Thinking About Getting Out of Government? Here’s What You Need to Know

Lately, it seems like I’ve been conducting seminars for as many mid-career employees as for those nearing retirement. It’s great to see younger workers planning for the future.

One difference with midcareer employees is that many of them aren’t planning to complete their careers as federal employees. I always try to point out the value of working long enough to retire and be eligible for lifetime health benefits and the other advantages enjoyed by federal retirees. Still, some employees are going to leave government service before they are eligible for immediate retirement.

If you’re in this group, there are some things you should know before you leave.

Deferred Benefits

Under the Federal Employees Retirement System, even if you leave early, you may be entitled to a deferred retirement benefit. To qualify, you must meet the following requirements:

• Have at least five years of civilian federal service before you resign.
• Do not elect to receive a refund of your FERS retirement contributions.
• File for your future retirement benefit as early as your minimum retirement age (55-57, depending on your year of birth) if you had at least 10 years of prior service. The benefit will be reduced for age if you had less than 30 years of service.
• If you had 20 or more years, then you can file for an unreduced deferred benefit at age 60.
• If you had less than 10 years, but more than five years, then you can file for the deferred FERS benefit at age 62.
• When you’re ready to apply, you’ll need to send an application to the Office of Personnel Management.
• If you later return to federal service, you can reinstate your prior service and eventually qualify for an immediate retirement benefit.

Insurance

If you separate before you are eligible for an immediate benefit, you’ll have limited continuation of your federal insurance benefits.

• Federal Employees Health Benefits Program: Your health insurance coverage will end 31 days following your separation. Within 30 days of your separation, you can apply for Temporary Continuation of Coverage. It’s similar to COBRA in the private sector. You can continue it for 18 months after your resignation. But it’s not cheap: Enrollees must pay the employee and the employer share of the premium plus a 2 percent administrative fee.

• Federal Employees Group Life Insurance: Your coverage will continue for 31 days following your separation at no cost. You may convert to an individual policy within 31  days of your resignation. Since you will no longer be part of the group contract, the premium payments may be much higher than the FEGLI premiums.

• Federal Employees Dental and Vision Insurance Program coverage does not continue following your separation even if you are entitled to a deferred annuity.

• Federal Long Term Care Insurance Program coverage will continue even if you separate. If you leave the government and are paying premiums by payroll deduction, you will have to make arrangements with Long Term Care Partners to start paying premiums directly or by automatic bank withdrawal from your checking or savings account.

Thrift Savings Plan

You can keep your money invested in the TSP as long as your account balance is $200 or more. Most FERS employees are entitled to keep the automatic 1 percent agency contribution as long as they have completed three years of service. You are immediately vested in (eligible to keep) your contributions, your agency’s matching contributions and the earnings in your account.

This allows you to continue to enjoy the TSP’s low administrative expenses, move other money into your TSP account from an IRA or eligible employer plan, continue to make interfund transfers, and avoid paying income taxes while your money remains invested. You can leave your money in the TSP until you must start making required minimum withdrawals after age 70 ½.

Social Security

Federal employees under FERS are covered by Social Security and Medicare the same as private sector workers. If you continue to work in a job covered by Social Security and Medicare taxes, you will continue to add to your Social Security record.

Annual and Sick Leave

Federal employees who separate from service receive a lump-sum payment for their unused annual leave. An employee who has a break in service and returns to work for the federal government is entitled to the recredit of his or her sick leave, regardless of the length of the break in service.

Federal employees who resign before they are eligible to retire should be aware that many private sector employers do not offer the kind of defined benefit pension that government employees get. In addition, most private sector employers do not allow retirees to continue their employer health insurance — or if they do, you may have to pay the full premium.

Federal employees who stay in service long enough to qualify for immediate retirement benefits  enjoy lifetime retirement income with cost of living adjustments. Before deciding to resign from federal service prior to becoming eligible for retirement, be sure to consider what you are giving up.

Photo: Flickr user Brendan Riley