retirement from federal employment.
• Service for which full Social Security (FICA) payroll taxes and full or reduced CSRS deductions were deducted and not reimbursed.
• For employees eligible for a CSRS annuity component for their retirement (referred to as “Trans” FERS personnel) for deferred retirement:
(1) “Non-deduction” (temporary or intermittent) service subject to CSRS retirement regulations regardless of whether a deposit is made or is considered under the alternative annuity provisions.
(2) Service for which full CSRS retirement payments, typically 7% of salary, were deducted, even though CSRS contributions were returned and not re-deposited.
Non-creditable Civilian Service
The following forms of FERS service cannot be used to meet the five-year minimum civilian service requirement:
• FERS service for which a FERS-covered employee claimed a refund of FERS contributions paid through payroll deduction while the employee:
(1) Previously worked for the federal government.
(2) Resigned from the federal government and claimed a refund of FERS contributions (paid through payroll deduction).
(3) Returned to federal employment but didn’t re-deposit those contributions.
• Any non-deduction (temporary or intermittent) service undertaken before 1989 in which the entire FERS deposit required for FERS retirement eligibility requirements wasn’t completed before departure from service.
• “Non-deduction” (temporary or intermittent employment) conducted after December 31, 1988, unless included in a CSRS annuity component (applicable to a “Trans” FERS employee).
Please note that any unused sick leave time at the time of departure from federal employment would be permanently lost and hence not creditable for FERS retirement eligibility or the computation of the FERS pension, as will be detailed.
When Does a Deferred Annuity Start?
A FERS employee who retires through the deferred retirement option can earn their deferred FERS pension later. The commencement date of the departed employee’s deferred FERS retirement and first FERS annuity check will be determined by the number of years of creditable service the employee had at the time of their formal departure from federal employment.
Table 3 indicates the departing employee’s combination of years of creditable FERS service and the earliest age at which they’re entitled to receive their first deferred FERS annuity payment.
The following are some examples:
(1) As of May 2022, Bill has 32 years of FERS creditable service. Bill is 51 and has an MRA of 57, which he will reach in July 2028. If Bill retires under a deferred retirement plan, his deferred retirement will become effective in July 2028, and he will be eligible for his first FERS annuity check in August 2028.
(2) As of May 2022, Sandra has 23 years of FERS creditable service. Sandra is 48 and will be 60 in June 2034. If Sandra retires under a deferred retirement plan, her deferred retirement will become effective in June 2034, and she will be entitled to receive her first FERS annuity check in July 2034.
(3) Taylor, 38, departed the federal government in May 2017 after six years of FERS creditable service. Taylor will be 62 in August of 2046. Taylor’s deferred retirement will take effect in August 2046, and he will be entitled to his first FERS annuity payment in September 2046.
Contact Information:
Email: [email protected]
Phone: 6122163911
Bio:
Mickey Elfenbein specializes in working with Federal Employees relative to their retirement benefit plans, FEGLI, TSP, Social Security and Medicare, issues and solutions. Mr. Elfenbein’s mission is to help federal employees to understand their benefits, and to maximize their financial retirements while minimizing risk. Many of the federal benefit programs in place are complicated to understand and go through numerous revisions. It is Mr. Elfenbein’s job to be an expert on the various programs and to stay on top of changes.
Mickey enjoys in providing an individualized and complimentary retirement analysis for federal employees.
He has over 30 years of senior level experience in a variety of public and private enterprises, understands the needs of federal employees, and has expertise built on many years of high-level experience.
