Resigning instead of retiring

Have you ever wondered how many federal employees leave federal service before becoming eligible for an immediate retirement benefit? An analysis of 2021 attrition data from the Office of Personnel Management by the nonpartisan Partnership for Public Service, shows the following numbers regarding federal employees who resign from federal service versus those who retire: 

• Under age 30:  11,142 resignations 
• Age 30 – 39:  18,884 resignations 
• Age 40 – 49:  13,377 resignations  
• Age 50 – 59:  9,846 resignations; 18,567 retirements 
• Age 60 and above:  2,877 resignations; 43,202 retirements 

Keep in mind that these numbers don’t exactly match up with the 2022 OPM Statistical Abstract provided by OPM Retirement Services. According to the 2022 report, there were 84,494 FERS retirements and 12,462 CSRS retirements processed in 2021, along with 103,386 FERS retirements and 11,119 CSRS retirements processed in 2022.   

Despite these discrepancies, the bottom line is that not everyone who leaves federal employment is eligible to apply for retirement, so if you decide to leave federal employment early, do you have any entitlement to a future retirement benefit? 

You have two choices if you leave your government job before becoming eligible for retirement: 

• Ask that your retirement contributions be returned to you in a lump sum payment, or 
• If you have at least 5 years of creditable service at the time you resign, then you can wait until you are at retirement age to apply for monthly retirement benefit payments using form RI 92-19, Application for a Deferred or Postponed Retirement (FERS)  

If you leave federal service before you meet the age and service requirements to retire with an immediate retirement and you have completed at least 5 years of creditable civilian service, you may receive benefits when you reach one of the following ages: 

• At age 62, with at least 5 years of creditable civilian service. 
• At your MRA (age 57, if you were born in 1970 or later) if you have 30 or more years of creditable service. 
• At age 60, if you have 20 or more years of creditable service. 
• Between MRA and age 62 with at least 10 years of creditable service, however, your benefit will be reduced by 5 percent a year for each year (prorated monthly) you are under 62. 

To have entitlement to FEHB and FEGLI, you must retire with an immediate retirement which allows you to receive retirement benefits within 30 days of your separation. If you choose to postpone the application such as with an MRA + 10 retirement where there may be a reduction for your age, you may be permitted to reinstate your insurance coverage. You must have had coverage for the five years before your separation and your retirement must begin as a postponed, not as a deferred retirement. Be sure to carefully follow the instructions for choosing the date that you wish your retirement to begin on the FERS RI 92-19 form.       

If you are leaving your federal job and want a refund of your CSRS or FERS retirement contributions, you can get an application from your personnel office, complete it, and return it to them. If you are no longer in the federal service, follow the instructions on the Application for Refund of Retirement Deductions, SF 3106,. If you have been separated for 30 days or less, submit your application to your servicing personnel office. If you have been separated for over 30 days, apply to OPM:

U.S. Office of Personnel Management

Retirement Operations Center

Post Office Box 45

Boyers, PA 16017 

For service under FERS, you would get interest on the refund of those contributions if you worked more than one year. Interest is paid at the same rate that is paid for government securities (3.75% for 2024). If you had any service under CSRS while you worked, interest will be included in the refund of those contributions if you have more than one but less than 5 years of service. Interest is paid at 3%. 

Your retirement contributions are not taxable, but interest included in the payment is taxable. You can rollover lump sum payments representing your retirement contributions and applicable interest. 

An eligible payment can be paid either to you or directly to an IRA or other employer-sponsored plan such as a 401(k). Your choice will affect the amount of taxes you owe. OPM is required to withhold federal income tax from taxable payments over $200 at the rate of 20%. However, you may choose to take all or part of these payments in a direct rollover to an individual retirement account or an employer-sponsored retirement plan that accepts rollovers. The taxable portion can be rolled over into the TSP.    

If you choose to have the payment made to you and it is over $200, the taxable portion is subject to the 20% federal income tax withholding. The payment is taxed in the year in which it is received unless within 60 days after receiving it, you roll it over to an individual retirement account or retirement plan that accepts rollovers. You can roll over up to 100% of the eligible distribution, including the 20% withholding. To do so, you must replace the 20% withholding within the 60-day period. You will be taxed on any amount that you do not rollover. For example, if you roll over only the 80% of the distribution, you will be taxed on the remaining 20%. 

You can find more information about the taxation of payments from qualified retirement plans from the following Internal Revenue Service publications: 

IRS Publication 575, "Pension and Annuity Income" 

IRS Publication 590-A “Contributions to Individual Retirement Arrangements (IRAs)” 

IRS Publication 721, "Tax Guide to U.S. Civil Service Retirement System Payments" 

Form 4972, "Tax on Lump Sum Distributions."