*Click here for the full Foreign Service & Civil Service retirement eligibility table.
I joined the U.S. Department of State in 2020. Like you, I don’t know if I’ll be retained or let go. There are many aspects of this transition that are out of our control. However, what you can control is your level of knowledge. I’m hoping this document will give you an idea of what you may be eligible for so that you can start planning. While I attempt to cover a lot of topics and situations, there are endless scenarios that cannot be covered in a single document. Even after reading this, you should consult with your agency assigned retirement counselor and financial professional to verify your options and what’s right for your personal situation.
This document will cover:
(5) Calculating Your Pension Benefit (multiplier, high-3, and creditable service)
(6) Scenarios for Age + Service Combinations (RIF or no RIF)
(8) Health Benefits (FEHB, HSA, & FSA)
(17) Thrift Savings Plans (TSP) upon separation
First things first –
Since you were first hired as a federal employee, you’ve been paying into a pension system. Whether it’s the Foreign Service Pension System (FSPS) or the Federal Employee Retirement System (FERS), the money you’ve paid into the system through every paycheck is not going to disappear. If you’re not eligible for a benefit, you can receive your contributions back (possibly with interest). See Section 7 for more information on contribution refunds and Section 10 for more information on redepositing contributions if rehired as a federal employee.
Thrift Savings Plan (TSP) – If you separate from federal service, your TSP is not going to be “seized” or “forfeited”. Depending on your years of service, you could possibly lose the 1% agency automatic contributions, but the rest is your money. The TSP is a defined contribution retirement plan, similar to a 401(k), 403(b) or 457(b). If you leave your employer, you’re not also leaving behind your defined contribution plan. More on TSP options in Section 17.
Disclaimer – This is education. Nothing in this document is advice or a recommendation. There is no guarantee that the information contained in this document will be applicable to your unique situation, or will still be applicable when you separate from service. Benefits and retirement eligibility are subject to change. Your agency human resources department and the Office of Personnel Management (OPM) are the final arbiter in retirement eligibility and benefits. Neither Layered Financial nor Tyler Weerden are endorsed by any U.S. Government agency.
1. TYPES OF RETIREMENT
There are a few ways to leave the federal government, and it’s important to know which situation applies to you. Please note, I’m going to call the federal retirement paycheck a pension versus an annuity to avoid any confusion with the TSP annuity option or the private sector insurance products known as annuities.
In order to receive a pension, you MUST have at least 5-years of creditable civilian service (not including military buyback time). If you want to receive a Foreign Service (FS) retirement benefit from FSPS, you need to have paid into FSPS for 5-years and separate from an FSPS position. For a Civil Service (CS) FERS benefit, you must have at least 5-years of creditable civilian service.
This document does not cover “the old system” known as the Civil Service Retirement System (CSRS). CSRS is for federal employees who were hired before January 1, 1987. Due to the fact that there are relatively few CSRS employees, and the fact that this document is already a small novel, I will only be covering FERS and FSPS. I sincerely apologize to those in CSRS who also need guidance right now.
Voluntary/Immediate – I’m leaving and I’m eligible for an immediate pension (meaning your payment begins within 30-days of separation).
Deferred – I’m leaving, I have at least 5-years of civilian service, but I’m not yet eligible for a pension. I will leave my pension contributions in the pension system and will start receiving my pension at a later date.
Postponed – I’m leaving, I’m eligible for a reduced pension right now, but I’ll delay receiving that pension in order to minimize/eliminate the age-based reduction that applies prior to age 62. Note: Not all pensions received prior to age 62 are reduced – see Section 6 and the full retirement eligibility table for details.
Involuntary – I’m being forced to leave. For Foreign Service members, this applies to Foreign Service Act Sections 607 (limited career extension & time in class), 608 (based on relative performance), 611 (reduction in force) and 813 (former presidential appointees).
Mandatory – I’ve reached the age where I’m forced to leave. Foreign Service mandatory retirement is age 65. Different Civil Service positions also have mandatory retirement, such as Air Traffic Controllers at age 56 and law enforcement & fire fighters at age 57. More information on Special Category Employees (SCE) in Section 16.
2. VOLUNTARY / IMMEDIATE ELIGIBILITY
With or without a Reduction in Force (RIF) – if you meet the below requirements, you can retire from federal service IMMEDIATELY with FULL BENEFITS to include Federal Employee Health Benefits (FEHB).
