I recently received a call from my friend Mary Ann's husband, Jim. He's thinking about returning to government. He was in the military for seven years during the 1970s, and later served 13 years as an FBI agent under the Civil Service Retirement System. But he receives no benefit from his civilian service because he took a refund of his retirement contributions when he left government in 1989.
Jim's military service will be used to calculate his Social Security retirement benefits. But he didn't have enough service to qualify for a military retirement and he didn't pay a service credit deposit while working as a civilian at the FBI, so he would have to return to federal service in order to credit his military service toward a federal retirement benefit.
If Jim does get rehired by a federal agency, he'd like to work for a minimum of three to five years before applying for retirement. He won't qualify for law enforcement retirement benefits since he is past the mandatory retirement age and didn't complete 20 years of law enforcement service. But he will qualify for either a CSRS Offset or a Federal Employees Retirement System immediate retirement benefit.
Here's how it might work: Let's say Jim comes back for three years at a salary of $100,000. He will qualify for a CSRS Offset retirement benefit computed at 42.25 percent of $100,000, or $42,250 per year. He would have to pay a deposit to get credit for his previous military service (with the interest that has accrued since 1985). That will add up to about $18,000, but the seven years of service will represent $14,000 a year in retirement benefits.
If Jim chooses not to pay back his refunded CSRS contributions, he'll have to take an actuarial reduction to his retirement benefit based on how much he owes (plus interest) and his age at retirement. This could be as much as a $10,000 reduction. But the 13 years of previous service represent $26,000 in future retirement benefits. And he plans to contribute the maximum to his Thrift Savings Plan account to offset the $10,000 reduction.
Jim also will be eligible to enroll in the Federal Employees Health Benefits Program and Federal Employees Group Life Insurance, and he'll receive credit for unused sick leave that he had accumulated during his previous service. He also might choose to be covered under FERS so he can receive agency matching and automatic TSP contributions in exchange for a smaller basic retirement benefit and no reduction in his Social Security.
Reasons for Returning
There are some compelling reasons to think about coming back to federal service. Here are a few to factors to consider:
- A former employee with five or more years of civilian service under CSRS would generally be rehired under CSRS Offset, with a six-month window to consider joining FERS. CSRS Offset employees have coverage under CSRS and Social Security. They benefit from the more generous CSRS retirement computation, but they also accumulate Social Security credits and their wages are credited toward a Social Security retirement benefit. The combination of the reduced (offset) CSRS benefit and the Social Security entitlement are often more generous than if the employee had been rehired under CSRS without Social Security coverage. But CSRS Offset employees do not receive any agency contributions to their TSP accounts.
- Former employees who took a refund of CSRS contributions prior to March 1, 1991, for five or more years of service would not have to repay these contributions in order to re-credit their past service toward eligibility and computation of their future retirement benefit. There would be an actuarial reduction to their retirement, but the time represented by the service would be credited regardless of repayment choice.
- Former employees with less than five years of civilian service in their previous appointments will automatically be placed in FERS if they receive a permanent appointment. This isn't so bad. FERS provides agency automatic and matching contributions to the TSP as well as a generous defined benefit -- not as generous as CSRS, but the trade-off is Social Security coverage and government contributions to the TSP.
- If the new appointment lasts for three years or longer, the retirement benefit will have the computation of a high-three average salary based on recent salaries rather than the salaries that were in effect during the employee's previous service. If the employee leaves with less than three years, then the high-three average salary will be a combination of recent and past salaries - the three highest consecutive years.
- Returning employees can reinstate health and life insurance benefits, along with recently enacted benefits, such as dental and vision coverage and long-term care insurance. FEHBP and FEGLI require that employees be eligible for an immediate annuity and have five years of coverage during the last five years of federal service in order to continue these benefits into retirement. Service from a previous federal job can be used to meet the five-year test.
- The rehired employee could retire with immediate unreduced benefits under CSRS Offset at age 55 with 30 years of service; age 60 with 20 years of service or age 62 with a five years of service. Under FERS, the requirements are similar, but the minimum retirement age is between 55 and 57, depending on the employee's year of birth. Also, FERS offers a reduced retirement benefit if the employee retires at the minimum retirement age with at least 10 years of federal service.
- Sick leave for former employees who were reemployed on or after Dec. 2, 1994, can be restored regardless of the period of separation. Sick leave may not be re-credited to employees who were reemployed before Dec. 2, 1994, and who previously forfeited sick leave under an old rule requiring that the break in service be less than three years.
I just remembered: I have eight years of federal service in the 1980s. Maybe I should check USAJobs to see what's available for a former retirement specialist with 23 years of training experience. On the other hand, do I really want to work five days a week for eight hours day? Let's see if there are any jobs that only require three days of work for six hours a day - but with full-time pay. Now that would make returning worthwhile.
Tammy Flanagan is the senior benefits director for the National Institute of Transition Planning Inc., which conducts federal retirement planning workshops and seminars. She has spent 25 years helping federal employees take charge of their retirement by understanding their benefits.
For more retirement planning help, tune in to "For Your Benefit," presented by the National Institute of Transition Planning Inc. live on Mondays at 10 a.m. EDT on federalnewsradio.com, or on WFED AM 1500 in the Washington-metro area.