What Every Fed Needs to Know About Discontinued Service Retirement

We find ourselves in very stressful times and many federal employees are facing uncertainty due to potential agency reductions in force (RIF). It's natural to feel anxious about job security and future retirement plans. This article aims to provide clarity and actionable information to help you approach and plan for a possible RIF. Our goal is to create a working summary with some action steps you can take.

Throughout our four decades of serving Feds, we have learned many federal employees may not fully understand the existence or impact of discontinued service retirement (DSR), which can significantly ease the transition during an agency RIF.

DSR is a type of early retirement available to civilian federal employees who are involuntarily separated from federal service due to agency reductions in force, reorganization, or other non-voluntary separations. This form of retirement ensures that employees who lose their jobs through no fault of their own can still access retirement benefits earlier than typical retirement age requirements.

Discontinued Service Retirement (DSR) is a provision that allows federal employees who are facing involuntary separation from service to retire early and access their retirement benefits. The Office of Personnel Management (OPM) oversees this process, ensuring that employees meet specific eligibility criteria and guiding them through the application procedure.

Examples of involuntary separations under a DSR include:

Agency Reductions in Force (RIF): When an agency reduces its workforce due to budget cuts, restructuring, or other organizational changes, causing involuntary separation of employees.
Reorganization: When an agency undergoes significant changes in its structure or operations, resulting in the elimination or modification of certain positions, leading to involuntary separations.
Downsizing: When an agency needs to decrease its number of employees to streamline operations or reduce costs, leading to involuntary separations.
Position Abolishment: When an employee’s specific position is permanently abolished due to changes in agency needs or priorities, resulting in their involuntary separation.

What are the eligibility rules for Discontinued Service Retirement?

To qualify for DSR, federal employees must meet specific criteria under either the Civil Service Retirement System (CSRS) or the Federal Employees Retirement System (FERS):

Age and Years of Service: Under CSRS, employees must be at least 50 years old with 20 years of service, or have 25 years of service regardless of age. Under FERS, the same age and service requirements apply.
Involuntary Separation: The separation must be involuntary and beyond the control of the employee, such as due to downsizing, reorganization, or an agency reduction in force.
Covered Positions: The employee must be in a position covered by CSRS or FERS at the time of separation.

What other criteria factor in?

Creditable service includes all periods of service during which the employee was covered by the Civil Service Retirement System (CSRS) or the Federal Employees Retirement System (FERS). This encompasses civilian service, military service that has been credited towards retirement, and any period of leave without pay that is counted as service.

Involuntary separation is defined as a separation against the employee's will and without their consent, due to reasons such as reduction in force, reorganization, or lack of funds. It does not include separations due to misconduct or delinquency.

How might a DSR benefit you?

A DSR can provide you with immediate annuity benefits. These benefits are calculated based on your high-3 average salary and years of creditable service. The annuity is payable from your date of separation and continues for the lifetime of the retiree.

The annuity calculation for CSRS employees is based on the formula: 1.5% of the high-3 average salary multiplied by the first 5 years of service, plus 1.75% of the high-3 average salary multiplied by the next 5 years of service, plus 2% of the high-3 average salary multiplied by all years of service beyond 10 years.

For FERS employees, the formula is 1% per year for each year of service.

Survivor benefits are available for your spouse. These benefits provide financial support in the event of your death. The survivor annuity is calculated based on a percentage of your annuity.

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Additional definitions and clarifications

Under DSR, employees are entitled to an immediate annuity, which may be reduced for CSRS, if you are under the minimum retirement age. FERS on the other hand may proceed without penalty reductions to their annuity. The annuity calculation will be based on the employee’s years of service and high-3 average salary, similar to regular retirement calculations.

However, DSR secures Federal Employees Health Benefits (FEHB) for life, providing critical healthcare coverage thereby somewhat blunting the blow of being RIF’d.

Rules for returning to federal employment after DSR

For CSRS retirees, reemployment may result in the suspension of their annuity during the period of reemployment. Once they separate from federal employment again, their annuity will be reinstated, potentially recalculating based on the additional service time.

A FERS employee rehired in a Federal appointment (be it temporary or permanent) will be considered a “reemployed annuitant”. In this case their retirement annuity payments will continue and the Federal salary will be offset by the annuity. After completing one year of fulltime employment under this arrangement the returning Fed may apply for a supplemental annuity. If the rehired Fed completes five years of full time service they will have a choice of collecting the supplemental annuity OR having a redetermined annuity calculated.

Practical steps you can take to prepare for the possibility of Discontinued Service Retirement

Understand Your Benefits. Familiarize yourself with the retirement benefits provided under CSRS or FERS. Knowing the specifics of your retirement system can help you plan better for your future.
Review Your Service Record. Ensure that your service record accurately reflects all your years of federal service. Contact your agency’s human resources office to verify the details and make any necessary corrections.
Calculate Your Retirement Benefits. Use online tools provided by OPM or consult with your agency’s benefits office to calculate your expected retirement benefits. This will help you understand the financial implications of retiring early.
Consider Financial Planning. Assess your financial situation to determine if early retirement will meet your needs. Consider consulting a financial planner to assist with budgeting, savings, and managing debt.
Attend Retirement Seminars. Many agencies and organizations like Serving Those Who Serve offer retirement seminars specifically for federal employees. Attend these seminars to gain valuable insights and prepare for your transition.
Understand Health Insurance Options. Evaluate your health insurance options under the Federal Employees Health Benefits (FEHB) program. Understand how your health benefits will be affected by your retirement.
Explore Post-Retirement Employment possibilities. You may find that the amount of your DSR retirement annuity is insufficient for your needs and lifestyle. Make sure to update your resume as well as becoming familiar with hiring sites like ZipRecruiter and Indeed. Many retirees find part-time work or consultancy roles that supplement their retirement income.

How can Serving Those Who Serve assist me?

We offer a variety of resources to help you:

Attend our webinars focused on retirement planning and financial strategy.
Schedule a personal education session. Access one-on-one counseling services to help navigate the complexities of retirement and separation.
Don’t miss our website’s calculators, articles, and tools designed specifically for federal employees.

Discontinued service retirement can allow you to access your retirement benefits early when facing involuntary separation , providing a financial safety net during challenging times. By understanding eligibility requirements, reviewing benefits, and planning strategically, you can navigate the transition as smoothly as possible to and secure your future.

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Written by Dan Sipe. 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 the author and not necessarily those of RJFS or Raymond James. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy suggested. Every investor’s situation is unique and you should consider your investment goals, risk tolerance, and time horizon before making any investment or financial decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. 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.