The Retiree Annuity Supplement (RAS) will be paid for IMMEDIATE UNREDUCED pensions, meaning if you retire with an immediate MRA + 10 retirement, you will NOT receive the RAS because MRA + 10 is not an unreduced pension.
Source: GRB Your Foreign Service Pension System (12th Edition) Part 2, Section 8, page 53
Cost-of-Living Adjustments (COLAs) for Foreign Service personnel are paid REGARDLESS OF AGE for anyone retiring with an IMMEDIATE pension, EXCEPT for those retiring with an immediate pension at MRA + 10. For everyone else, COLAs start after reaching age 62. COLAs for regular FERS retirees start after reaching age 62. COLAs for Special Category Employees (SCE) are paid regardless of age.
Sources: GRB Your Foreign Service Pension System (12th Edition) Part 2, Section 6, Question 29, page 52, & Part 2, Section 7, Question 2, page 53, & OPM.
Note 1: The only individuals who receive FEHB for life are those who (1) retire with an IMMEDIATE pension and (2) were covered under FEHB for the last 5-years (or for the full period of service since your first opportunity to enroll). More details on this in Section 8 covering FEHB. OPM also outlines the FEHB eligibility requirements here.
Note 2: While retiring at your Minimum Retirement Age (MRA) + 10 allows for an immediate pension and lifetime FEHB coverage, the pension is REDUCED by 5/12 of 1% for each full month prior to age 62 (5% per year). For those born after 1970, your MRA is age 57. You can reduce or eliminate this age-based reduction by delaying when you start receiving your pension. The closer to age 62, the smaller the reduction.
The age-based reduction will be eliminated if you choose a payment start date that is less than 1 full month before you reach age 62 if you have less than 20-years of service. For Civil Service FERS employees, you can also eliminate the reduction if you have at least 20-years of service and choose a payment start date that is the first day of any month after you have reached age 60. Note: this age 60 + 20-years of service combination is not the same for Foreign Service members. Foreign Service members have NO age-based reduction if they have at least 20-years of service and reach their MRA.
Source: GRB Your Foreign Service Pension System (12th Edition) Part 1, Section 1, page 4
3. REDUCTION IN FORCE (RIF)
A RIF is an INVOLUNTARY separation. A Congressional Research Service report dated February 10, 2025 states, “RIF regulations determine whether an employee keeps his or her present position, or whether the employee has a right to a different position.”
Those with immediate retirement eligibility (see Section 2) can separate from service. In some instances, a Voluntary Early Retirement Authority (VERA) may be authorized by OPM, which will allow for more employees to become retirement eligible based on less stringent requirements. See Section 13 for more details on VERA. Those eligible for an IMMEDIATE pension are NOT eligible for severance.
What about those facing a RIF who are not yet eligible for an immediate pension?
FOREIGN SERVICE
There are two different groups for retirement eligibility under an involuntary separation (RIF) from the Foreign Service:
Group 1 consists of members who are FS-01 and above.
Group 2 consists of FS-02 and below.
Where do we find the RIF benefits for these groups?
Section 611 of the Foreign Service Act of 1980 permits the Secretary of State to conduct reductions in force. Section 611 states that Section 609 shall be applicable to any member of the Service holding a career or career candidate appointment. Section 609 states that a member who is retired under Section 611 (RIF) is eligible for the following:
FS-01 and above -OR- those who are eligible for an immediate retirement (any class/step): Those who are eligible for regular voluntary retirement under Section 811 (age 50 + 20-years of service) OR those who are Senior Foreign Service OR those who are FS-01 and above (REGARDLESS of their age or years of service), will receive IMMEDIATE retirement benefits in accordance with Section 806/855. This means they can retire with a full IMMEDIATE UNREDUCED pension and will receive the benefits that come with an immediate pension to include FEHB coverage for life, the RAS, and immediate COLAs. These individuals will NOT receive severance pay – more information on severance below. An involuntary pension commences the day after separation.
FS-02 and Below: If you are not part of the group above (FS-01 and above or those eligible for regular immediate retirement) – you have two options:
OPTION A: Employees facing involuntary separation, who are ANY AGE and have 25-Years of Service – If you (1) are an FS-02 or below, and (2) you have 25-years of creditable service, you can retire with a full IMMEDIATE UNREDUCED pension and will receive the benefits that come with that immediate pension (FEHB, RAS, and COLAs). The pension for involuntary separation with 25 years of service prior to age 50 will be calculated at 1%. Source: 3 FAM 6183.4 (3). The FAM is clear that an involuntary separation, even with 25 years of service, would result in a 1% multiplier, not 1.7% (there are some publication and resources that cite 1.7%).
