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Retirement: How to navigate the current chaos
Amid “deferred resignation” turmoil, federal workers are in uncharted territory. Here’s a little guidance.
These recent days have been like no other in the history of federal employment and retirement. With the whiplash back and forth with the “deferred resignation” offer it is hard to know how to proceed with this kind of uncertainty. I wish I could say that “the best is yet to come” or “this too shall pass,” but it appears that it is likely to get worse for many employees before the situation improves or at least stabilizes.
Federal employees have had to get familiar with the Voluntary Early Retirement Authority, which was clarified in the FAQs of the “Fork in the Road” memo from the Office of Personnel Management to mean that employees who are eligible for the deferred resignation offer and are at least age 50 with at least 20 years creditable federal service, or any age with at least 25 years creditable federal service are eligible for VERA along with the deferred resignation offer (unless your position is exempted from the program by your agency).
The FAQs further clarified that employees would continue to accrue retirement benefits during the deferred resignation period. Should employees elect to retire (either early retirement or normal retirement) before the final resignation date, your retirement election will override the deferred resignation.
One thing that needs to be clarified is the FAQ states that retirement dates between Oct. 1 and Dec. 31, 2025, are still eligible for deferred resignation (unless your position is exempted from the deferred resignation program by your agency). Also, if your retirement date is within this window, your deferred resignation date will be extended to match your retirement date. Does this mean that retirements for eligible employees can extend beyond Sept. 30 or only those employees who first become eligible for retirement after Sept. 30 can elect to retire during October through December timeframe? Also, for retirement after Sept. 30, will employees maintain current compensation and retain all existing benefits (including but not limited to retirement accruals) until the final resignation/retirement date? There continues to be a lack of clarity since the wording of the information coming from OPM is not in line with a typical VERA opportunity.
Ready for the next scenario?
According to the National Active and Retired Federal Employees Association’s advocacy department, there are several options for federal retirement and health benefits that may be under consideration.
Recently, the House budget committee released a couple lists of options under serious consideration that include increases to contributions into the Federal Employee Retirement System with no added benefit, reducing the rate of return on the Thrift Savings Plan’s G Fund, and limiting the government contribution towards health benefits via the Federal Employees Health Benefits program, forcing employees and retirees to pay significantly more out of pocket.
There has also been talk of changing the “high-three average salary” computation used for retirement benefits under CSRS and FERS to a “high-five.” Another threat is the elimination of the FERS Special Retirement Supplement that is payable to employees who retire with immediate, unreduced retirements under FERS and are younger than age 62. Under a VERA retirement, the FERS supplement is payable at the MRA.
Discontinued Service Retirement
What if you didn’t take the “deferred resignation” offer because you weren’t eligible to retire, or thought it was not real? Will you survive the hurdle of any subsequent terminations or reductions in force? Will you be able to retire if you refused the offer?
If “voluntary” reductions in the work force don’t work, what generally follows is “involuntary” reductions. An involuntary retirement is called “Discontinued Service Retirement.” The age and service requirements are the same as for a VERA.
Employees who are separated for cause on charges of misconduct or delinquency are not eligible for a DSR. To qualify for discontinued service retirement, an employee must receive specific written notice of a proposed involuntary separation. Examples of involuntary separations include job abolishment, directed reassignment to a position outside the commuting area, and reduction in force.
If an employee is between ages 50 and 60 with less than 20 years of service or any age up to age 50 with less than 25 years of service, they would not meet the age and service requirements for a DSR.
Severance Pay
If an employee is RIF’d without immediate eligibility for retirement benefits, they may be eligible for severance pay if they have completed at least 12 months of continuous service and are removed from federal service by involuntary separation for reasons other than unacceptable performance or conduct, for example. To learn more about severance pay, see the OPM Fact Sheet on this subject.
The basic severance pay allowance consists of:
- One week of pay at the rate of basic pay for the position held by the employee at the time of separation for each full year of creditable service through 10 years; and
- Two weeks of pay at the rate of basic pay for the position held by the employee at the time of separation for each full year of creditable service beyond 10 years; and
- Twenty-five percent of the otherwise applicable amount for each full 3 months of creditable service beyond the final full year.
The basic severance pay allowance is augmented by an age adjustment allowance consisting of 2.5 percent of the basic severance pay allowance for each full 3 months of age over 40 years. To estimate your severance pay, OPM provides a worksheet. Severance pay is limited to one year (52 weeks) and the total will not exceed the rate of basic pay at the time of separation.
What to do next:
Certified Financial Planner Brian Kuhn, a senior vice president of the Wealth Enhancement® financial planning firm, and I have similar ideas when it comes to being proactive about your retirement options. His list of suggestions includes:
- Continue to do your job well
- Ask questions about these offers you need clarity on
- Document what you do and are asked to do
- Download your personnel file and review it for accuracy
- Keep in touch with your union (or employee organization)
- Contact an attorney whose focus is federal employment law in case you need them.
- Assemble liquidity in case of a job change
- Identify an outside specialist who can consult on your employment benefits. This occupation exists and is different from HR, and different from a financial advisor.
- Talk to family about “what-if” scenarios and what you would do
- Identify how you would obtain health insurance should you lose entitlement to FEHB coverage. Estimate the cost of health insurance through the Marketplace®
- Manage stress: The Centers for Disease Control provides ideas to manage stress
- Consider working with a financial advisor who understands your federal benefits to build a retirement projection
I would add that it is important to educate yourself about your benefits and how those benefits transfer into retirement and which ones might be left behind. An important topic to review before you leave federal employment is the idea of “creditable” service used for retirement eligibility and computation.
Here are some of my past Retirement Planning columns that may help you learn more about your retirement benefits:
- Are you retirement ready (eBook)
A 2022 Congressional Budget Office analysis comparing the compensation of federal and private-sector employees, found that job security, deferred compensation, and flexibility to work from home are job attributes that federal employees may value. Federal employment has been considered to offer more security than many jobs in the private sector, making federal employment more attractive for workers – or it was until now.