Public Law 112-141 of 2012 created “phased retirement” authority under which, at management’s discretion, some persons eligible to retire voluntarily may be allowed to work part-time and receive proportionate parts of both their annuity and the salary of the position. This alternative form of retirement was formally authorized effective in November 2014 under rules finalized in August of that year.
Participation in phased retirement is voluntary for both the employee and the agency. Each agency sets its own policies regarding who has authority to approve requests from interested employees, whether certain positions are excluded, what standards are used in approving or denying a request, whether an approved phased retirement would have a time limit and if so how long and what the standards would be for possibly extending it, how a mentoring requirement is to be fulfilled, and more. Certain aspects, including provisions of the working schedule, may be subject to union bargaining.
A phased retiree does not separate from federal service and thus is considered an active employee and not a retiree, with policies reflecting those of part-time employment for most purposes (apart from some specific exceptions). Similarly, they do not fall under salary offset and other policies affecting reemployed annuitants.
Eligibility for Phased Retirement
The option is available only to those who have met certain age and years of service combinations for voluntary retirement. In addition, they must have worked full time for the preceding three years, a requirement that does not apply in other types of retirement.
Under CSRS/CSRS Offset, the individual must be eligible for immediate retirement with at least 30 years of service at age 55, or with 20 years of service at age 60. Under FERS, the individual must be eligible for immediate retirement with at least 30 years of service at the minimum retirement age (55-57 depending upon year of birth), or with 20 years of service at age 60.
This excludes certain age and service combinations available through standard voluntary retirement (the most commonly used of which is age 62 with five years). In addition, phased retirement is not allowed for early, disability, discontinued service or deferred retirement.
Further, employees subject to mandatory retirement (law enforcement officers, firefighters, nuclear materials couriers, air traffic controllers, customs and border protection officers, or members of the Capitol Police or Supreme Court Police) are excluded. (Note: “Grandfathered” customs and border protection officers who are not subject to mandatory retirement are eligible, however. These are persons who were employed in such positions before July 6, 2008 and chose to remain under the standard retirement rules for federal employees when eligibility for special law enforcement officer retirement provisions, including mandatory retirement, began for those positions.)
Phased retirement also cannot be granted to employees whose positions do not allow for a regularly recurring part-time schedule—that is, intermittent schedules are not allowed. This primarily affects certain nursing positions (as well as many firefighters, who typically would be excluded due to mandatory retirement in any case).
Also, an employee may not receive a buyout and go into phased retirement, although if offered one during phased retirement, the employee could accept and go into full retirement.
To apply to enter phased retirement status, an eligible employee must: submit to an authorized agency official a written and signed request on a form prescribed by OPM; obtain the signed written approval of an authorized agency official; and file an application for phased retirement.
An applicant may withdraw his or her application any time before the election becomes effective, but not afterward.
The employee and an agency approving official may agree to a time limit to the employee’s period of phased employment as a condition of approval of the employee’s request, or by mutual agreement after the employee enters phased retirement. Any such limits also may be changed by mutual consent during a phased retirement period.
Provisions Governing Work
The underlying law allows the working time portion to range from 20 to 80 percent, on average from one to four days per week; the percentage could not change during the phased retirement period, even if the individual switched to another job. However, the Office of Personnel Management has determined as a matter of policy that at least for an initial period—how long is undefined—the only allowable schedule will be half-time work.
That means the employee will receive half of the full-time rate of the position (and half of the annuity earned up to the start of phased retirement, as described below). The salary portion increases with any applicable pay raises.
The law also presumes that phased retirees will spend at least a fifth of their working time mentoring co-workers. Exceptions to that policy are allowed but are to be rare.
It is up to the phased retiree’s employing agency to determine what types of mentoring activities satisfy this requirement and how to ensure this requirement is being fulfilled. The phased retiree may mentor one or more employees of the agency and need not mentor the same employees throughout the period of phased retirement. The law does not require that the phased retiree directly mentor someone expected to take over his or her duties when the phased retiree fully retires, although that is encouraged.
Phased retirees may work more than half-time only under limited circumstances such as emergencies where no other qualified employees are available to do the work.
In addition, phased retirees:
- are subject to civil service retirement deductions, Social Security payroll taxes and Medicare payroll taxes on the same terms as they were as full-time employees, depending on their retirement system coverage, with those taxes adjusted to reflect that they are working only half-time;
- may work under alternative work schedules on the same terms as other similarly situated employees;
- are considered to be active employees, not retirees, for purposes of Thrift Savings Plan investment, loan and withdrawal policies; and
- who are under the Civil Service Retirement System similarly may continue to invest through the voluntary contributions program available under that system. That program allows for after-tax investments whose earnings grow tax-deferred and which on full retirement, can be withdrawn as a lump-sum or used to purchase an additional annuity.
