Let The Confusion Begin!

By Tammy Flanagan

June 7, 2013

The option of a phased retirement -- being partly retired while working part-time -- is closer to becoming a reality in the federal government. This week, the Office of Personnel Management issued proposed rules for allowing employees to work a part-time schedule while beginning to draw federal retirement benefits. The comment period on the proposed rules ends Aug. 5. Afterwards, OPM will publish final rules and then issue new forms for agencies to use in implementing the program.

In the meantime, the proposed rules are likely to generate a lot of questions -- and some confusion -- among employees. Here’s a look at what’s clear in the regulations, and what’s still up in the air.


To take advantage of phased retirement, employees must meet certain criteria:

Note: The proposed rules do not specifically address employees who are 62 with at least five years of service but less than 20 years, who would otherwise be eligible for immediate retirement. The regulations also do not specifically address FERS employees eligible for MRA + 10 retirement (under which employees with at least 10 years of service, but less than 30 -- or age 60 or 62 with more than 10 years, but less than 20 years -- are eligible to receive an immediate, but reduced, retirement benefit.) But the following statement in the rules indicates they may not be eligible: “Employees who do not meet these requirements will be excluded from electing phased retirement.”


During phased retirement, coverage under the Federal Employee Health Benefits Program and Federal Employees' Group Life Insurance will continue to be provided by the employing agency. The FEHBP employer contribution will be the same as for full-time employees. FEGLI coverage amounts will be based on the full-time salary for the position.

The proposed rules do not mention the government’s flexible spending account program, dental and vision insurance coverage or the Federal Long Term Care Insurance Program.

Former Spouse

The rules state: “Phased retirement annuities and pay are subject to the same rules for processing garnishment orders for child support and/or alimony as regular annuities and other federal pay.”


Initially, employees will only be permitted to work 50 percent of their full-time work schedule and receive 50 percent of their full retirement benefit under the phased retirement arrangement. The law allows different percentages at OPM’s discretion in the future.

Time Limit

Phased retirement will be a voluntary agreement between the employee and the agency. The authorizing agency official will provide written approval for this arrangement. The agency will be allowed to establish a time limit on the phased retirement as a condition for approving the request.

FERS Annuity Supplement

FERS phased retirees will not receive an annuity supplement.

Composite Retirement

When employees complete the period of phased retirement and transition to full retirement, their CSRS or FERS retirement will be computed as a composite of their original retirement benefit and the new retirement that they are eligible for based on the additional service performed during the period of phased retirement. The phased retirement period is treated as full-time employment. The retiree will receive 50 percent of the original retirement and 50 percent of the benefit adjusted by the additional service.

Survivor benefit elections would be based on the combined benefit. If the employee dies during the period of time that they are in phased retirement, the death would be treated as a death in service. There are no survivor elections made at the time that the employee enters phased retirement. These selections are made at the time of full retirement.

For employees who owe a deposit or a redeposit for prior civilian service or for military service performed before the phased retirement period, these deposits would need to be paid before entering phased retirement. Deposits and redeposits will not be possible at the point where a phased retiree decides to enter full retirement status. Military service deposits may be paid if military service is performed during the phased retirement period.

Cost of living adjustments would be added to the phased retirement annuity during the period of phased retirement.

Thrift Savings Plan

According to the TSP Board, phased retirees are considered employees for TSP purposes. Therefore, the following provisions apply:

Return to Full-Time Employment

Under a phased retirement, the idea is for the employee to go through a three-stage process: full-time employment, half-time employment while receiving half of a retirement benefit, then full retirement. It is possible, however, for the employee to end a phased retirement and return to full-time employment with the authorizing agency official’s approval. In this situation, the phased retirement would be treated as a period of part-time employment. The phased retirement annuity would immediately terminate.

By Tammy Flanagan

June 7, 2013