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Resigning Instead of Retiring

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Flickr user Siaron James

What happens when a federal employee who is eligible to retire decides to resign instead of filing for retirement? Well…they quit. Their paycheck stops and their retirement doesn’t commence until they decide to file for retirement benefits. It’s not a very common occurrence, but I’ve been discussing it lately with a couple of my associates: Ray Kirk, a former Office of Personnel Management official and federal benefits expert; and James Marshall, deputy director of the National Active and Retired Federal Employees Association’s Federal Benefits Institute.

Here are some situations in which an employee who is eligible to retire may decide to resign instead:

  • They want to work for a different federal agency, but not continue with current employment while seeking a new position. (This could be due to any number of reasons, such as a conflict with management, job dissatisfaction or the end of a term appointment.)
  • They are interested in moving to a new state or different country, and seeking reemployment afterward.
  • They want to prevent an ex-spouse from receiving a court-ordered share of their retirement benefit—even though that keeps the employee from receiving their own share of the benefit.

Why not just file for retirement and get the benefit you’re entitled to receive? There are several potential reasons.

Once you voluntarily retire and then become reemployed in federal service, you are deemed a reemployed annuitant. This may require an offset to your salary in the amount of your retirement benefit, so you would only receive the difference between your salary and your benefit. Having the new service added to your retirement would require at least a one-year commitment to reemployment, and having your entire retirement recomputed would require five years of additional service.

There are exceptions to the salary offset under certain conditions, such as:

Employees who leave federal service at their minimum retirement age with less than 30 years of service but more than 10 years of service, or at age 60 or 61 with less than 20 years of service, but more than 10, will incur a penalty of 5 percent for every year they’re under age 62 at the time they file for their retirement benefit. This type of retirement is only available under FERS and is known as an MRA + 10 retirement. Postponing the application will reduce or eliminate the reduction. If the employee returns to federal service prior to filing for the retirement benefit, they will not be considered a reemployed annuitant. They would simply be a rehired former employee.

If you’re obligated to pay part of your retirement to your former spouse, the payment will begin once you file for your retirement. Court-ordered retirement benefits are not payable until OPM has determined that the court order is acceptable for processing and the former employee’s retirement benefit commences.

If you are married at retirement, your benefit will be reduced to provide a survivor annuity (unless your spouse waives their right to this benefit). If your retirement continues upon reemployment, the reduction to provide a survivor annuity also will continue.

I recently met a former employee who is 58 with more than 20 years of regular FERS service who separated before reaching her MRA. She’d like to find a FERS-covered position, but wants to know how she would be treated upon rehire if she wasn’t able to secure the job until after her 60th birthday (which is when she will be eligible for her unreduced deferred annuity). Would she be considered a reemployed annuitant if she were to return to federal service after turning 60?

The answer is that anyone who separates from federal service without filing a retirement application and is subsequently rehired would be treated as a rehire and not a reemployed annuitant. This is true even if the employee had been eligible for an immediate retirement when she separated. She would have to apply for retirement, be approved, and start receiving payments prior to being rehired in order to be considered a reemployed annuitant.

In another case, an employee resigned from his federal job but was hoping to be rehired at some point. He was eligible to retire, but wanted to delay his retirement application in the event that he would be rehired and to avoid his former spouse being paid her share of his retirement as spelled out in a court order. By delaying his retirement application, he bought some time to consider other federal employment offers and delay the division of his retirement benefit to his former spouse.

The most interesting case I’ve ever encountered was related to me by Ray Kirk. It involved Albert and Sylvia Oshiver, who are both now deceased. Albert was a federal employee from 1942 to 1967. Sylvia claimed he abandoned their marriage in 1955. By 1986 Albert was declared a missing person, and Sylvia became the trustee for his estate. She filed a retirement application on behalf of Albert. OPM denied the application, ruling that the right to file for retirement is a personal right, which cannot be delegated or assumed by a trustee or guardian when a former employee is missing.

Also, Albert’s absence from his residence did not constitute a legal disability under the retirement law that would permit payment of his benefits to a court-appointed guardian.

Albert died in 2005 at age 85; Sylvia died in 2015, three years after their daughter, Sherry, passed away. Apparently Albert did take his retirement with him when he died. But it seems like there might have been a better way to prevent his wife from receiving part of his benefit than disappearing for 20 years and denying not only his wife and daughter but himself of his earned retirement.

Photo: Flickr user Siaron James

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.retirefederal.com and provides individual counseling as well as online training for the National Active and Retired Federal Employees Association, Plan Your Federal Retirement and 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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