Understanding Deferred Retirement Under FERS and How It Works

Edward A. Zurndorfer –

A former employee who was covered by the Federal Employees Retirement System (FERS) and separated from federal service before being eligible to retire may be eligible for a deferred retirement and receive a FERS annuity if certain requirements are met. This column discusses deferred retirement under FERS and how it works.

A former FERS-covered employee is eligible for a deferred retirement and receive a FERS annuity for the rest of his or her life if he or she:

• was not eligible for immediate retirement within one month of separating from federal service;

• meets the minimum civilian service requirement;

• did not take a refund of his or her FERS retirement contributions (made by the employee while he or she was in federal service via payroll deduction) at the time of separating from federal service;

• reaches Full Retirement Age (FRA) with at least 30 years of service at the time of leaving federal service; reaches age 60 with between 20 and 29 years of service at the time of leaving federal service; or reaches 62 with between five and 19 years of federal service at the time of leaving federal service.

These requirements are now discussed and explained.

Minimum Civilian Service

A former employee must have had at least five years of creditable civilian service in order to be eligible for a deferred retirement. Creditable civilian service for this purpose includes:

• Service for which full FERS contributions (made via payroll deduction) were made and not refunded;

• “Nondeduction” (temporary or intermittent service) performed prior to January 1, 1989 if which a full FERS deposit (including interest charges) for such service was made before separation;

• Service for which full Social Security (FICA) payroll taxes and full or reduced CSRS deduction were taken, if the CSRS deductions were not refunded; and

For former employees also eligible for a CSRS annuity component (“Trans” FERS) for their deferred retirement:

• “Nondeduction” (temporary or intermittent service) subject to CSRS retirement computation rules, whether or not a deposit for such service is made or is deemed under the alternative annuity provisions; and

• Service for which full CSRS deductions were taken, even if CSRS deductions were refunded and not redeposited.

Noncreditable Civilian Service

The following types of service performed under FERS may not be used in meeting the five-year minimum civilian service requirement:

• Service under FERS for which the former employee requested a refund of FERS contributions, made via payroll deduction while the former employee was in federal service;

• Any period of “nondeduction” (temporary or intermittent service) performed before 1989 in which a full FERS deposit was not completed before separation from service; and

• “Nondeduction” (temporary or intermittent service) performed after Dec. 31, 1988 unless the service is included in a CSRS annuity component (“Trans” FERS employee).

Note that accrued unused sick leave at date of separation is not creditable for both retirement eligibility and FERS annuity computation in a deferred retirement.

Minimum Retirement Age

Depending on former employee’s year of birth minimum retirement age 55 -57. See table below:

Age and Service Requirement

Former employees under FERS can apply to receive a deferred annuity at different ages depending on how many years of federal service the former employee had when he or she left federal service. The following table shows the combination of years of service and earliest age to start one’s deferred FERS annuity.

What happens to an employee’s benefits upon leaving federal service?

Upon leaving federal service, an employee will be paid in a lump sum payment for all unused annual leave hours. Any unused sick leave hours will be lost and not used in the calculation of the former employee’s FERS annuity. Note that this is different for FERS employees who retire on an immediate or “postponed” retirement. These employees get credit for their unused sick leave hours in the form of adding the additional unused sick leave hours to the employee’s service time for the purpose of calculating the FERS annuity.

The departed employee may keep his or her Thrift Savings Plan (TSP) account but can no longer contribute to it. The earliest age a departed employee (who left federal service before age 55) can withdraw from the TSP account without incurring a 10 percent early withdrawal penalty is age 59.5.

Upon leaving federal service, an employee will permanently lose his or her enrollment in the Federal Employees Health Benefits (FEHB) program, the Federal Employees Group Life Insurance (FEGLI) program and the Federal Employees Dental and Vision Insurance Program (FEDVIP). None of these insurances will be reinstated when the departed employee receives his or her deferred FERS annuity.

An employee who leaves federal service and who is enrolled in the Federal Long-Term Care Insurance Program (FLTCIP), may retain the long term care insurance through the FLTCIP after leaving federal service. However, since the departed employee will not be receiving a paycheck or an annuity check from a federal agency or from OPM, the departed employee must make arrangements with the FLTCIP (www.ltcfeds.com) to have the FLTCIP premiums deducted from a personal checking or savings account.

Employee Responsibility for Receiving a Deferred Annuity

A departed FERS employee must file form RI Form 92-19 (Application for Deferred or PostponedRetirement) (can be downloaded here) about two months before the month the former employee becomes eligible for a deferred retirement. Note if RI Form 92-19 is not filed (mailed) by the former employee, then OPM’s Retirement Office will not process the departed employees’ application for a deferred retirement and the former employee will not receive his or her FERS annuity.

If the former employee had at least five years of federal service but fewer than 20 years of service at the time of leaving federal service , then the deferred FERS annuity commences on the first day of the month after the individual becomes age 62.

