OPM to Grant VERA Authority to Federal Agencies

Thrift Savings Plan (TSP)

FERS employees can make penalty-free (no 10 percent early withdrawal penalty) withdrawals from their traditional TSP account if they leave federal service, or if they retire from federal service sometime during the year or after the year they become age 55. If they leave or retire from federal service before the year they become age 55 via a VERA, then they will have to wait until age 59.5 to make penalty-free withdrawals from their traditional TSP account.

If a retiring FERS employee under age 55 needs to make withdrawals from their traditional TSP account, then there are two ways a FERS employee can make penalty-free withdrawals from a portion of their traditional TSP account. The two ways are:

• Purchase a TSP annuity using all or a portion of their traditional TSP account, and
• Elect to receive monthly TSP distributions based on the TSP participant’s life expectancy.

Note the following:

• Once a TSP annuity is purchased, annuity monthly payments will continue for the life of the TSP participant, and
• TSP monthly distributions based on life expectancy must continue for the later of five years or age 59.5. If payments are stopped by the TSP participant five years before they have elapsed, then the TSP participant will pay a retroactive 10 percent early withdrawal penalty.

With respect to the Roth TSP, the earliest age a Roth TSP participant can withdraw from their Roth TSP account without penalty is the later of age 59.5 and five years since January 1^st of the year the TSP participant made his or her first Roth TSP contribution.

Federal employees who retire via a VERA are permitted to request a direct rollover of their traditional TSP and Roth TSP accounts to a traditional IRA and Roth IRA, respectively. If a retired employee finds new employment from a private employer who offers a qualified retirement plan such as a 401(k) or 403(b) retirement plan, then the retired federal employee may have the option of a direct rollover of their TSP accounts into the employer’s qualified retirement plan. The purpose of these direct rollovers is to consolidate qualified retirement plan accounts.

FEHB Program and FEGLI Program Benefits

A FERS employee who is eligible to retire via the VERA and who has been enrolled in the Federal Employees Health Benefits Program may retain their FEHB health insurance benefits in retirement if the employee has been enrolled in the FEHB program continuously during at least the five-year period ending on the effective date of the employee’s retirement. A retired employee pays the same percentage of the FEHB program premiums (on average, 25 to 28 percent) as a retiree as they did as an employee. The federal government pays on average 72 to 75 percent of the FEHB program insurance premiums for both employees and retirees, no matter which FEHB program health insurance plan the employee is enrolled in. An employee who is eligible to keep their FEHB insurance coverage in retirement is also able to keep FEHB insurance coverage for eligible family members, such as a spouse and children under the age of 26.

The same five-year continuous enrollment rule applies for keeping FEGLI life insurance applies to retiring employees who want to keep their FEGLI life insurance throughout retirement.

Survivor Benefits

An employee who is eligible and applies for early retirement via a VERA is also able to provide FERS survivor benefits for eligible family members, including:

• A FERS survivor annuity to one person. That person has to have an insurable interest in the FERS employee. The most logical and most often designated beneficiary is a current spouse. The cost to give the maximum spousal survivor annuity of 50 percent is 10 percent of the starting FERS gross annuity. Annual reduction is permanent and remains the same.
• Children survivor annuities paid to children under the age of 18 (or 18 to 22) if the children are full-time students.
• FEHB program and Federal Employee Dental and Vision Insurance Program (FEDVIP) benefits.

Retiring employees should make sure that all beneficiary forms are completed and current. These beneficiary forms include:

• Form SF 3102 (Designation of Beneficiary, FERS Contributions)
• Form TSP 3 (Designation of TSP Beneficiary), and
• Form SF 2823 (Designation of FEGLI Life Insurance)

Retiring employees are advised to meet with an estate attorney to establish or update an estate plan which includes a will or living trust, financial power of attorney, health care power of attorney, and a living will.

Employees who are considering early retirement via a VERA are also advised to have a sufficient amount of liquid savings (cash). With what could be a high number of early retirees as well as an above average number of regular (normal) retirements in the next five to seven months, it will likely take OPM’s Retirement Office longer than average to adjudicate all of these retirement applications. The result is a delay of as much as a year before a retiring employee receives his or her first full FERS annuity check.

Those employees who accept early retirement via the VERA and who are in their mid-40’s to early 50’s are encouraged to seek new employment in order to save additionally for their retirement. They are advised to contribute to IRAs and start or add to existing non-retirement brokerage accounts.