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Understanding "Deferred" And "Postponed" Federal Retirement

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Edward A. Zurndorfer, CFP

This article covers deferred and postponed retirement for employees in both the CSRS and FERS retirement systems.

CSRS

An employee who is covered by the Civil Service Retirement System (CSRS) or CSRS-Offset and separates from service may be entitled to a deferred CSRS annuity commencing when the employee is age 62. This will be the case if the employee: (1) is not eligible for an immediate annuity within one month of separation from service; (2) meets the minimum civil service requirements; (3) does not take a refund of retirement contributions after separation from service; and (4) meets the "one out-of-two year" requirement. These requirements are discussed in more detail below.

If an employee meets the requirements for an immediate retirement, then he or she is not eligible for a deferred retirement. Consider the following example:

Jan is age 56 with 30 years of federal service. She meets the eligibility requirements for a voluntary retirement under CSRS. Consequently, she does not have the option of separating from federal service and electing to receive a deferred annuity. Even if Jan delays filing an application for retirement, OPM will pay the annuity retroactively to the effective date of Jan's immediate annuity upon receipt of her application.

A former employee must have completed at least five years of creditable civilian service to be eligible for a deferred retirement. Creditable civilian service for this purpose includes:

* Service for which full CSRS deductions were taken even if CSRS deductions were refunded and not redeposited unless if he or she has received a refund of all CSRS retirement contributions.
* CSRS Interim or Offset service for which full Social Security taxes and reduced CSRS deductions were taken.
* Nondeduction service - that is, temporary or intermittent service- whether or not a deposit for such service is made.

Accrued and unused sick leave to an employee's credit at the date of separation is not creditable for computation purposes in a deferred retirement.

A former employee is not eligible for a deferred annuity if he or she received a refund of retirement deductions, as the following example illustrates.

Dan served in a CSRS-covered career position from July 1, 1968 to June 30, 1973, at which time he separated but did not receive a refund of his retirement contributions. He returned to federal service on Nov. 1, 1976 and separated on Oct. 31, 1986. At that time he received a refund covering both periods of CSRS service. When Dan reaches age 62, he will not be eligible for a deferred annuity because he received a refund of all retirement contributions.

A former employee must have been employed under CSRS for at least one year within the two year period immediately preceding the separation on which the deferred annuity is based.

Consider this example:

Pat was appointed to a career position with CSRS coverage, starting Sept. 1, 1964. She separated on Aug. 31, 1974, returned to a covered position in January 1982, and separated again in June 1982. Pat did not receive a refund of her retirement contribution after either separation. When Pat reaches age 62, she will be eligible for a deferred annuity, based only on the service between Sept. 1, 1964 and Aug. 31, 1974. The period between January 1982 and June 1982 will not be included in the computation of the deferred annuity because Pat did not meet the "one-out-of-two year" requirement. Pat could apply for and receive a refund at any time of the deductions for the six months of service January through June 1982.

To apply for a deferred retirement annuity, a former CSRS or CSRS-Offset employee must request an Application for Deferred Retirement (form OPM 1496A) which can be downloaded from OPM's Web site at US Office of Personnel Management . The application should be requested, completed and mailed to OPM no earlier than two months before the former employee reaches age 62. The completed application should be mailed to:

Office of Personnel Management
Civil Service Retirement System
Retirement Operations Center
Boyers, PA 16017

The application must include the former employee's name, date of birth, Social Security number, the agency with which he or she was last employed, and the date of separation. If the former employee used any other name such as a maiden name while employed with the federal government, that name should also be included.

A deferred annuitant should also be aware that at the time the former employee leaves federal service, he or she permanently loses federal health and life insurance benefits. That means that at the time the deferred CSRS annuity begins at age 62, the federal health and life insurance benefits will not be restored.

The deferred annuity is based on the length of service and high-three average salary in effect at the time of separation. In the years between the date of separation and age 62, the average salary is not adjusted by any intervening pay increases.

