Thinking about leaving federal service and deferring your FERS pension? Make sure you read this first.
If you retire from a civilian job in the federal government before reaching the service and age requirements, you can take your employee contributions to FERS as a refund, dollar-for-dollar. Or, if you have met service length requirements but not age requirements within one month of separating, you could alternatively defer receiving your pension until later.
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There is often confusion between a “postponed” and a “deferred” retirement. With a postponed retirement, a federal employee is eligible to receive an immediate pension that is reduced due to age and therefore postpones it to avoid the age reduction. With a deferred retirement, the employee is not eligible to receive an immediate FERS annuity of any kind when they separate. They can then start taking their FERS income when they reach their minimum retirement age with 30 years of service, at age 60 with 20-29 years of service, or at age 62 with 5-19 years of creditable service. Note that with a deferred retirement, once a federal employee leaves their government job, they become ineligible for FEHB, FEGLI, and FEDVIP coverage. This is not the case with a postponed retirement. FLTCIP policies can be maintained but must be paid from a personal bank account and not paycheck deductions.
Service Requirements
For creditable service requirements, temporary service made before 1989 can count for eligibility if a deposit was made prior to leaving that position. Post-1989 temporary service will not count towards eligibility. For FERS transfer employees with temporary service where CSRS contributions were made, this service does count toward eligibility for a deferred retirement regardless of whether a deposit was made or not.
As for unused sick leave, this is paid as lump sum upon leaving federal employment. This is not the case for feds that can take an immediate or postponed FERS pension, but their unused sick leave does count toward computing their annuity amount (although not towards eligibility for retirement). When deferring FERS, there is only the lump-sum payment upon separating, unused sick leave counts toward neither retirement eligibility nor the annuity computation.
COLAs and Survivor Benefits
When taking a deferred retirement, the income amount will get boosted by annual cost-of-living adjustments (COLAs). However, if you started receiving income from a deferred FERS annuity before reaching age 62, you won’t see any COLAs until the year after you turn that age.
Another thing to keep in mind is that a deferred FERS retirement only pays survivor benefits if the deceased federal worker had ten years or more of federal service. Otherwise, any nonrefunded contributions to FERS will be disbursed to beneficiaries.
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**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.
