Are You Thinking About a “Deferred” Retirement?

This is an overview of deferred retirement annuity versus a postponed retirement annuity.  It is primarily focused on FERS employees who are considering leaving the civil service early and is NOT intended to replace the HR or OPM standing guidance on the subject.  I suggest that federal employees make great efforts to work with their respective HR departments as it will provide a smooth transition into retirement.  

Let’s start this overview with an understanding of the basics for immediate retirement annuities.  You must qualify for an immediate annuity in order to retire and start collecting a FERS Pension/Annuity immediately.  Listed directly below are the “Qualifications” for retiring on an Immediate Annuity for current FERS employees:   (MRA = Minimum Retirement Age by Birth Year)

Typical:                                                                                                               Variations:

  1. MRA/30 yrs of service                                                                         6c Employee (20 yrs of 6c credited service)
  2. 60 yrs old /20 yrs of service                                                               Disability Retirement Awarded
  3. 62 yrs old /5 yrs of service                                                                  VERA/VSEP Offered & Accepted
  4. MRA/10+ yrs (Permanent Age Reduction to Annuity)              Note: 62/20 years qualifies for 1.1% (FERS Multiplier)

As can be seen in the above qualifications and variations, there are many ways to qualify for an immediate annuity.  However, if the above conditions are not met, what are the options for FERS Employees who are faced with a decision to leave the Federal Government early?  You may either take a deferred annuity or postponed annuity–there is a BIG difference!  Let’s take a look:

Postponed Annuity:

In order to be eligible for a “Postponed Annuity,” the federal employee must be currently employed in the FERS System and have qualified for an immediate annuity.  It is typically the sort of annuity that would be age-reduced (option “D” above – MRA/10+).   Instead of starting their annuity, they POSTPONE taking receipt of the annuity until sometime in the future, thereby reducing or eliminating the age-based reduction of their annuity.

KEY POINT:  All federal employees who ARE eligible to receive an immediate annuity at separation or retirement BUT elect instead to POSTPONE taking the annuity until a later date ARE eligible to restart their health and life insurance benefits (FEHB and FEGLI) once they begin taking receipt of the annuity.

The FERS Employees who retire under the circumstances listed above are eligible for Immediate Annuities.   The information below is only referencing Deferred Annuities for FORMER FERS employees who had not qualified for an immediate annuity when they left service.   While the term “postponed” is often used in both scenarios, the crucial difference is whether the employee is/was eligible at separation for an immediate annuity within 30 days OR NOT.

Deferred Annuity:

A deferred retirement annuity may be payable at a future date to an employee who separates from a position, subject to FERS, or transfers to a position not covered by the retirement system before qualifying for an immediate annuity.  A former employee is eligible to receive a deferred retirement annuity if he or she meets ALL of the following criteria:

  • Is not eligible for an immediate annuity within one month of separation
  • AND meets the minimum civilian service requirement;
  • AND does not take a refund of retirement deductions after separating from service (or transferring to a non-covered position);
  • AND one of the following two conditions:
  1.  is age 62 with at least 5 years of creditable service
  2.  OR attained MRA after separation and had 10 years creditable service (5 of which must be civilian.)

A deferred annuity is reduced by five-twelfths of 1 percent for each full month by which the commencing date of annuity precedes the 62nd birthday of the employee. The reduction is 5 percent for each full year the employee is under age 62.   There is no wage increase or COLA applied retroactively, so the Deferred Annuity is based upon the former employee’s High Three at the time he separated from service.  COLAs begin only after ALL of the following criteria are met:

  • The former employee takes receipt of the annuity
  • The former employee reaches age 62
  • The future COLAs are declared
  • The annuitant has been retired long enough to qualify for them

KEY POINT: A deferred annuitant is not eligible to restart government health and life insurance (FEHB or FEGLI) coverage and is NOT eligible for the FERS Supplement.

Age 62 is commonly thought of as the start date and time for most deferred annuitants.  It typically represents when their annuity can be started without being subjected to a permanent age reduction.  However, take into consideration the following regulations regarding the start of a deferred annuity:

  1. If you have greater than 5 years but less than 10  years of civil service when you left, you must wait until age 62 to begin your Deferred Annuity.
  2. If you had 10 or more years of service (5 of which must be civilian) when you left civilian service, you can start a deferred annuity as early as your MRA.  However, depending upon the years of service you had when you separated, you may have a permanent age reduction penalty.  To avoid the age reduction penalty in these circumstances, you have the option to postpone taking your Deferred Annuity until the penalty is reduced or eliminated.   You would still be ineligible to restart FEHB or FEGLI.   If you have 20+ years, you have additional options (see exceptions below).