If the former employee had at least 20 years but fewer than 30 years of service at the time of leaving federal service, then the deferred annuity can start the first day of the month after the former employee becomes age 60; or a later date designated by the former employee but not later than the second day before his or her 62^nd birthday.

If the former employee had 30 or more years of service at the time of leaving federal service, then the deferred annuity can start the first day of the month after the former employee becomes MRA; or a later date designated by the former employee but not later than the second day before his or her 62^nd birthday.

The following three examples illustrate:

Example 1. Peter, age 55, was a FERS-covered employee during the period 1990-1995. When he left federal service with a little over five years of federal service, Peter did not withdraw his FERS contributions that he made via payroll deduction. Peter is entitled to a deferred annuity starting the first day of the month after Peter becomes age 62.

Example 2. Paul, age 53, was a FERS-covered employee during the period 1990-2011. When he left federal service with 21 years of service, Paul did not withdraw his FERS contributions that he made via payroll deduction. Paul is entitled to a deferred annuity starting the first day of the month after Paul becomes age 60.

Example 3.  Mary, age 54, was a FERS-covered employee during the period 1987-2017. When she left federal service with 30 years of FERS service, Mary did not withdraw her FERS contributions that she made via payroll deduction. Mary is entitled to a deferred annuity starting the first day of the month after Mary becomes MRA, age 56 years and 4 months.

Agency Responsibility for a Departing Employee and OPM’s Calculation of Deferred Annuity

When a FERS-covered employee who is not entitled to an immediate annuity separates from federal service, the employee’s agency must:

1. Close out the employee’s Individual Retirement Record on Form SF 3100;
2. Complete Form SF 2810 (Notice of Change in Health Benefits Enrollment, and Form SF 2821 (Agency Certification of Insurance Status) in order to terminate federal health benefits enrollment and life insurance coverage.

Upon receiving the departed employee’s Form RI 92-19 (Application for Deferred or Postponed Retirement), OPM will calculate the departed employee’s deferred annuity.

In calculating the former employee’s FERS annuity, OPM uses the following information: (1) the former employee’s years/months of federal service at the time of the employee’s departure from federal service; and (2) the departed employee’s high-three average salary on the day of leaving federal service. Note that any unused sick leave hours the employee had at the time of leaving federal service are not added to the employee’s service time in computing the FERS annuity. Any government-wide pay increases that have occurred since the employee left federal service are not used in adjusting the employee’s high-three average salary. The following example illustrates:

Example 1 from above: Peter had five years of federal service from 1990-1995 and a high-three average salary of $15,000. His FERS annuity starting the month after Peter becomes age 62 will be computed as:

One percent/year of service times five years of service times $15,000 = $750 annual annuity

Survivor Benefits

If a former employee who had less than 10 years of creditable service at the time of leaving federal service but dies before he or she has reached age 62, then no survivor annuity will be paid. In that case, the deceased former employee’s FERS contributions (that remained in the FERS Retirement and Disability Fund) are paid to beneficiaries via Form SF 3102 (Designation of Beneficiary of FERS Contributions),

If a former employee dies before applying for a deferred annuity and had: (1) at least 10 years of creditable service, including five years of creditable civilian service; and (2) a surviving spouse who was married to the employee at the time of the former employee’s separation from federal service, or an eligible former spouse, then the surviving spouse or former spouse is entitled to a spousal survivor annuity.

No survivor annuity is payable to the children of a former employee who dies before becoming an annuitant.

Retiree Annuity Supplement

Former employees who receive a deferred FERS annuity are not eligible for the FERS retiree annuity supplement.

Cost-of-Living-Adjustments (COLAs)

In general, FERS annuitants receive cost-of-living adjustments (COLAs) to their FERS annuities starting the year they become age 62. This means that a former FERS-covered employee with more than 19 years of service who is eligible for a deferred retirement and starts receiving their FERS annuities before age 62 will not receive a COLA to their FERS annuity until the year they become age 62. Former FERS-covered employees with less than 20 years of service (and therefore are not eligible to start receiving their FERS annuity until the month after they become age 62) are not eligible for their first COLA until the year they become age 63.     

Beneficiary Forms

Former employees who are eligible for a deferred retirement and a FERS annuity are highly encouraged to make sure their beneficiary forms are filled out and up-to-date. These beneficiary forms are:

1. SF 3102 (Designation of Beneficiary of FERS Contribution)
2. TSP-3 (TSP Beneficiary Form)

    Edward A. Zurndorfer is a Certified Financial Planner, Chartered Life Underwriter, Chartered Financial Consultant, Chartered Federal Employee Benefits Consultant, Certified Employees Benefits Specialist and IRS Enrolled Agent in Silver Spring, MD. Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, and EZ Federal Benefits Seminars, located at 833 Bromley Street – Suite A, Silver Spring, MD 20902-3019 and telephone number 301-681-1652. Raymond James is not affiliated with and does not endorse the opinions or services of Edward A. Zurndorfer or EZ Accounting and Financial Services. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. While the employees of Serving Those Who Serve are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.