Passing both chambers of Congress, a recent piece of legislation is set to provide a major fix to federal retirement special provisions.
Introduced by Representative Gerry Connolly back in January of 2021, the First Responder Return for Employees on Their Initial Retirement Earned (RETIRE) Act (HR 521), the bill did not make it through a Congressional committee until May of this year – so about 17 months later. In July, the House of Representatives voted in its favor. In September, the legislation was approved by the Senate Committee on Homeland Security and Governmental Affairs. Then a few weeks after the mid-terms, it was approved unanimously by the Senate and now awaits Biden’s signature before finally passed into law.
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The bill pertains to federal employees who have “accelerated” retirement benefits, also referred to as special provisions. This group of feds include law enforcement officers, customs and border protection officers, federal firefighters, nuclear materials couriers, air-traffic controllers, the Capitol Police and Supreme Court Police departments, CIA agents working abroad or have specialized security requirements, and diplomatic security agents working for the State Department.
Contributions to FERS
Regular employees hired in 2012 or earlier, and who are under the FERS system, contribute 0.8% of their salary to their defined benefit plan, those hired in 2013 contribute 3.1% (FERS-RAE), and feds hired in 2014 or later contribute 4.4% (FERS-FRAE). But for those who have an occupation with special provisions, their contribution rate is 1.3% if hired in 2012 or sooner, 3.6% if hired in 2013, and 4.9% if hired in 2014 or later. The payoff for the higher contribution rate is a higher multiplier used in their FERS retirement benefit calculation. Instead of 1% (or 1.1% for some), which FERS employees use for their retirement calculation, those who are covered by special provisions get to use a factor of 1.7% (for their first 20 years of service anyway) because they are also subject to a mandatory early retirement at either age 56 or 57, depending on their occupation.
Retirement Fix
Under current regulations, if a fed with an accelerated retirement is disabled while on duty, they essentially lose the special benefits that they had been paying into. They can choose a medical retirement, but the annuity amount would be calculated with either a 1% or 1.1% multiplier (upon reaching age 62) – essentially erasing the extra contributions they paid throughout their career and wiping away the perks of early retirement under an accelerated retirement. If not eligible for a FERS annuity, their contributions can be reimbursed, but again, at the normal FERS rate of 0.8%, 3.1%, or 4.4% – not the 1.3%, 3.6%, or 4.9% they actually put in. Lastly, if they take a normal FERS job after being disabled, they also lose their accelerated contributions and early retirement eligibility.
Once the President enacts the bill into law, this all changes. Despite a disability, those Feds with special provisions will be able to retain their hard-earned benefits. If they don’t qualify for a FERS retirement annuity their contributions to the pension plan will be reimbursed fully. If they are eligible for retirement, they will be able to keep the 1.7% multiplier and still qualify for early retirement at age 50 with 25 years or the minimum retirement age with 20 years – even if they take a federal occupation that is not covered by the accelerated retirement benefits.
Until Next Time,
**Written by Benjamin Derge, Financial Planner, ChFEBC℠. The information has been obtained from sources considered reliable but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Benjamin Derge and not necessarily those of RJFS or Raymond James. Links are being provided for information purposes only. Expressions of opinion are as of this date and are subject to change without notice. Raymond James is not affiliated with and does not endorse, authorize, or sponsor any of the listed websites or their respective sponsors.
