This is the third of a series of columns reviewing the retirement options for federal employees covered by the Federal Employees Retirement System (FERS).
This column discusses the early retirement option available to eligible FERS employees in the form of a Voluntary Early Retirement Authority (VERA) (with no employee “buyout”) or a Voluntary Separation Incentive Payment (VSIP) (with a lump-sum payment in the range of $15,000 to $40,000) given to eligible employees who voluntarily separate through an early retirement. Employees eligible for a VSIP should be aware that the lump-sum payment is fully taxable (federal and state) and cannot be rolled over to the traditional TSP or to a traditional IRA.
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The purpose of the early retirement VERA and VSIP options is to assist an agency in completing a major personnel or workload change with minimal disruption to the workforce.
Early voluntary retirement allows eligible employees to retire early. It does not matter whether these employees are facing involuntary separation, transfer to another commuting area, or an immediate reduction in the rate of basic pay. In some federal agencies, their retirement creates vacancies that can be filled by employees who would otherwise be separated or downgraded.
Administrative Requirements
The Office of Personnel Management (OPM) may permit early voluntary retirement for employees of an agency or a segment of an agency undergoing a major reduction-in-force (RIF), a major reorganization, or a major transfer of function when requested by the agency concerned. The steps below must be followed before OPM authorizes early retirement:
1. Determination of Major RIF. The Employment Service within OPM determines that an agency is undergoing a major RIF, a major reorganization, or a major transfer of function. OPM makes this determination only after receipt of a written request from the agency head or his or her designee.
2. Determination of Geographic Area/Occupation. OPM determines the specific geographical area(s) or occupation(s) covered by the RIF retirement option.
3. Determination of Time Period. OPM stipulates a limited period of time during which the option will remain in effect. The agency may in its discretion end the time period earlier.
Employee Eligibility Requirements for Voluntary Early Retirement
When OPM determines that an agency is undergoing a major RIF and permits the agency to offer early retirement to eligible and interested FERS-covered employees, a FERS employee may apply to retire if the employee satisfies all of the following conditions: (1) Meets the age and service requirements; (2) Meets the civilian service requirement; (3) Separates from a position subject to FERS coverage; (4) Has service time in a position covered by the OPM authorization for the minimum time specified by OPM (usually at least 30 days); and (5) Separates by the close of the early out period.
• Minimum civilian federal service. A FERS employee must have at least five years of creditable civilian service to be eligible for an early voluntary retirement. Creditable civilian service for this purpose includes: (1) Service time for which full FERS contributions (via payroll deductions) are made and not refunded; (2) “Nondeduction” service – that is, temporary or intermittent service – performed prior to January 1, 1989 for which a full deposit is made; (3) Peace Corps or VISTA service performed at any time for which a full deposit is made; (4) Service for which full Social Security taxes and full or reduced CSRS deductions were taken if the CSRS deductions were not refunded; (5) Nondeduction CSRS service – temporary or intermittent service – whether or not a deposit for such service is made or deemed made under the alternative annuity procedures; and (6) Service for which full CSRS deductions made via payroll deduction and were refunded and not redeposited.
• Noncreditable civilian service. The following types of service performed under FERS may not be used in meeting the five-year minimum service requirement: (1) Service performed under FERS for which a refund of FERS contributions was made via payroll deductions, withdrawn when the employee left federal service but not redeposited when the employee re-entered federal service after October 28,2009; and (2) “Nondeduction” service – temporary or intermittent service – performed after December 31, 1988, with the exception of Peace Corps or VISTA service.
Minimum Age and Service for FERS Early Retirement
A FERS employee must meet one of the age and service requirements shown in the following table in order to separate under an early retirement.
Minimum Age/Minimum Service Requirements for Early Retirement
Note the following:
1. If an employee has at least five years of creditable civilian service, then creditable military service in which a full deposit was made may be used to meet the balance of minimum creditable service requirement for an early voluntary retirement.
2. Accrued and unused annual leave and/or sick leave hours may not be used to meet either of the creditable service requirements noted in the table above.
The following are two examples of FERS employees who qualify for voluntary early retirement:
Example 1. Joan, age 51, entered federal service on November 10,2004 at the age of 31. She has worked continuously since then. Her agency has been given permission by OPM to offer early retirement (a VERA) starting March 3, 2025. As of March 3, 2025, Joan will have over 20.33 years of creditable federal service under FERS and will be over age 50. She is therefore eligible to retire under the VERA and intends to retire on March 29, 2025.
Example 2. Carlos, age 46, entered federal service on February 1, 2008. As of February 1, 2025, Carlos will have 17 years of creditable federal service under FERS. Carlos has nine years of active-duty military service for which he made a full deposit. Carlos’ agency is offering an early retirement in the form of VSIP, starting February 1, 2025. Carlos is eligible for voluntary retirement because he has a total of 26 years of creditable FERS service (17 years of creditable FERS service plus nine years of bought-back military service).
No reduction in the FERS Annuity Resulting from Early Retirement
There is no FERS annuity reduction for FERS employees under the age of 55 who retire under a VERA or VSIP. However, because the more years a FERS employee works the larger the employee’s starting FERS annuity, retiring 10 to 20 years under an early retirement will result in a smaller starting FERS annuity. Also, under the FERS rules, there is no cost-of-living adjustment (COLA) until a FERS annuitant reaches age 62.
FERS Retirement Annuity Supplement
Assuming a FERS employee has at least one calendar year of FERS service, the retirement annuity supplement is payable to a FERS employee retiring on an early voluntary retirement starting when the retired employee reaches his or her minimum retirement age (MRA).
Thrift Savings Plan (TSP)
FERS employees can make penalty-free (no 10 percent early withdrawal penalty) withdrawals from their traditional TSP account if they retire sometime during the year they become age 55 or older. If they retire before the year they reach age 55 via a VERA or VSIP, then they will likely have to wait until age 59.5 to access their traditional TSP and not pay a 10 percent early withdrawal penalty.
There are two ways a FERS employee who retires before age 55 can access their traditional TSP accounts without penalty:
• Purchase a TSP annuity using all or a portion of their traditional TSP, or
• Receive traditional distributions based on life expectancy. A TSP participant can request that a portion of their traditional TSP be paid out over the TSP participant’s life expectancy. These monthly payments must continue for the later of five years and age 59.5.
With respect to the Roth TSP, the earliest age a Roth TSP participant can access their Roth TSP account without penalty is age 59.5.
A FERS employee who is considering early retirement should be aware that once they retire, they can no longer contribute to the TSP. With an extended retirement due to an early retirement, the result could be a dearth of income during the retirement years.
FEHB Program and FEGLI Program Benefits
A FERS employee who is considering early retirement and who has been enrolled in the Federal Employees Health Benefits (FEHB) program may retain their FEHB benefits in retirement if the employee has been enrolled in the FEHB program continuously during the five-year period ending on the day the employee retires.
The same five-year continuous enrollment rule applies to the Federal Employees Group Life Insurance (FEGLI) program.
FERS employees who are eligible for and retire under a VERA or a VSIP will likely need to seek new employment with a private employer. A FERS retiree may earn as much in salary as necessary with no effect on their FERS annuity. The FERS retirement annuity supplement is, however, affected by an “earnings” test. In particular, if the FERS annuitant’s earned income (salary/wages and/or net self-employment income) exceeds the annual limit, then OPM will reduce the FERS annuity supplement monthly payment, perhaps totally.