In order to take advantage of the "25 years + any age" involuntary/RIF option you MUST have at least 5-years in FSPS.
An involuntary pension commences the day after separation. This offer is valid even if a VERA is not being offered. This “25 years + any age” option is unique to the Foreign Service under involuntary conditions. This is also a standard retirement eligibility option for Special Category Employees (SCE) under voluntary conditions (see Section 16).
OPTION B: Severance pay and possibly a DEFERRED pension. If you (1) are an FS-02 and below facing involuntary separation, and (2) you are NOT eligible for an immediate pension, and (3) you have 5+ years of creditable civilian service, you ARE entitled to both severance pay and a deferred pension.
Section 609 of the Foreign Service Act says that participants in FSPS who fall into this FS-02 and below category would also receive, “benefits as provided in Section 851”. Section 851 says that, “Except as otherwise specifically provided in this subchapter or any other provision of law, the provisions of chapter 84 of title 5, United States Code, shall apply to all participants in the Foreign Service Pension System and such participants shall be treated in all respects similar to persons whose participation in the Federal Employees’ Retirement System provided in that chapter is required.”
So, during a RIF, even if you receive severance pay, the other retirement options still exist. Just because a RIF occurs, your options for immediate, deferred, and postponed retirement do not cease to exist. If you have at least 5-years of creditable civilian service, you can receive your severance (if eligible), separate from federal service, and still receive a pension at some point if you don’t receive a refund of your pension contributions.
If you are an FS-02 and below and you DON’T have at least 5-years of creditable civilian service, you may receive severance pay and a refund of your pension contributions. Individuals with less than 5-years of service can opt to leave their contributions in the pension system if they plan to someday return to federal service. More details on this in Section 6.
Summary of FS-02 and Below
Employees who are involuntarily separated and are NOT ELIGIBLE for an IMMEDIATE pension may still receive: (1) severance pay and (2) a DEFERRED pension (deferred pension only if they have 5-years of creditable civilian service).
For those involuntarily separated with less than 5-years of service, there is no pension option available to you, immediate or deferred. You can leave your pension contributions in the system in the event you return to federal service, or can request a refund. More information below in Section 6 Scenarios and Section 7 Refund of Pension Contributions.
For those involuntarily separated with 5+ years of service but less than 10-years of service before age 62, a deferred pension may be started at age 62 with a 1% multiplier – No RAS – No FEHB – No COLA until 62.
For those involuntarily separated with 10+ years of service but less than 20-years of service before MRA, a deferred pension may be started at MRA with a 1% multiplier + an age-based reduction for each full month prior to age 62 – No RAS – No FEHB – No COLA until 62. MRA for those born in 1970 and later is age 57.
For those in the Foreign Service ONLY who are involuntarily separated with 20 years of service but less than 25-years of service before age 50, a deferred pension may be started at MRA with a 1%* multiplier and NO age-based reduction – No RAS – No FEHB – No COLA until 62.
*Note: Many resources report that a DEFERRED FS annuity with 20 years of service would be calculated using 1.7% for the first 20 years vs 1% - this is no longer the case despite what some publications report. See the below table showing the change after 2018. If you are FS and you defer until MRA with at least 20 years, your pension will be calculated using 1% but there is still NO age-based reduction prior to 62 as of now.
DEFERRED pensions NEVER receive: (1) COLAs until age 62, (2) the Retiree Annuity Supplement, or (3) Federal Employee Health Benefits.
SEVERANCE AMOUNT - FS
FOREIGN SERVICE – Section 609(b)(1) of the Foreign Service Act says that any member of the service separated under Section 611 (Involuntary RIF), NOT INCLUDING those who are eligible for voluntary/immediate retirement under Section 811 (age 50 w/ 20-years of service) and NOT INCLUDING those who are Senior Foreign Service or FS-01...shall receive:
Severance pay worth 1/12 of a year’s salary at your current salary rate for each year of service and proportionately for a fraction of a year, but not exceeding a total of one year’s salary at your current salary rate, payable without interest. It goes on to say that this payment may be made, “in 3 equal installments, such installments to be paid on January 1 of each of the first 3 calendar years beginning after the retirement of the member (except that in special cases, the Secretary of State may accelerate or combine such installments.”
