Want to Retire Earlier? “MRA plus 10” Retirement May Be an Option for FERS

For Those FERS Employees Who Have Reached MRA and Want to Retire Earlier, “MRA +10” Retirement May Be an Option

by Ed Zurndorfer

“MRA+10” Retirement May Be an Option

The 2019 partial federal government shutdown has prompted many employees to consider retiring earlier from federal service than originally planned. The frustration and hardship of missed paychecks has resulted in much bitterness and disappointment among thousands of employees. For those employees fortunate enough to have met the minimum age and service requirement, immediate retirement is certainly an option. But for those employees covered by the Federal Employees Retirement System (FERS) and who have reached their minimum retirement age (MRA) with at least 10 years of service, “MRA + 10” or “postponed” retirement may perhaps be an option for retiring from federal service sooner than expected. This column discusses all the particulars of “MRA + 10” retirement for FERS employees.

A previous column discussed another option for FERS-covered employees who want to leave federal service before they are eligible to retire, called “deferred” retirement. As will be discussed in this column, there are important differences between “deferred” retirement and “MRA + 10” or “postponed” retirement.

Age and Service Requirement

A FERS-covered employee who: (1) Is currently contributing each pay date a portion of his or her gross salary to the FERS Retirement and Disability Fund (either 0.8, 3.1, or 4.4 percent of the employee’s salary); (2) has reached at least his or her minimum retirement age (MRA) but younger than age 62; and (3) has at least 10 years but fewer than 30 years of creditable service is eligible for the “MRA + 10”/”postponed” retirement.

It should be noted that of the minimum 10 years of service, at least five years have to be FERS-covered civilian service. The remaining required years can be “bought back” military service. Also, depending on an employee’s year of birth, MRA ranges between ages 55 and 57, as shown in the following table.

Commencing Date of FERS Annuity

Assuming a FERS-covered employee is between MRA and age 62 and not eligible for an immediate retirement and wants to leave federal service seeking a “postponed” retirement, then the employee must:

(1) Inform his or her agency of the intention to leave federal service (the agency should make sure that Form SF 3103 – Register of Separations and Transfers – is filled out upon the employee’s departure); and (2) at least one month after leaving federal service and when the departed employee wants to start receiving his or her FERS annuity, complete and submit Form RI 92-19 (Application for Deferred or Postponed Retirement). The completed application must be mailed to:

OPM – Federal Employment Retirement System/ P.O. Box 45 / Boyars, PA 16017-0045

Computation of “Postponed” FERS Annuity

Once the “postponed” annuity application (Form RI 92-19) is received, OPM’s Retirement Office will compute the departed employee’s FERS annuity based on: (1) the employee’s total years of FERS service, including: (a) actual service under FERS; (b) bought-back military; (c) service time for which Social Security (FICA) taxes and reduced CSRS contributions were made via payroll deductions and not refunded. This is called CSRS interim or CSRS Offset service; and (d) temporary time that occurred before Jan. 1, 1989 for which the employee made a full deposit. Also included in the length of service for the purpose of computing the FERS annuity is the employee’s unused sick leave at the time of leaving federal service; and (2) the departed employee’s high-three average salary at the time of leaving federal service

If a departed FERS employee has completed at least 10 years but fewer than 20 years of creditable service at the time of leaving federal service, the employee’s FERS annuity will be permanently reduced if the departed employee chooses to receive his or her annuity before the month the departed employee reaches his or her 62^nd birthday. The reduction is 5/12 of one percent for each month under age 62. The following example illustrates:

Rob, a FERS employee left Federal service in 2017 at the age of 56, with 14 years of creditable FERS service. In early 2019, Rob became age 58 and decided to start receiving his FERS annuity. Rob at age 58 is 4 years (48 months) away from his 62^nd birthday. His penalty for starting to receive his FERS annuity at age 58 is:

48 months x 5/12 of 1 percent, or 20 percent.

In other words, as a result of starting to receive his FERS annuity four years earlier than the month he would become age 62, Rob will receive 20 percent less in his FERS annuity for the rest of his life. Note that if Rob is giving a survivor annuity, then the survivor annuity is also subject to the 20 percent reduction.

If a departing employee has at least 20 years of creditable service but fewer than 30 years, then the 5/12 of one percent penalty is measured from the month that the departed employee becomes age 60.