Employees who want to make a deposit for post-1956 military service must do so prior to separation in order to receive credit for the military service in the computation of the deferred annuity.

A CSRS deferred annuity commences on the former employee's 62nd birthday.

No CSRS survivor annuity is payable to a former employee's spouse, former spouse or children of the former employee who has title to a deferred annuity but dies before attaining age 62. The same is true if the former employee attains age 62 but dies before filing an application for retirement. The only benefit payable in either case would be a lump-sum payment of the former employee's retirement contributions, without interest.

FERS

A former employee who was covered by the Federal Employees Retirement System (FERS) and who left federal service before being eligible to retire is able to receive a deferred retirement annuity if he or she: (1) is not eligible for an immediate annuity within one month of separation; (2) meets the minimum civilian service requirement; (3) does not take a refund of retirement deduction after separating from service, or transferring to a non-FERS covered position; and (5) is age 62 with at least five years of creditable service or the Minimum Retirement Age (MRA) with at least 10 years creditable service. There is no "one-out-of-two year" requirement under FERS as there is under CSRS. An employee who utilizes an opportunity to elect to transfer to FERS does not have to be under FERS for one year to be eligible for a deferred annuity.

A former employee must have at least five years of creditable civilian service to be eligible for a deferred retirement. Creditable civilian service for this purpose includes:

* Service for which full FERS deductions were made and not refunded;
* Nondeduction service - temporary or intermittent service - performed prior to Jan. 1, 1989, if a deposit for such service was made before separation; and
* Service for which full Social Security taxes and full or reduced CSRS deductions were taken, if the CSRS deductions were not refunded.

The following applies to individuals eligible for a CSRS annuity component:

* Nondeduction service, or temporary or intermittent service, subject to CSRS retirement computation rules, whether or not a deposit for such service is made or is deemed made under the alternative annuity provisions.
* Service for which full CSRS deductions were taken, even if CSRS deductions were refunded and not redeposited.

The following types of service performed under FERS may not be used in meeting the five year minimum service requirement:

* Service performed under FERS for which a refund of FERS deductions was taken;
* Service subject to FERS computation rules for which a refund was made after FERS coverage began;
* Nondeduction service performed on or after Jan. 1, 1989 unless the service in included in a CSRS component; and
* Accrued and unused sick leave to the employee's credit on the date of separation.

A former FERS employee is eligible for a deferred annuity starting at the following minimum ages and with the associated minimum years of creditable service:

Age Minimum Years of Creditable Service

MRA 30

60 20

62 5

Like a deferred CSRS annuitant, a deferred FERS annuitant will have his or her annuity based on the length of service and high-three average salary at the time of leaving federal service. The high-three average salary is not adjusted by any intervening pay increases. If a former employee has the required number of years to start receiving his or her FERS annuity at either MRA or age 60, then there is no age penalty for starting the annuity before age 62. A deferred FERS annuitant - like a CSRS annuitant - will permanently lose his or her federal health and life insurance benefits at the time the individual leaves federal service. The benefits will not be restarted once the individual begins to receive a deferred FERS annuity.

To receive a deferred FERS annuity, a former employee must complete and file form RI 92-19, Application for Deferred or Postponed Retirement, with OPM about two months before the former employee want the annuity to begin. The application should be filed either two months before MRA, age 60 or age 62, or the date the former employee wants the annuity to begin if earlier.

The application should be sent to:

Office of Personnel Management
Federal Employees Retirement System
Retirement Operations Center
P.O. Box 200
Boyars, PA 16020

If a former employee who had less than 10 years of creditable service dies before becoming an annuitant, then any contributions remaining in the retirement fund are paid in a lump sum in the order of precedence. No survivor annuity is payable.

If a former employee dies before applying for a deferred annuity and had:

* At least 10 years of creditable service, including five years of creditable civilian service, and
* A surviving spouse who was married to the employee at the time of the former employee's separation from federal service, or an eligible former spouse, then the surviving spouse or former spouse is entitled to a surviving spousal annuity.