Here's an example: $100,000 (base + locality + LEAP if applicable) with 4 years and 5 months of service.
Step #1: $100,000 salary / 12 months = $8,333.33 for each full year
Step #2: $8,333.33 annual severance amount / 12 months = $694.44 per month
Step #3: $8,333.33 (annual amount) (x) 4 (full years) = $33,333.32
Step #4: $694.44 (monthly amount) (x) 5 (full months) = $3,472.20
Step #5: Total severance = $36,805.52
3 FAM 2589.3 also notes that those who are eligible for an IMMEDIATE retirement under Section 811 (age 50 + 20-years of service), Senior Foreign Service, and those who are FS-01 and above are NOT eligible for severance pay.
3 FAM 6143: The following members of the Service are NOT entitled to severance pay:
(1) Participants at class 01 or above;
(2) Participants at class 02 or below and who are at least age 50 with 20 years creditable service under the Foreign Service Retirement and Disability System (FSRDS) or Foreign Service Pension System (FSPS), including at least 5 years as a member of the Foreign Service; and
(3) FSPS participants who meet the age and service requirements for an IMMEDIATE annuity under 5 U.S.C. Chapter 84.
Note: 3 FAM 6143(b)(3) mentions an “immediate annuity” under 5 U.S.C. Chapter 84. Chapter 84 of Title 5 covers the Federal Employee Retirement System (FERS). So, the FAM is saying that during a RIF, if someone is considered eligible for an immediate retirement under FERS, they WILL NOT be paid severance, even if they’re under the FSPS umbrella.
Therefore, an individual in the Foreign Service who is at their MRA and has 10-years of service, is eligible for an IMMEDIATE REDUCED pension, but they would NOT be eligible for severance pay. Even though their pension at age 57 would be reduced by 25% for life (5% for each year prior to age 62), they will not be paid severance due to the fact that under 5 U.S.C. Chapter 84 they’re eligible for an immediate pension. Source: FERS Handbook, Chapter 42, Page 17.
Severance payments are subject to federal tax, state tax (if applicable), and payroll tax (7.65% Social Security & Medicare). If you return to federal service before the end of your severance period, the payments will simply stop – you will not be required to pay back what you already received.
FAM Reference for Foreign Service: 3 FAM 2580
AFSA Resource: Deferred Resignation Program Specific Considerations
CIVIL SERVICE
Severance will be paid to eligible employees who are under a qualifying appointment, have completed at least 12 months of continuous service, work a regularly scheduled tour of duty, and are being removed involuntarily (not for misconduct).
Severance will NOT be paid to those individuals who decline a reasonable offer of assignment to another position, are working in a position scheduled to be terminated within 1-year after the date of appointment, are receiving injury compensation, are serving under a non-qualifying appointment, or those who are eligible for an IMMEDIATE ANNUITY, to include MRA + 10 even if they plan to postpone collecting their pension.
More details on eligibility for severance here: OPM Fact Sheet: Severance Pay
SEVERANCE AMOUNT - CS
The severance formula for Civil Service is different than the Foreign Service formula outlined in Section 609(b) of the Foreign Service Act. OPM provides details on Civil Service RIF severance here.
Civil Service severance includes:
-1 week’ basic pay for each year of civilian service up through 10-years (+)
-2 weeks’ basic pay for each year of creditable service beyond 10-years (+)
-An age adjustment allowance of 2.5% is added for each full quarter of a year you are over 40-years of age
*OPM notes that this is as estimation, and that the actual formula is, “somewhat more complicated and technical.”
“Basic Pay” = base pay + locality + LEAP (if applicable). If applicable, other things like firefighters straight-time pay for regular overtime hours and night differential for prevailing rate employees may also be included. See 5 CFR 550.703.
This TimeTrex Severance Pay Calculator may be helpful. I have no affiliation with this company or their calculator. I cannot vouch for the accuracy or guarantee any information from this tool. TimeTrex reports that their calculator is based on the OPM Severance Pay Estimation Worksheet found here. Use this free tool at your own risk.
It’s important to note that there is a LIFETIME maximum of 52-weeks’ worth of severance. So, if you’ve received severance before, your current eligibility amount may be reduced. Unlike the Foreign Service "3 equal payments" plan, OPM says that Civil Service payments will be equal to your regular pay and will be paid in the typical bi-weekly increments as if you kept working, until the severance amount is fully paid.
