By: Bob Braunstein, Federal Benefits Specialist
Published: June 2021
When the Federal Employees Retirement System (FERS) was introduced as the alternative to the original Civil Service Retirement System (CSRS) in the mid-1980s, it was touted as a more flexible and portable program – which, in fact, it is. Instead of a pension-only retirement plan that required staying in Federal service for almost 42 years to gain the maximum entitlement, FERS offers the following flexibilities:
- A pension with a personal early retirement option; CSRS early retirements require special circumstances,
- Social Security (SS) coverage for the same years of service; CSRS is not covered by SS, and
- Thrift Savings Plan with agency matching; CSRS employees do not get agency matching on their TSP contributions.
Virtually every aspect of FERS is portable when one leaves Federal service, even prior to immediate retirement eligibility. And unlike CSRS, which does not allow employees to retire early at their own discretion, FERS offers a novel at-will retirement scenario for late-comers to Federal service – an ability to retire on an immediate pension with insurance benefits with as little as 10 years of creditable Federal service.
Known as the Minimum Retirement Age (MRA) + 10 scenario, this unique retirement option affords a pension with insurance benefits (health, life, dental, and vision). To be eligible, one must reach the FERS MRA (between 56 and 57 based upon year of birth) and again, have completed at least 10 years of service. Early retirement is often attractive to those with significant prior employment looking to either retire altogether, or move on to other work opportunities. Whatever the reasons for leaving, under MRA + 10 one receives a pension and accompanying insurance benefits for life. But there are financial considerations that are important to understand prior to separating from Federal service under MRA + 10. Specifically:
- When one retires immediately under these provisions, there is an age-based reduction to their pension equal to 5% for every year they are under the age of 62; for example, if your MRA is 57, your pension – if started immediately – is reduced by 25% for age.
- When one retires under MRA +10, they are not qualified for the FERS Annuity Supplement – an OPM-paid enhancement to pension that adds income up to one’s projected age-62 SS monthly amount as much as 6 years prior to reaching age 62).
While the FERS annuity supplement is never part of MRA + 10 retirements, the age reduction to pensions can be lessened or eliminated by “postponing” retirement. To postpone retirement, affected employees resign from Federal service and apply for their pensions later at the Office of Personnel Management (OPM), when the age reduction no longer applies.
So how does postponed retirement differ from deferred retirement? Confusion between deferred and postponed retirements are common given the similarity of the terms that describe them. In most situations, “deferred” and “postponed” can be used interchangeably as they are synonyms. But when you use them as adjectives to describe retirement options, they could not be more different.
To add to the confusion, applications for deferred and postponed retirements are made on the same form, RI 92-14 “Application for Deferred or Postponed Retirement.” When you read the title of the form, it seems to suggest that one could choose between the two options retirement options – but in fact, they cannot. So, what’s the difference between them? Consider the following examples:
John has 20 years of service and resigns at the age of 47. Given that he is not eligible for immediate retirement, he leaves his retirement contributions in the FERS retirement fund to ensure eligibility for an unreduced deferred retirement at 60. Not returning to Federal service, at age 60 he applies for a deferred retirement at the Office of Personnel Management (OPM). OPM starts his monthly pension based on his high-3 average salary when he separated (13 years earlier at the age of 47). He could have begun the deferred retirement at age 57 – which would have been his FERS MRA had he stayed in service – but this would have resulted in an age reduction of 25%. Critical factor: Because John was ineligible for retirement when he separated from Federal service, his later eligibility for an unreduced deferred pension at 60 – 13 years after leaving the government – does not qualify him for reenrollment in any of the insurance benefits.
Sally has 14 years of service and decides to separate at the age of 56 (her FERS MRA). She is eligible for an immediate pension with insurance benefits, but with an age reduction of 30 percent (5 percent for each year she is under age 62). Because she is separating to pursue other employment with similar income and insurance benefits, Sally decides to exercise her option to resign and postpone her age-reduced retirement. She continues to work outside the government until she reaches age 62, when the pension available to her is no longer subject to age reduction. She then applies for the unreduced pension based on her high-3 average salary when she separated 6 years earlier, at the age of 56. Critical factor: Because she was eligible for immediate retirement when she separated from Federal service, she is able to reenroll in all of the insurance benefits for which she originally eligible when she resigned.
In summary, the primary factor in determining eligibility for postponed vs. deferred retirement is whether one has reached an age and service combination rendering them eligible to retire on an immediate pension. MRA + 10 retirees meet this qualification as they can to retire immediately on an age-reduced pension. But the age reduction allows them the option of resigning and postponing their retirements until the reductions no longer apply. And, because they were technically old enough and had sufficient service to retire immediately when they resigned, they can reenroll in their insurance benefits when they start their postponed pensions. Conversely, employees who leave Federal service with 5 or more years of creditable service prior to eligibility for immediate retirement, can become eligible for deferred retirements when they reach the age of 62, or even earlier if they have 10 or more years of such service. But when they start their deferred pensions, they are ineligible to reenroll in insurance benefits because they were not eligible for immediate retirement when they resigned.
For more information on deferred and postponed retirement, see the following OPM links: