This is the fifth of a series of columns reviewing the retirement options for federal employees covered by the Federal Employees Retirement System (FERS). Presented in this column is the “MRA + 10” and “MRA + 20” postponed retirement option.
A previous column discussed the voluntary immediate retirement option for FERS employees who have at least 10 years and less than 30 years of federal service, and who have reached at least their minimum retirement age (MRA). A FERS employee’s MRA ranges from age 55 to age 57, depending on in what year the employee was born, as shown in the following table:
Minimum Retirement Age (MRA) According to Birth Year
Those FERS employees who have at least 10 years of creditable FERS service but fewer than 20 years of creditable FERS service and who reached their MRA can retire immediately under what is called the MRA + 10 voluntary retirement option. Those FERS who have at least 20 years of creditable FERS service but fewer than 30 years of creditable FERS service and who reached their MRA can retire immediately under what is called the MRA + 20 voluntary retirement option.
However, there is a downside for FERS employees who retire under the MRA+10 or MRA + 20 immediate retirement option in the form of a permanent FERS annuity reduction. FERS employees who retire under the MRA + 10 voluntary retirement option will have their starting FERS annuity permanently reduced by 5 percent per year (5/12 of 1 percent per month) for every year(month) the FERS employee retires before age 62. Those FERS employees who retire under the MRA +20 voluntary retirement option will have their FERS annuity reduced by 5 percent per year (5/12 of 1 percent per month) for every year(month) the employee retires before age 60. The following two examples illustrate:
Example 1. Steven has 15 years of FERS service and has an MRA of age 57. He retires on his 57th birthday. Because Steven is five years younger than age 62 when he retires, his FERS annuity will be reduced by five years times five percent/year, or 25 percent. The 25 percent reduction is permanent.
Example 2. Sharon has 22 years of FERS service and has an MRA of age 57. She retires on her 57th birthday. Sharon is three years shy of age 60 when she retires. Her FERS annuity will be reduced by three years times five percent/year, or 15 percent. The 15 percent reduction is permanent.
Minimizing or Eliminating the Annuity Reduction by Postponing the Start of the Annuity
A FERS employee who is eligible for an MRA + 10 or MRA +20 immediate retirement can minimize or eliminate the reduction associated with the immediate retirement by electing to postpone the start of the FERS annuity.
Commencing Date of a Postponed FERS Annuity
A separating FERS employee who has not begun receiving the MRA + 10 or the MRA + 20 FERS annuity benefit may elect to have the postponed FERS annuity begin on any date later than the first day of any month following separation from federal service, subject to the following conditions:
• An election of a FERS annuity commencing date should be filed approximately 60 days before the designated commencing date. The election is done on Form RI 92-19 (Application for Deferred or Postponed Retirement).
• A separating FERS employee may not select a postponed commencing FERS annuity date that is earlier than the 31st day after the postponement date the election is filed.
• In the case of the MRA + 10 postponed retirement, the postponed FERS annuity cannot begin later than the second day before the employee’s 62nd birthday. In the case of an MRA +20 postponed retirement, the postponed annuity cannot begin later than the second day before the employee’s 60th birthday.
• An election of a commencing date becomes irrevocable on the day OPM authorizes the first regular FERS annuity payment.
As discussed, the postponed FERS annuity is reduced by 5 percent per year (5/12 of one percent per month) by which the chosen commencing date proceeds the employee’s 62nd birthday for the MRA + 10 postponed FERS retirement and 5 percent per year (5/12 of one percent per month) by which the chosen commencement date precedes the employee’s 60th birthday for the MRA + 20 postponed FERS retirement.
A separating FERS annuity can avoid the age reduction entirely by choosing as the commencing date of the annuity:
• A date that is less than one full month before the employee reaches age 62 if he or she has less than 20 years of service; or
• The first day of any month after reaching age 60 if the employee has at least 20 years of service.
The following example illustrates the annuity reduction by age.
Example 3. Joan is a FERS employee, currently age 56 and 8 months (born May 23, 1968, with an MRA of 56 years and 8 months) and has 12 years of FERS service. Joan is eligible to retire immediately under the reduced MRA + 10 immediate retirement. Joan is advised of the amount of her FERS annuity reduction if she retires at age 56 years and 8 months. Since she is 5 years and 4 months under age 62, Joan’s FERS annuity would be reduced by 64 months times 5/12 of one percent per month or 26.67 percent. To eliminate the 26.67 reduction, Joan elects to postpone the start of her FERS annuity until April 15, 2030 (a little more than one full month before May 23, 2030, her 62nd birthday).
Example 4. Frank is a FERS employee, age 57 (born January 24, 1968), with an MRA of 56 years and 8 months and with 22 years of FERS service. Frank is eligible to retire immediately under the reduced MRA + 20 immediate retirement. Frank is advised of his FERS annuity reduction if he retires at age 57. Since he is 3 years under age 60, his FERS annuity would be reduced by 3 years times 5 percent or 15 percent. To eliminate the 15 percent FERS annuity reduction, Frank postpones the start of his FERS annuity until February 1, 2028, the first day of the month after he becomes age 60.
Health and Life Insurance Coverage
If a FERS employee is eligible for an MRA + 10 or MRA + 20 immediate retirement but decides to postpone the commencing date of the FERS annuity, then:
• The employee’s Federal Employees Health Benefits (FEHB) program health insurance and Federal Employees Group Life Insurance (FEGLI) program life insurance terminates.
• The employee may elect to apply for individual health and life insurance policies. The employee would have to apply on his or her own and qualify on his or her own, paying the full premium costs.
• The employee may elect to enroll in temporary continuation of coverage (TCC) under the FEHB program.
When the postponed FERS annuity starts:
• The annuitant may reenroll in the FEHB program if he or she met the usual requirements for continuing coverage into retirement. The annuitant may enroll in any FEHB plan or option for which he or she is otherwise eligible.
• The annuitant’s FEGLI life insurance coverage may be reinstated based on the coverage he or she had at separation and was eligible to continue into retirement. The annuitant may elect reduced FEGLI coverage during the adjudication of the annuity application.
FERS Retirement Annuity Supplement
A FERS employee who elects to postpone his or her FERS retirement annuity under either the MRA + 10 or MRA + 20 postponed retirement is not eligible for the FERS retirement annuity supplement.
Thrift Savings Plan (TSP)
FERS employees who postpone the commencing date of their FERS annuity under the MRA+10 and MRA+20 postponed retirement options can at any time make penalty withdrawals from their traditional TSP accounts. This is because they are at least age 55 when they leave federal service. With respect to the Roth TSP, a FERS employee who leaves federal service under the postponed retirement option would have to wait to the later of: (1) Age 59.5 and (2) Five years since January 1 of the year the employee made his or her very first Roth TSP contribution in order make penalty-free and tax-free withdrawals from his or her Roth TSP account.
Survivor Benefits
If a FERS employee separates from service after having met the age and service requirements for an immediate MRA + 10 or MRA + 20 annuity, but dies before actually filing an application for retirement, he or she is deemed to have filed the application. The former employee is considered to have died as an annuitant thereby ensuring the rights of survivors to the following benefits: (1) survivor annuity benefits to a spouse; (2) children survivor benefits; (3) eligibility of survivors for FEHB program coverage if the deceased was eligible to continuous coverage as an annuitant and had been enrolled for family coverage; and (4) the lump sum payment of the deceased employee’s FERS retirement contributions to the person or persons entitled under the order of precedence.