Understanding the Differences Between FERS Deferred Retirement and FERS Postponed Retirement
Federal employees who are covered by the Federal Employees Retirement System (FERS) have several retirement options available to them. Perhaps the most commonly known and sought type of retirement is the immediate and unreduced retirement in which a FERS-covered employee has fulfilled minimum age and minimum number of years of creditable service to immediately retire. The retired FERS employee will then receive (one to two months after his or her retirement date) the first of lifetime FERS annuity checks. Another not as common type of immediate retirement is an early immediate retirement in which a FERS-covered is offered an opportunity to retire at a younger age with fewer years of service and immediately start receiving a lifetime of FERS annuity checks.
For those FERS employees who may not want to work as many as 30 years in order to retire at their minimum retirement age (MRA) (age 55 to 57 depending in which year the employee was born) or work a minimum of 20 years and retire at age 60 under the immediate, unreduced retirement rules, there are two other retirement options available to FERS employees. These retirements are called “deferred” FERS retirement and “postponed” FERS retirement. Both FERS “deferred” retirement and FERS “postponed” retirement have been discussed and explained in separate FEDZONE columns: Deferred and Postponed and this column compares and contrasts the two types of FERS retirements.
A summary of each type of FERS retirement is presented below. Table 1 is a summary of FERS Deferred Retirement and Table 2 is a summary of FERS Postponed Retirement.
Table 1. Summary of Rules and Benefits Associated with FERS Deferred Retirement
| Type | Minimum Years of Service | When Does FERS Annuity Start and How? | Get to Keep FEHBP, FEDVIP and FEGLIP Benefits in Retirement? | Any Other Employee Benefits Lost? | Annuitant Eligible for FERS Retiree Annuity Supplement? | Earliest Age to Access TSP Without Penalty? |
| Age MRA and 30 or more years of service | At least 30 years but FERS employee leaves federal service before MRA | The month after departed employee becomes MRA. Must apply for FERS annuity using Form RI 92-19. | No. FEHBP, FEDVIP and FEGLIP insurance benefits permanently lost. | Yes, unused sick leave upon leaving federal service. | No | Traditional TSP – Age 55 if leaving federal service during or after the year one becomes age 55; if leaving before the year one becomes age 55 – age 59.5 Roth TSP – 59.5 |
| Age 60 and 20 to 29 years of service | At least 20 years but fewer than 30 years but FERS employee leave federal service before age 60 | The month after departed employee becomes 60. Must apply for FERS annuity using Form RI 92-19. | No. FEHBP, FEDVIP and FEGLIP insurance benefits permanently lost. | Yes, unused sick leave upon leaving federal service. | No | Traditional TSP – Age 55 if leaving federal service during or after the year one becomes age 55; if leaving before the year one becomes age 55 – age 59.5 Roth TSP – 59.5 |
| Age 62 and 5 to 19 years of service | At least 5 years but fewer than 20 years but FERS employee leaves federal service before age 62 | The month after departed employee becomes 62. Must apply for FERS annuity using Form RI 92-19. | No. FEHBP, FEDVIP and FEGLIP insurance benefits permanently lost. | Yes., unused sick leave federal service. | No | Traditional TSP – Age 55 if leaving federal service during or after the year one becomes age 55; if leaving before the year one becomes age 55 – age 59.5 Roth TSP – 59.5 |
Table 2. Summary of Rules and Benefits Associated with FERS Postponed Retirement
| Type | Years of Service | When Does FERS Annuity Start? Any Penalty? How Does the FERS Annuity Start? | Get to Keep FEHBP. FEDVIP and FEGLIP benefits in retirement? | What Happens to Unused Annual Leave Hours and Unused Sick Leave Hours Upon Leaving Federal Service? | Annuitant Eligible for FERS Retiree Annuity Supplement? | Earliest Age to Access TSP Without Penalty? |
| MRA +10 | Leaves federal service between MRA and age 62 with at least 10 years but fewer than 20 years of federal service. | Departed employee can apply for annuity at any time after leaving federal service. For every year departed employee is under age 62 when annuity starts, FERS annuity is reduced by 5 percent per year Must apply for postponed annuity using Form RI 92-19. | Assuming employee was enrolled in FEHBP and/or FEGLIP insurance programs for the five continuous years ending on the day the employee leaves federal service, the departed employee keeps FEHBP and/or FEGLIP. But FEHBP and FEGLIP benefits are suspended while FERS annuity is postponed.. FEDVIP is suspended and restored when FERS annuity starts. | Unused annual leave hours paid in a lump sum payment when employee leaves federal service. Unused sick leave hours are converted to months and days of service and added to the departed employee’s FERS service time for the purpose of computing the FERS annuity. | No | Traditional TSP – age 55 to age 57 (MRA) This is because the earliest age a FERS employee can elect a an MRA +10 postponed retirement is MRA (age 55 to age 57 depending on which year an employee was born) Roth TSP – 59.5 |
| MRA+20 | Leaves federal service between MRA and age 60 with at least 20 years but fewer than 30 years of federal service. | Departed employee can apply for annuity at any time after leaving federal service. For every year departed employee is under age 60 when annuity starts, FERS annuity is permanently reduced by 5 percent per year. Must apply for postponed annuity using Form RI 92-19. | Assuming employee was enrolled in the FEHBP and/or FEGLIP insurance programs for the five continuous years ending on the day the employee leaves federal service, the departed employee keeps FEHBP and/or FEGLIP. But FEHBP and FEGLIP benefits are suspended while FERS annuity is postponed. FEDVIP is suspended and restored when FERS annuity starts. | Unused annual leave hours paid in a lump sum payment when employee leaves federal service. Unused sick leave hours are converted to months and days of service and added to the departed employee’s FERS service time for the purpose of computing the FERS annuity. | No | Traditional TSP – age 55 to age 57 (MRA) This is because the earliest age a FERS employee can elect a an MRA +10 postponed retirement is MRA (age 55 to age 57 depending on which year an employee was born) Roth TSP – 59.5 |
A discussion of comparing and contrasting the two types of FERS retirement follows:
1. Types of retirement
Deferred retirement offers three types of retirement:
- a. MRA and 30 or more years of service
- b. Age 60 and 20 to 29 years of service
- c. Age 62 and 5 to 19 years of service
Postponed retirement offers two types of retirement:
- a. “MRA+10”
- b. “MRA+20”
What distinguishes the two types of retirement is the age in which a FERS employee separates from federal service. With a deferred retirement, a FERS employee leaves federal service before the minimum age they could retire, given the number of years of his or her creditable service. For example, a FERS employee with 30 or more years of service leaves federal service before his or her MRA. Or a FERS employee with 20 to 29 years of service leaves federal service before his or her 60th birthday. On the other hand, with a postponed retirement, a FERS employee leaves federal servcie no earlier than his or her MRA. This is true with both the “MRA+10” and the “MRA+20” types of postponed retirement.
2. When the FERS annuity starts and how.
With a deferred retirement, the departed employee’s deferred annuity cannot start until the departed employee reaches a certain age, given the number of years of service the employee had when he or she left federal service. For example, with the MRA and 30 or more years deferred retirement, the departed employee’s deferred retirement can start no earlier than the month the employee becomes MRA. The departed employee must apply for the start of his or her deferred retirement and OPM’s issuance of the first FERS annuity check by completing and submitting Form RI 92-19.
On the other hand, with a postponed retirement, the departed employee elects when (the month and year) he or she wants to receive his or her first FERS annuity. With the “MRA+10” postponed retirement, a departed employee can minimize the annuity reduction penalty (five percent per year for every year under age 62) by choosing to receive his or her first annuity check the month after he or she becomes age 62. The same is true for the “MRA+20” postponed retirement except that the departed employee should elect to receive his or her first FERS annuity check the month after he or she becomes age 60. The separated employee must apply for the start of his or her postponed retirement and OPM’s issuance of the first FERS annuity check by completing and submitting Form RI 92-19.
3. Retention of FEHB Program (FEHBP), FEGLI Program (FEGLI), and FEDVIP insurance benefits.
Under a deferred retirement, when a FERS-covered employee leaves federal service, the employee will permanently lose enrollment in Federal Employee Health Benefits (FEHB) program, the Federal Employee Group Life Insurance (FEGLI) program, and the Federal Employee Dental and Vision Insurance Program (FEDVIP).
Under a postponed retirement, when a FERS-covered employee separates from federal service choosing a postponed retirement, the separated employee’s FEHB program, FEGLI program and FEDVIP insurance coverage are temporarily suspended. The insurance coverage will be reinstated when the separated employee applies for the commencing of his or her postponed retirement and issuance of the first FERS annuity check (using Form RI 92-19).
4. What happens to unused annual leave and unused sick leave hours?
When a FERS-covered employee leaves federal service under a deferred retirement, the employee will get paid for all of his or her unused annual leave hours as of his or her resignation date. The payment is a lump sum payment and fully taxable. The departing employee will neither get paid for any unused sick leave hours nor get credit for any unused sick leave hours in the computation of his or her deferred annuity.
When a FERS-covered employee separates from federal service under a postponed retirement, the employee will get paid for all of his or her annual leave hours as of his or her separation date. The payment is a lump-sum payment and fully taxable. The separated employee will get credit for any unused sick leave hours as of his or her separation date. The unused sick leave in hours will be converted to months and days of service time and used in the calculation of the separated employee’s FERS annuity.
5. Eligibility for the FERS Retiree Annuity Supplement.
In both a FERS deferred retirement and in a FERS postponed retirement, a FERS-covered employee is not eligible for the FERS Retiree Annuity Supplement once the deferred annuity or the postponed annuity starts.
6. Earliest age to access the Thrift Savings Plan (TSP) without penalty.
In both a deferred FERS retirement and a postponed FERS retirement, the earliest age a separated FERS employee or a FERS annuitant can access her or her Roth TSP account and not be subject to an early withdrawal penalty is age 59.5.
With the traditional TSP, the rules are different. If a FERS employee separates from federal service before age 55 (which can happen only with a deferred retirement), the separated employee can access his or her traditional TSP without being subject to a 10 percent early penalty when the employee becomes age 59.5. If a FERS employee separates from federal service anytime during the year the employee becomes age 55 or any year thereafter, then the departed employee can access his or her traditional TSP account immediately and not be subject to a 10 percent early withdrawal penalty. With a postponed retirement (both the “MRA +10” and “MRA+20”), the earliest age a FERS employee can separate is his or her MRA (age 55 to 57); therefore, an employee who elects postponed retirement can request penalty-free withdrawals (no 10 percent early withdrawal penalty) from his or her traditional TSP account.
Edward A. Zurndorfer is a CERTIFIED FINANCIAL PLANNER™ professional, 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 we 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.