No survivor annuity is payable to the children of a former employee who dies before becoming an annuitant.

FERS employees or former employees, may be eligible to retire under the "MRA + 10" retirement option if they meet all of the following conditions:

* Have reached MRA;
* Have at least 10 years of federal and fewer than 30 years of service;
* Separated from a position subject to FERS coverage; and
* Not entitled to an immediate annuity based only on age and service.

The employee must have a minimum of five years of creditable civilian service. This includes: (1) service for which full FERS deductions were made and not refunded; and (2) nondeduction service (temporary or intermittent service) prior to Jan. 1, 1989 only if a deposit for such service was made or deemed made under the alternative annuity provisions.

An employee must have at least 10 years of creditable (civilian and military service of which there must be at least five years of civilian service) to be eligible for a MRA + 10 retirement. Under FERS, post-1956 military service cannot be used to meet part of the minimum 10 year requirement unless the employee makes a full military service deposit before separation.

The age and service requirements for the "MRA + 10" retirement options are summarized as follows:

Age Years of Creditable Service

MRA 10-29

60 or 61 10-29

62 and over does not apply

An employee who decides to start receiving a immediate annuity under the "MRA + 10" retirement benefit will receive a reduction in his or her FERS annuity of five-twelfths of one percent for each month (five percent per year) the retirement date precedes the employee's 62nd birthday. This reduction is permanent and is not restored when the retiree becomes age 62.

An employee can also elect to postpone the start of the annuity to an older age and that will decrease all or part of the reduction. For those employees who have between 20 and 29 years of service, the reduction is five percent per year that the employee is under 60.

Consider this example:

John is a FERS employee who retired April 30, 2009. At retirement, John was 56 years old (his MRA) and had 15 years of creditable service. John's high-three salary is $50,000. He will become 62 on June 15, 2015. The unreduced annuity is $7,500 ($50,000 high-three salary x 15 percent (one percent for each year of FERS service). John will not be 62 for six years and 1.5 months, or 73 full months. Therefore, the reduction is $2,281.25 =

73 months x 5/12 x 1% = 30.42 percent

30.42% x $7,500 = $2,281.50

The federal group health and life insurance coverage terminates if an employee is eligible for a FERS annuity upon separation but postpones the start date. The employee may elect individual health and life insurance policies or temporary continuation of FEHB. At the time the postponed annuity begins, FEGLI may be reinstated based on the coverage at separation and the employee's eligibility to continue coverage into retirement. The annuitant may also reenroll in the FEHB program if he or she meets the usual requirements for continuing coverage into retirement at separation.

If an employee separates from service after having met the age and service requirements under the "MRA + 10" retirement option but dies before filing an application for retirement, he or she is deemed to have filed that application. The former employee is considered to have died as an annuitant, thereby ensuring the rights of survivors to the following benefits: (1) annuity benefit for a surviving spouse; (2) annuity benefits to children; (3) eligibility of survivors for FEHB coverage if the deceased was eligible to continue FEHB coverage as an annuitant and have been enrolled for family coverage; and (4) the lump-sum payment of unpaid FERS contributions to the person or persons entitled under the order of precedence.

An employee who wishes to apply for a MRA + 10 retirement must complete form SF 3107, Application for Immediate Retirement. An employee who chooses to file for a postponed annuity more than 30 days after the day of separation should complete form RI 92-19, Application for Deferred or Postponed Retirement, and send the application to:

Office of Personnel Management
Federal Employees Retirement System
Retirement Operations Center
P.O. Box 200
Boyars, PA 16020

About the Author

Edward A. Zurndorfer is a Certified Financial Planner and Enrolled Agent in Silver Spring, Maryland. He is also a registered representative with Multi-Financial Securities Corporation (Branch A9X), member FINRA/SIPC, also located in Silver Spring, Maryland.

Posted with permission from: MyFederalRetirement.com



Understanding "Deferred" And "Postponed" Federal Retirement
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