Separating Before Retirement Eligibility

If you are considering separating before retirement eligibility, that is, if you do not meet the age and service requirements to draw an immediate annuity when you separate from government, your benefits will be treated in the following way:

Effect of Separation on Retirement

There are two options regarding retirement benefits: take a refund or take a deferred retirement benefit.

Refund—You may apply for a refund of the contributions you made during your working time to the civil service retirement fund (not including any government share) if you have been separated from federal service for at least 31 days (or have occupied a position not covered by federal retirement for at least 31 days). Before you can receive a refund, you generally must notify your spouse and any former spouse that you have filed the application. You may be barred from receiving a refund if the refund would end the court-ordered right of any spouse or former spouse to future benefits based on your service.

Certain special rules apply according to retirement system:

  • Under FERS, if you have more than one year of service, market rate interest on the contributions will be part of the refund, compounded annually up to the month before OPM makes the payment. The form to use is SF 3106, Application for Refund of Retirement Deductions.
  • Under CSRS, no interest is paid unless the period of service is between one and five years, in which case interest would be paid at the rate of 3 percent, compounded annually to the date you left government. The form to use is SF 2802, Application for Refund of Retirement Deductions.

Under either system, if you take a refund of your retirement contributions at separation and return to federal service you can recapture that time toward your annuity calculation. See Redeposit Service.

Effect of separating before retirement eligibility on deferred annuity

If you have at least five years of creditable civilian service, do not receive a refund of all retirement contributions, and are not eligible for an immediate retirement benefit, you may be eligible for a deferred annuity at age 62. Under FERS, if you have at least 10 years of creditable service, you may elect to receive a deferred annuity as early as the first day of the month after you attain your Minimum Retirement Age (55–57 depending on year of birth). Your deferred annuity will be reduced by 5⁄12 percent for each month (5 percent per year) by which the commencing date of annuity precedes your 62nd birthday, unless you have at least 30 years of service; have 20 years of service and postpone the commencing date until you are age 60; or have at least 20 years of service as an air traffic controller, firefighter, law enforcement officer, or Member of Congress.

Contact the Office of Personnel Management at (888) 767-6738 to ask for OPM Form 1496, Application for Deferred Retirement (CSRS), or RI 92-19, Application for Deferred or Postponed Retirement (FERS). Fillable versions of both are available at www.opm.gov/forms.

The benefit is computed in the same way as a regular retirement benefit. However, the benefit is not adjusted for inflation or wage growth during the time between your separation and the beginning of the benefit.

If you want to make a deposit for post-1956 military service so that you can receive credit for this service in the computation of your deferred annuity, you must pay the deposit to your employing agency before you separate from federal employment.

Note: You cannot reinstate your health or life insurance benefits coverage if you receive a deferred annuity. If you die before reaching age 62 no survivor annuity is available. The survivor will only get a lump-sum refund of the retirement contributions. If you die after age 62 and haven’t applied for a deferred annuity, the same happens. Also, unused sick leave is not creditable in the benefit calculation for a deferred retirement. See Credit for Unused Sick Leave.

Health Insurance

When you separate from service, you may choose to continue FEHB coverage for 18 months after your separation. If you take advantage of this temporary continuation of coverage option, you generally must pay both the employee and the employer share of the premium plus an administrative charge of 2 percent.

You can choose to enroll in the same plan you had at separation or any other plan, option, or type of enrollment for which you are eligible. (Defense Department employees should check with their personnel department concerning payment of premiums.)

Temporary continuation of coverage begins as soon as the 31-day free extension of coverage ends regardless of when you elect it. Your agency is required to notify you about your eligibility for temporary continuation of coverage within 60 days after you separate. You have 60 days after receiving the notice to enroll. If you enroll after the 31-day free extension expires, your enrollment will be retroactive to the expiration of the 31-day free extension and you will be billed for the retroactive coverage.

If you do not want to continue your health benefits coverage under the temporary continuation provision, you may convert to an individual (nongroup) contract. The conversion contract is available only from the carrier of the plan you are enrolled in when you separate. If you continue your coverage under the temporary continuation provision, you may convert to an individual contract through the end of the 18-month period.

If you do convert, you must pay the entire cost of coverage and your benefits may be less than previous coverage. However, the carrier must offer you a nongroup contract regardless of any health problems you or your family members may have.

Federal Dental and Vision Insurance Program

Under FEDVIP, eligibility for coverage is lost on separation for reasons other than retirement, although those under the Federal Employees Retirement System who are eligible for an annuity at their minimum retirement age with 10 years of service and who defer receiving benefits may reapply for coverage when their annuities begin. There is no extension of coverage, temporary continuation of coverage or right to convert to an individual policy under FEDVIP.

Life Insurance

Life insurance under the Federal Employees’ Group Life Insurance program terminates at the end of the pay period in which you separate. You then have a 31-day free extension of coverage during which you may convert to an individual policy without having to provide any evidence of medical insurability. You can have this policy written for any amount equal to or less than the total amount of coverage you had when your group policy was terminated and will pay full premiums at the individual rate, not a group rate. Rates will depend on how much insurance you apply for, the type of policy you want, your age; and your risk category on the day your group insurance ends.

The form to use is SF 2819, Notice of Conversion Privilege.

Long Term Care Insurance

Coverage under the Federal Long Term Care Insurance Program continues after separation so long as you continue to pay the premiums. If you have been having premiums deducted from your pay, call Long Term Care Partners at (800) 582-3337 to arrange to pay premiums directly.

Flexible Spending Accounts

A health care FSA terminates as of the date of your separation. You will not receive the balance in your account as a refund. However, any health care expenses incurred prior to the date of separation will still be reimbursable. A dependent care account balance at the time of separation will still be available for any eligible expenses incurred within the plan year.

Thrift Savings Plan

Thrift Savings Plan participants have the same options on separation other than for immediate retirement as those who separate for retirement. Any outstanding loan must be paid off or else a taxable distribution of the unpaid balance will be declared. See TSP Withdrawals.

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