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4 Things You Need to Know About Retirement Rules

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On many occasions, someone tells me that they’re worried that there is something about their retirement that they may not realize that they don’t know. Often, this is why they attend a retirement seminar or end up hiring a professional to provide advice.

There are good reasons for federal employees to be concerned about gaps in knowledge about their retirement benefits. Let’s look at a few.

The rules have changed many times over the years.

Civilian employees have had retirement benefits for almost 100 years. In that time, the rules that apply to it have been overhauled and amended many times. Here’s just one example: differences between the newer Federal Employees Retirement System and the old Civil Service Retirement System. Under FERS, civilian service that was not covered by retirement deductions is not creditable towards eligibility or computation of the basic retirement benefit if it was performed after 1988. This includes most temporary service, such as seasonal work for the National Park Service. However, if such service was performed before 1989, it can become creditable by making a contribution to FERS (with interest) prior to retirement.

Under CSRS, this type of service counts towards eligibility and calculation of the retirement benefit without paying a deposit if the service was performed before Oct. 1, 1982. There’s a slight reduction in the retirement benefit if the deposit is left unpaid, but the time would be used in the initial computation and counted towards retirement eligibility.

There are so many rules relating to retirement benefits that it’s hard to know which ones apply and which ones are irrelevant.

For example, mandatory retirement for most federal workers was abolished almost 40 years ago a result of civil service reform and amendments to the 1967 Age Discrimination and Employment Act. Most federal employees can work as long as they are able to perform “useful and efficient service.”

However, there are exceptions to this rule. There are mandatory retirement regulations for federal law enforcement officers, firefighters, air traffic controllers, most foreign service officers, and most intelligence officers.

In addition, there are rules that apply to some federal employees who are involuntarily separated from service. Those who meet certain requirements can retire under discontinued service retirement. Involuntary separations can involve political appointees, employees who are subject to a “directed reassignment” outside of their commuting area and aren’t willing to relocate, employees affected by a reduction in force.

Interpreting the rules can be tricky, because a lot hinges on definitions of key terms.

For instance, is a deferred retirement the same thing as a postponed retirement? Look in a thesaurus, and you’ll probably find them treated as synonyms. But they have distinct meanings in the federal retirement world.

An employee who is 57 and has 20 years of service can postpone immediate FERS retirement to avoid an age reduction penalty. An employee who is 47 with 20 years of service would be eligible for a deferred FERS retirement at their minimum retirement age, but could postpone the benefit to avoid an age reduction. To make things even more complicated, CSRS employees can’t postpone retirement, but if they leave federal service before becoming eligible for an immediate CSRS retirement benefit, they can defer their retirement.

Although retirement benefits are interrelated, it is often difficult to determine how one benefit can affect another.

Consider health insurance. Most federal employees and retirees get coverage through the Federal Employees Health Benefits program. But many also have coverage through TRICARE or CHAMPVA (if eligible through military service or a family member’s service), Medicare (if 65 or older or qualified as a result of a disability), or via a spouse’s private sector health plan. If you are eligible for more than one health plan, which one should you use? Can you get coverage under more than one plan at the same time? If so, is it a good idea?

It can be complicated to figure out if it’s worthwhile to pay for dual coverage. And if you do, it can be difficult to determine which plan is primary and secondary payer and how each plan’s benefits are affected by the other.

In addition, you may want to carry unnecessary coverage now to avoid a penalty later.

This is the case with Medicare. Many federal retirees are in good health at 65 and probably will not get their money’s worth out of Medicare Part B (which covers outpatient care). However, if you don’t enroll when you become eligible at 65, your premiums go up by 10 percent for every year you delay enrolling (unless you qualify for a Medicare special enrollment period).

A similar situation can arise with FEHBP.  Some federal workers are offered coverage under a non-federal spouse’s health plan at little or no extra charge. But carrying FEHBP coverage into retirement requires five years of coverage before leaving. So some employees pay for FEHBP coverage even if they have adequate coverage under another health plan.

All of these situations show that it’s important stay educated about the retirement process throughout your career. Attend retirement training sessions if they’re available at your agency. There’s always something new to learn. I’ve been studying federal retirement benefits since 1985, and there are still things that I don’t know that I don’t know. I’m  happy to continue learning.

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Tammy Flanagan has spent 30 years helping federal employees take charge of their retirement by understanding their benefits. She runs her own consulting business at www.tammyflanagan.com and provides individual counseling as well as online training for the National Active and Retired Federal Employees Association, Plan Your Federal Retirement as well as the Federal Long Term Care insurance Program. She also serves as the senior benefits director for the National Institute of Transition Planning Inc., which conducts federal retirement planning workshops and seminars.

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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