Severance payments are subject to federal tax, state tax (if applicable), and payroll tax (7.65% Social Security & Medicare). If you return to federal service before the end of your severance period, the payments will simply stop – you will not be required to pay back what you already received.
FAM Reference for Civil Service RIF: 3 FAM 2530
4. DISCONTINUED SERVICE RETIRMENT (DSR)
You may see some resources referring to a Discontinued Service Retirement (DSR). This is for employees who are separated involuntarily, but not for misconduct or delinquency. On page 3 in Chapter 44 of the FERS Handbook, you’ll see that separations that are considered “involuntary for DSR purposes” include: RIFs, lack of funds, transfer of function outside of the commuting area, and abolishment of the position. Under the DSR rules, federal employees who meet all of the requirements can qualify for an immediate unreduced annuity if they meet the age/service requirements.
In addition to the age and service requirements, employees must meet the minimum civilian service requirement (5-years), they must be separated from a position subject to FERS coverage, and they must meet the “reasonable offer” requirement. Page 7 in Chapter 44 of the FERS Handbook states, “If an agency makes the employee a reasonable offer of another position in the employee's agency, the employee does not qualify for discontinued service retirement.”
For Foreign Service participants, the age 50 + 20-years of service combination is already a regular immediate retirement qualification. Also, any age + 25-years of service eligibility is part of the RIF provisions for FS personnel. However, remember that for Civil Service (FERS) members who are not Special Category Employees (SCE), these are not options under regular/immediate retirement. The DSR provisions provide these earlier eligibility thresholds for Civil Service members who are facing involuntary separation. For more information from OPM, click here. There’s also a useful DSR reference guide published by the National Institute of Health Office of Human Resources.
5. CALCULATING YOUR PENSION BENEFIT
Whether you’re Foreign Service or Civil Service, you calculate your pension the same way.
% multiplier (x) high-3 average salary (x) creditable service time = pension
Example: 1% (x) 100,000 high-3 (x) 6 years of total service = $6,000/year
Multiplier – Your multiplier may be 1%, 1.1%, or 1.7% depending on your situation (see the retirement eligibility table here and Section 6 scenarios).
High-3 Average Salary – This is your “Basic Pay” as defined in 5 U.S.C. § 8331(3). This includes your base pay, plus LEAP (if applicable), plus locality if assigned domestically. Foreign Service Officers assigned overseas have their pension computation based on Washington, D.C. locality pay. High-3 does NOT include overtime, differentials (danger/hardship), awards, per diem, or bonuses. Your high-three does not have to be calendar years, just 36 consecutive months. It also doesn’t have to be your last three years of service.
Note: If you separate from federal service and years later file for a deferred annuity, your high-3 average salary is NOT adjusted for inflation. If you separate at age 40 with 5-years of service, a high-3 average salary of $50,000/year, and file for a deferred annuity to start at age 62, your high-3 at age 62 is $50,000.
Creditable Service – Whole years and months of service are what count; the extra days get dropped which is one reason why you’ll see people retire on the last day of the month. Retiring on the last day of the month may not be optimal once you factor in all of your service time to include unused sick time (not for deferred pensions). Make sure you understand how unused sick time counts so that you're not leaving days on the table.
In addition to your civilian service time, any military buyback time you made a deposit for will also count. Your Retirement Service Computation Date (RSCD) should reflect your military buyback time and any other deposits you made to purchase credit.
Leave Without Pay (LWOP) periods of up to 6 months each year will still count for credit.
Unused sick time can add additional days for computing the pension amount, but not for deferred pensions. Sick time cannot be used to determine your high-three salary or to make you eligible for retirement. Sick time is a little tricky; one sick day does not equal 8-hours for pension calculations. Take your whole years and months of creditable service, plus military buyback time, plus sick days (using the hours to days conversion chart) to determine your "total service for computation purposes".
Source: GRB Your Foreign Service Pension System (12th Edition) Part 2, Section 6, page 47.
If you want to see an example of how to add up your covered service periods, military buyback, and unused sick time to arrive at your “total service for computation”, go to the FERS Handbook, Chapter 50, page 107. Note: this total service computation applies the same way to Foreign Service employees.
6. SCENARIOS: AGE + SERVICE COMBINATIONS
LESS THAN 5-YEARS OF SERVICE + ANY AGE: FOREIGN SERVICE & CIVIL SERVICE
RIF: You may receive: (1) RIF severance pay and (2) have the option to (a) leave your contributions in the pension system with the idea that you’ll eventually return to federal service OR (b) receive a refund of those pension contributions. With less than 5-years of creditable service, there is no deferred pension option at any age. If you never return to federal service, you will never receive a federal pension. More information on the refund options below in Section 7.