Like any good government rule or regulation, there are exceptions to the above rules regarding the starting of your deferred annuity.  There are a few situations in which a former FERS employee can begin a Deferred Annuity prior to age 62 without a permanent age reduction penalty.  Here is a list of the exceptions to those deferred annuity regulations:

  1. At age 60: To qualify for this exception, the federal employee must have separated from service prior to attaining MRA and had between 20 and 29.99 years of service.   In this case, the employee is eligible to start a Deferred Annuity at age 60  WITHOUT an age reduction penalty.  In this scenario, the employee is still not eligible to begin receiving COLAS until age 62, nor can he receive the FERS Supplement or restart FEHB/FEGLI.
  2. Attain MRA with 30 years of prior service:  To qualify for this exception, the federal employee must have separated with 30 years of creditable service prior to attaining MRA.    Once they attain their MRA, they are eligible to begin their Deferred Annuity with no age reduction penalty.  In this scenario, the employee is still not eligible to receive COLAs until age 62, nor can they receive the FERS Supplement or restart FEHB/FEGLI.

Special Details of the Deferred/Postponed Annuity Option:

·         When to Apply:  Send your application to OPM approximately 60 days before you want your benefits to begin. Send your completed application to the address below: (Please note this address was appropriate 4/2015 – be sure to double check the address in the future for changes)

Office of Personnel Management
Federal Employees Retirement System
P.O. Box 45
Boyers, PA 16017-0045

·         Caveats If You Die Before Applying for a Deferred Annuity:

1.     If you have less than 10 years of creditable service or no eligible survivor, any contributions remaining in the retirement fund are paid in a lump sum (with interest) to your designated beneficiary or an individual in order of precedence as set by law.

2.     If you have 10 or more years of creditable service for which withholdings or deposits remain in the Retirement fund (5 years of which is creditable civilian service) and your spouse was married to you at the time of your separation from Federal service, he/she would be eligible for a survivor annuity. Your surviving spouse may elect to receive a lump-sum payment of your retirement contributions in lieu of a survivor annuity.

KEY POINT: It is a very important decision to determine whether postponement or deferment of your federal annuity is right for you.  It can cost thousands of dollars in value to you and your family if you make the wrong decision.  Please thoughtfully consider all that you have read here and seek the advice and counsel of a benefits expert you trust to walk you through that decision.  When it is all said and done, you will be glad you did!

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About Gary Fouts:

Mr. Gary Fouts is currently the National Director of Retirement Benefits Training and a Senior Partner for Retirement Systems Solutions. He is responsible for all matters relating to both the development of RSS regional specialists across the nation and the creation of comprehensive and up-to-date training materials for federal, state and local employees or agencies. He specializes in federal, state and local benefits training and coordinates agency-sponsored and public seminars on how to structure retirement benefits. Prior to his current position, Mr. Gary Fouts served in the U.S. Navy, retiring after 22 years of faithful service as a US Navy Intelligence Officer. During that time he was directly responsible for supporting the warfare communities with valuable and timely intelligence. A trademark of his career in this capacity was the ability to inform his war fighting customers of what they needed to know to conduct their mission. He always distinguished between the facts that surrounded a situation and the emotion of the moment. This is a skill that translates directly into his line of work today as a benefits counselor. As our governments continue their never-ending expansion and contraction, now more than ever, it is crucial that all employees have an opportunity to receive clear, objective advice relative to their retirement benefits. Gary Fouts graduated in 1991 from Purdue University (Go Boilermakers!!!). He holds a Bachelors degree in Computer Information Systems and a Masters degree in Quality Systems Management. Mr. Fouts is a very active member of his local church and serves on the board of various charities. He is a devoted husband and father of five children and is married to Dr. Sara Lee Fouts.

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2.Attain MRA with 30 years of prior service: To qualify for this exception, the federal employee must have separated with 30 years of creditable service prior to attaining MRA. Once they attain their MRA, they are eligible to begin their Deferred Annuity with no age reduction penalty. In this scenario, the employee is still not eligible to receive COLAs until age 62, nor can they receive the FERS Supplement or restart FEHB/FEGLI.

What is the source of this rule? I could not confirm it.