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Advice on how to prepare for life after government.

Retired -- and Working

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On July 6, President Obama signed the “Moving Ahead for Progress in the 21st Century Act” into law. It includes a phased retirement option for federal employees that will allow them to continue working while they sample retirement. That’s not only a nice option for them, but a valuable tool for managers to enable senior employees to mentor and train those who will eventually replace them.

What should we call this new hybrid retired/working status? How about “Retorking?”

The Office of Personnel Management has provided some guidance on the new retirement option, but the biggest question -- when will it be available? -- is still unanswered. OPM says the program will go into effect “at the time set in the regulations to be issued.” But it’s not clear when the regulations will be issued or what schedule will be set in those rules.

It seems that everyone wins by allowing this option of easing into retirement -- except maybe OPM. The new option will place an additional burden on the agency’s already strained retirement processing system. For employees who choose phased retirement, OPM will have to process their retirement applications twice -- once to determine the partial retirement benefit and then again when the employee shifts to full retirement. The agency already is behind on processing traditional retirements. OPM received 7,814 new retirement claims in June, during which time it processed 8,964 claims. That cut the inventory of retirement claims waiting to be processed to 48,323 -- but that’s still a huge backlog.

The Basics

If you are interested in phased retirement, here are some things you should know:
  • Use of the option requires the mutual consent of the employee and the agency.
  • Employees will be eligible to participate if they have worked full-time for the preceding three years.
  • Employees must be eligible to retire in order to choose phased retirement. For those in the Civil Service Retirement System, that means at least age 55 with 30 years of service or 60 with 20 years of service. Under the Federal Employees Retirement System, employees must be the minimum retirement age (55-57, depending on year of birth) with 30 years of service, or 60 years old with 20 years of service. (OPM did not mention retirement eligibility at age 62 with five years of service, which is available as a full retirement option under both CSRS and FERS. It is unclear if such employees will be offered the phased retirement choice.)
  • Employees who are subject to mandatory retirement are not eligible. This includes law enforcement officers, firefighters and air traffic controllers.
  • The additional time worked during the period of phased retirement will be added to increase an employee’s retirement benefit when he or she chooses to retire fully.
  • Initially, the only option will be to work 20 hours per week and receive 50 percent of the earned retirement benefit.
  • The employee will be permitted to return to full-time employment if the employing agency agrees to the change. If the employee chooses to return to full-time work, then the period of phased retirement would be treated as a period of part-time service. One year of part-time service scheduled at 20 hours per week would result in 50 percent of the normal annuity for that period of service. 
  • Sick leave will not be used to compute the phased retirement benefit. The balance of unused sick leave will be added to the computation of the final full retirement benefit.
  • The employee will continue to be eligible for benefits under the Federal Employees Health Benefits Program and Federal Employees Group Life Insurance. The coverage amount will be based on the full-time salary for the position. The FEHBP employer contribution will be the same as for other full-time employees (rather than the pro-rated amount that part-time employees receive).
  • If an employee owes a civilian or military service credit deposit, the decision to pay or not pay it must be made prior to entry into the phased retirement program. The effect of non-payment of a deposit will be permanent and no deposits or redeposit can be made at a later time.

Considerations

So who’s a good candidate for phased retirement? An employee who:
  • Is eligible to retire
  • Is mentally ready to retire
  • Is financially able to afford to be retired
  • Is happy in their federal position
  • Wants to continue to provide service to the agency before full retirement
  • Wants to ease into retirement, rather than retiring cold turkey
  • Is interested in working part-time
  • Is not interested in pursuing a second career

Who is not a good candidate for this option? An employee who:
  • Is not eligible for retirement
  • Is not able to afford to retire
  • Is not happy in their current position
  • Needs a change of scenery from their current position
  • Wishes to have a second career while collecting full federal retirement
  • Has other plans for retirement, such as relocating, traveling or pursuing other interests (although these can certainly follow a period of phased retirement)
 In addition to accruing additional CSRS or FERS retirement benefits during the period of phased retirement, employees who take this option would have additional wages credited toward their Social Security benefits, and would be able to keep contributing to the Thrift Savings Plan. Also, their sick leave balance would be available if needed. It seems that annual leave also would continue to accrue, but that was not clear in OPM’s explanation.
 
On the other hand, employees who fully retire could still pursue another career or part-time work. That way, they would receive their full CSRS or FERS retirement, although, depending on their earnings and age, they probably would not receive Social Security or the FERS supplement while working. They also could increase their Social Security benefits by adding additional wages to their earnings record. In the case of a CSRS employee, the second career option would allow someone to pay into Social Security to qualify for a benefit that they might not otherwise be entitled to because CSRS employees are exempt from paying the FICA tax.
 
One other option that provides flexibility for retiring employees is the ability to come back to work as a reemployed annuitant either with or without a dual compensation waiver. I’ve written about this option in the past. Here are those columns:
   
Final Word
 
For those employees who have been losing sleep over proposed changes to federal retirement benefits pending in Congress, remember that the phased retirement option is a change -- but not a negative one. If you look back over the past 30 years of modifications to the federal retirement system, I would guess the positives outweigh the negatives by at least 10 to 1.
 
On Monday, July 23, my colleague Bob Leins and I will be discussing the phased retirement option on our “For Your Benefit”show on Federal News Radio.  Tune in here. 

 

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 Federal News Radio on Mondays at 10 a.m. ET on WFED AM 1500 in the Washington-metro area. Archived shows are available on NITPInc.com.

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