No RIF: You can leave at any time and receive a refund of your pension contributions or leave them in the system if you plan to later return to federal service.
5-YEARS OF SERVICE BUT LESS THAN 10 + AGE 65: FOREIGN SERVICE
RIF or No RIF: You are eligible for an immediate pension and have hit your mandatory retirement within in the Foreign Service. You will receive a 1.7% multiplier for your total service and you’ll be eligible to retain FEHB coverage for life.
5-YEARS OF SERVICE BUT LESS THAN 10 + AGE 62: FOREIGN SERVICE & CIVIL SERVICE
RIF or No RIF: You are eligible for an immediate pension. Your multiplier will be 1% for your total service and you’ll be eligible to retain FEHB coverage for life.
5-YEARS OF SERVICE BUT LESS THAN 10 + UNDER AGE 62: FOREIGN SERVICE & CIVIL SERVICE
RIF: You may receive: (1) RIF severance pay and (2) have the option to (a) leave your contributions in the pension system or (b) receive a refund of those pension contributions.
If you leave your contributions in the system, you would be eligible for a DEFERRED pension starting at age 62. With the 5-years of service + age 62 combo, your multiplier would be 1% for each year of service. You would not be eligible for FEHB and would not receive the RAS. The RAS is paid until age 62 for those who retire with an immediate unreduced pension. You would receive COLAs after reaching age 62 that would continue for life. Unused sick leave is not creditable for a deferred pension calculation.
No RIF: You can leave at any time and receive a refund of your pension contributions. You can also leave your pension contributions in the system if you plan to later return to federal service OR you can apply for a deferred pension starting at age 62. Your multiplier will be 1% for your total service and you will not be eligible for FEHB.
10-YEARS OF SERVICE BUT LESS THAN 20 + UNDER MRA: FOREIGN SERVICE & CIVIL SERVICE
RIF: You may receive: (1) RIF severance pay and (2) have the option to (a) leave your contributions in the pension system or (b) receive a refund of those pension contributions.
If you leave your contributions in the system, you would be eligible for a DEFERRED pension starting at your Minimum Retirement Age (MRA). With MRA + 10, your multiplier would be 1% for each year of service. You would not be eligible for FEHB and would not receive the RAS. The RAS is paid until age 62 for those who retire with an immediate unreduced pension. You would receive COLAs after reaching age 62 that would continue for life. Unused sick leave is not creditable for a deferred pension calculation.
Age-Based Reduction – If you start receiving your pension before your 62nd birthday, you will receive a lifetime reduction of 5/12 of 1% for each full month before your 62nd birthday (5% per year). You can reduce or eliminate this age-based reduction by delaying when you start receiving your pension. The closer to age 62 you start your pension, the smaller the reduction.
The age-based reduction will be eliminated if you choose a payment start date that is less than 1 full month before you reach age 62 if you have less than 20-years of service. For Civil Service FERS employees, you can also eliminate the reduction if you have at least 20-years of service and choose a payment start date that is the first day of any month after you have reached age 60.
Note: The Civil Service age 60 + 20-years of service combination is not the same for Foreign Service members. Foreign Service members have NO age-based reduction with an immediate or deferred pension if they have 20-years of service and reach their MRA.
No RIF: You can leave at any time and receive a refund of your pension contributions. You can also leave your pension contributions in the system if you plan to later return to federal service OR you can apply for a deferred pension starting at MRA. Your multiplier will be 1% for your total service and you will not be eligible for FEHB or the RAS. The same age-based reduction mentioned above will apply for each full month prior to age 62. COLAs will not start until after you reach age 62.
10-YEARS OF SERVICE BUT LESS THAN 20 + MRA: FOREIGN SERVICE & CIVIL SERVICE
RIF or No RIF: You are eligible for an IMMEDIATE REDUCED pension using the MRA + 10 rules. You are not eligible for severance pay. Your multiplier would be 1% for each year of service. You WOULD continue to be covered by FEHB for life (as long as you meet the eligibility requirements outlined in Section 8), but would not receive the RAS. The RAS is paid until age 62 for those who retire with an immediate UNREDUCED pension. COLAs would start at age 62 and continue for life.