Departing employees can, therefore, reduce or eliminate the age reduction penalty by postponing the start of their annuity until age 62 if they have fewer than 20 years of creditable service. Or by age 60, if they have at least 20 years of service and fewer than 30 years. If the departed employee dies before the postponed annuity starting date, then any survivor annuity benefits which the departed employee elected would still be payable upon the departed employee’s death with no reduction to the survivor annuity, even if the departed employee died before age 62 or 60.

Postponing the start of one’s annuity does have a disadvantage with respect to the Federal Employees Health Benefits (FEHB) and Federal Employee Group Life Insurance (FEGLI) benefits, as is discussed in the next section.

Health, Life, Dental, and Vision Insurance Coverage

Employees who separate from federal service after reaching their MRA with at least 10 years of creditable service are eligible to retain their FEHB (health insurance) and their FEGLI (life insurance) benefits in retirement. This assumes that the employee was a participant in the FEHB program and FEGLI program during the last five years of the employee’s federal service, ending on the day the employee leaves federal service under the “MRA+10” arrangement. However, if the departed employee decides to postpone the start of his or her FERS annuity in order to avoid the age reduction factor, then as long as the departed employee is not receiving his or her FERS annuity, the FEHB and FEGLI insurances will be suspended. Upon applying for the start of the FERS annuity, the departed employee can apply for reinstatement of the FEHB and FEGLI benefits with no underwriting. The federal government will also pay its share of the FEHB and FEGLI premiums once coverage takes effect and throughout retirement.

The departed employee is eligible to re-enroll in the dental insurance and/or vision insurance offered through the Federal Employee Dental and Vision Insurance Program (FEDVIP) upon applying for the start of the FERS annuity. Enrollment can be made at www.benefeds.com. No underwriting is required with guaranteed insurance coverage for annuitants, employees, and family members including spouses and children under the age of 22. Both employees and annuitants pay full premiums for FEDVIP coverage with no government premium contribution.

Federal Long-Term Care Insurance Coverage

Those employees who were approved for long-term care insurance through the Federal Long-Term Care Insurance Program (FLTCIP) will have their coverage continue when they depart federal service and postpone the start of their FERS annuity. They will have to make arrangements with the FLTCIP to pay their FLTCIP premiums. Departing employees who are not enrolled in the FLTCIP can apply to enroll in the FLTCIP at any time provided the employee is eligible for a postponed annuity. An LTC insurance application from the FLTCIP may be downloaded from www.ltcfeds.com. Applicants must pass underwriting in order to be approved for coverage.

Thrift Savings Plan (TSP) Options

A departed employee under the “MRA+10” postponed retirement is eligible to make penalty-free withdrawals from his or her traditional TSP account. This is because the departed employee would be at least age 55 at the time of his or her departure from federal service. The departed employee has other options in deciding what to do with his or her traditional TSP, including leaving it alone, transferring a part of it to a traditional or to a Roth IRA, or making a one-time partial withdrawal.

With respect to the Roth TSP, a departed employee could withdraw his or her Roth TSP account or leave it alone. In order to make a completely tax-free withdrawal, the departed employee would have to be at least age 59.5 and it has been at least five years since January 1^st of the year the departed employee made his or her first Roth TSP contribution. The Roth TSP can also be transferred to a Roth IRA.

FERS Annuity Supplement

FERS employees who leave federal service under the “MRA +10” or “postponed” retirement option are not eligible to receive the FERS annuity supplement. This is true no matter how many years of creditable FERS service the departed employee has and no matter when (what age) the departed employee starts receiving the postponed FERS annuity.

*** Written by Edward A. Zurndorfer, who is a Certified Financial Planner™, Chartered Financial Consultant, Chartered Life Underwriter, Certified Employee Benefits Specialist and Enrolled Agent in Silver Spring, MD. He is the owner of EZ Accounting and Financial Services, an accounting, tax preparation, and financial planning firm also located in Silver Spring, MD.  He is a seminar speaker at Federal employee retirement seminars throughout the country for the National Institute of Transition Planning, Inc. He is also a weekly columnist for MyFederalRetirement.com. Raymond James is not affiliated with and does not endorse the opinions or services of FEDZONE or Edward A. Zurndorfer or any of the above listed organizations. Raymond James is not affiliated with and does not endorse the opinions or services of Edward A. Zurndorfer and/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. Telephone number, 301-681-1652. 

MRA plus 10 FERS Retirement