Effect on Benefits
While employed, phased retirees fall under the same standard insurance coverage and other policies applying to the position, including Thrift Savings Plan and CSRS voluntary contributions as described above.
Federal Employees Health Benefits Program and Federal Employees’ Group Life Insurance benefits are provided through the employing agency, under the terms of the job, not under terms applying to retirees. FEGLI benefit coverage amounts are based on the full time salary rate for the position.
The FEHB employer contributions are the same as for full-time employees, and phased retirees can continue paying their premiums with pretax money. The time counts toward the five-year requirement for FEHB coverage to continue into retirement.
Status under the flexible spending account program, the Federal Dental and Vision Insurance Program, and the Federal Long Term Care Insurance Program is unaffected.
Annual and sick leave continue to accrue, but at the prorated rate for half-time work, and the position’s annual leave ceiling remains the same. There is no lump-sum payment for unused annual leave on entry into phased retirement; that leave remains to the employee’s credit and a lump-sum will be paid at full retirement for the value of unused annual leave then. Unused sick leave remains to the employee’s credit as well, and at full retirement the amount at that time will be counted toward the additional annuity reflecting the phased retirement period.
Phased retirees may use paid leave and are eligible for leave without pay on the same terms as other part-time employees.
They are not eligible for standby duty pay, law enforcement availability pay, or administratively uncontrollable overtime pay. They would be eligible for military Reservist differential pay if activated to military duty.
Depending on their work schedules, phased retirees may be eligible to receive premium pay (such as for being required to work on a holiday) as well as overtime pay—or compensatory time off in lieu of overtime pay—under standard rules. If they travel on official business, they are paid for hours of travel during regularly scheduled working time under standard policies, and they are eligible for compensatory time off for official travel during hours not regularly scheduled as working time. A phased retiree may earn and use compensatory time off for religious purposes under the normal rules.
Phased retirees are treated as part-time employees for purposes of reductions in force and furloughs (note: if separated by a RIF they would not be eligible for severance pay since that is not paid to those immediately eligible to retire). They also remain subject to discipline on performance or conduct grounds, and retain the same rights to appeal those actions through the applicable channels such as grievance procedures or the Merit Systems Protection Board.
Phased retirees also remain covered by government ethics rules, including restrictions on outside employment, as well as other general personnel policies. Their bargaining unit coverage status may change on switching to part-time work; that would depend on the terms of the applicable labor agreement.
Changes in Employment
With the employing agency’s consent, a phased retiree may switch to another federal job as a phased retiree on the same terms in the same agency or in another, or may return to full-time employment.
In the latter case, the phased annuity will stop and that individual cannot go back into phased retirement; only one such period is allowed per person lifetime. Upon retirement, the period of phased retirement would be treated as part-time service for annuity computation purposes.
Provisions Governing Retirement
At entry into phased retirement, the employee’s annuity is computed as if fully retired. The standard calculation is used except that unused sick leave is not credited as time served (sick leave is taken into account when a recalculation is performed upon full retirement). Half of that amount will be payable during phased retirement.
There is no reduction for survivor benefits from the phased annuity, since a death while in phased retirement will be treated as a death in service.
However, any required deposits to capture credit for service such as military service time generally must be made at the point of entry into phased retirement. The exception is that the deposit can be paid at full retirement if a phased retiree returns to full-time employment with the agency’s consent.
A phased retiree cannot collect both a phased retirement annuity and injury compensation benefits, with the exception of “schedule awards” which are specified payments for injuries to certain body parts or loss of certain bodily functions.
Phased retirees cannot elect the alternative form of annuity (see below). Those under FERS further are ineligible for the Special Retirement Supplement; they may become eligible at later full retirement if they then meet the eligibility rules.
A phased retirement annuity is increased by the inflation adjustments paid to retirees under the applicable retirement system.
A phased retiree may retire completely at any time without agency permission.
At full retirement, the full originally calculated annuity will be paid, and a second benefit will be calculated reflecting the period worked as a phased retiree and credit for unused sick leave at that time. The high-3 salary base used for that additional benefit will be that of the full-time rate of the position.
That combined benefit falls under standard policies for the retirement system for purposes such as survivor benefit elections and reductions and inflation protection.