If you start receiving your pension prior to the month of your 62nd birthday, you will receive a lifetime reduction of 5/12 of 1% for each full month before your 62nd birthday (5% per year). You can reduce or eliminate this age-based reduction by delaying when you start receiving your pension (known as a “POSTPONED” retirement).
A POSTPONED retirement is for those who ARE CURRENTLY ELIGIBLE for an IMMEDIATE benefit (MRA + 10), but CHOOSE TO DELAY/postpone the start of their pension to avoid the age-based reduction. With a postponed retirement, your unused sick leave WILL be included in your pension computation and you WILL be eligible to have FEHB coverage once you start receiving your benefit.
If you retire at MRA + 10 and choose to postpone, you will NOT be covered by FEHB during the postponement gap period when you’re not receiving a pension check. Your FEHB coverage is tied to receiving a paycheck. You would need to explore other options for health insurance coverage during the gap period between separation and starting your postponed pension. See Section 8 for information on other health insurance options.
**VERY IMPORTANT DETAIL FOR POSTPONED RETIREMENT – THE TIMELINE**
In order to do this postponed retirement correctly and keep your FEHB for life, you MUST select a commencement date/start date of your pension that is AT LEAST 2-DAYS BEFORE your 62nd birthday. I know this sounds counterintuitive, but if you select a start date AFTER your 62nd birthday, this will turn into a DEFERRED pension and WILL LOSE FEHB coverage for life and will receive NO credit for unused sick leave.
Many people have made this mistake – they retired with immediate eligibility, postponed to reduce the age-based reduction, selected a postponed start date AFTER their 62nd birthday, only to be told by OPM that they selected the wrong date and would receive a deferred pension, no FEBH, and no unused sick leave credit.
Take a look at OPM Form RI 92-19 – Section B covers “Applicants with Immediate MRA+10 Eligibility (who may choose to postpone).”
This OPM pamphlet, Applying for Immediate Retirement Under the Federal Employees Retirement System, details the postponed retirement timeline and also specifies that the beginning date is BEFORE your 62nd birthday.
Tammy Flanagan wrote a two-part series on this issue for GovExec.
20-YEARS OF SERVICE + UNDER AGE 50: FOREIGN SERVICE (FS-02 and below)
RIF: You may receive: (1) RIF severance pay AND (2) have the option to (a) leave your contributions in the pension system or (b) receive a refund of those pension contributions.
If you leave your contributions in the system, you would be eligible for a DEFERRED pension starting at your MRA. With a FOREIGN SERVICE deferred MRA + 20 pension, your multiplier would be 1%* with NO age-based reduction. You would not receive FEHB coverage and would not receive the RAS. COLAs would start once you reach age 62. Unused sick leave is not creditable for a deferred pension calculation.
No RIF: ALL members of the Foreign Service who have 20-years of service but ARE NOT yet age 50 can leave at any time and receive a refund of your pension contributions. You can also leave your pension contributions in the system if you plan to later return to federal service OR you can apply for a deferred pension starting at MRA. Your multiplier will be 1%* and you will not be eligible for FEHB or the RAS. The age-based reduction mentioned above will NOT apply for Foreign Service members with 20-years of service who defer until their MRA. COLAs will not start until after you reach age 62.
*Note: Many resources report that a DEFERRED FS annuity with 20 years of service would be calculated using 1.7% for the first 20 years vs 1% - this is no longer the case despite what some publications report. See the below table showing the change after 2018. If you are FS and you defer until MRA with at least 20 years, your pension will be calculated using 1% but there is still NO age-based reduction prior to 62 as of now.
ANY YEARS OF SERVICE + ANY AGE: FOREIGN SERVICE (FS-01 and above)
RIF: You are eligible for an immediate unreduced pension, the RAS until age 62, and FEHB for life. Your multiplier is 1.7% for the first 20-years and 1% for each additional year. COLAs start the year after starting your pension.
No RIF: Unless INVOLUNTARILY separated, this “any years any age” combination for FS-01 and above does NOT exist. This is not a regular voluntary/immediate retirement option for anyone.
20-YEARS OF SERVICE + UNDER MRA: CIVIL SERVICE
RIF: You may receive: (1) RIF severance pay and (2) have the option to (a) leave your contributions in the pension system or (b) receive a refund of those pension contributions.
If you leave your contributions in the system, you would be eligible for a DEFERRED pension starting at your MRA (reduced) or at age 60 (unreduced). If you started receiving your deferred pension at MRA, you would be subject to the 5% annual age-based reduction for each year under age 62. However, if you waited and started receiving your pension at age 60, your pension would NOT be reduced.
In both scenarios (20-years of service, deferred until MRA or deferred until age 60), your multiplier will be 1% for each year of service. You will not receive FEHB coverage and will not receive the RAS. COLAs would start once you reach age 62 and then continue for life. Unused sick leave is not creditable for a deferred pension calculation.
No RIF: You can leave at any time and receive a refund of your pension contributions. You can also leave your pension contributions in the system if you plan to later return to federal service OR you can apply for a deferred pension starting at MRA. Your multiplier will be 1% for your total service and you will not be eligible for FEHB or the RAS. The same age-based reduction mentioned above will apply for each full month prior to age 62. If you choose to start your deferred pension at age 60 with 20-years of service, there will NOT be an age-based reduction. COLAs will not start until after you reach age 62.
20-YEARS OF SERVICE + AGE 50: FOREIGN SERVICE
RIF or No RIF: You are eligible for an immediate unreduced pension, the RAS until age 62, and FEHB for life. Your multiplier is 1.7% for the first 20-years and 1% for each additional year. COLAs start the year after starting your pension.
20-YEARS of SERVICE + AGE 60: CIVIL SERVICE
RIF or No RIF: You are eligible for an immediate unreduced pension, the RAS until age 62, and FEHB for life. Your multiplier is 1% for each year. COLAs would start once you reach age 62 and continue for life.
20-YEARS of SERVICE + AGE 62: CIVIL SERVICE
RIF or No RIF: You are eligible for an immediate unreduced pension, no RAS (because you’re already 62), and you would be covered by FEHB for life. Your multiplier is 1.1% for each year. This is a 10% bonus for not separating from service until reaching at least age 62. This is not for a deferred annuity – this 10% bonus is only for those who separate from federal service AFTER reaching age 62. COLAs would start the year after starting your pension.
Note: Unused sick time CAN get you over the hump and make you eligible for the 1.1% multiplier. Let’s say you have (1) 19.5 years of service, (2) you’re age 62 or older, and (3) you have 6 months of unused sick time. You can combine your years of service and unused sick time to get you across the 20-years of service finish line for the 1.1% multiplier. This is ONLY because you are already eligible for an immediate pension. Unused sick time CANNOT make you eligible for retirement, just the bump in multiplier. This 1.1% multiplier bonus is for Civil Service only.
30-YEARS of SERVICE + MRA: CIVIL SERVICE
RIF or No RIF: You are eligible for an immediate unreduced pension, the RAS until age 62, and FEHB for life. Your multiplier is 1% for each year. COLAs would start once you reach age 62 and continue for life.
25-YEARS OF SERVICE + ANY AGE: FOREIGN SERVICE
RIF: You are eligible for an immediate unreduced pension, the RAS until age 62, and FEHB for life. Your multiplier is 1% per year. COLAs start the year after starting your pension.
No RIF: The “25-years + any age” is NOT a regular voluntary retirement combination for Foreign Service members. This option is only available for INVOLUNTARY separations (and as a voluntary option for Special Category Employees). If you have 25-years of service prior to age 50 and decide to voluntarily separate from service, you can leave at any time and receive a refund of your pension contributions.
You can also leave your pension contributions in the system if you plan to later return to federal service OR you can apply for a deferred pension starting at your MRA. Your multiplier will be 1%* and you will not be eligible for FEHB or the RAS. There will NOT be an age-based reduction for Foreign Service members with 20+ years of service who defer until MRA. COLAs will not start until after you reach age 62.
*Note: Many resources report that a DEFERRED FS annuity with 20 years of service would be calculated using 1.7% for the first 20 years vs 1% - this is no longer the case despite what some publications report. See the below table showing the change after 2018. If you are FS and you defer until MRA with at least 20 years, your pension will be calculated using 1% but there is still NO age-based reduction prior to 62 as of now.
7. REFUND OF CONTRIBUTIONS
If (1) you’re going to be separated from the Foreign Service for 31 days or more, (2) you’re not eligible for an immediate or deferred retirement within 31 days, and (3) you notify your current spouse and/or eligible former spouse that you are applying for a refund of contributions – you have the OPTION to get a refund of your pension contributions. HOWEVER, if you receive a refund of contributions, you CANNOT later redeposit these contributions to become eligible for a deferred pension. You can only redeposit these refunded contributions if you return to federal service.
There is no time limit to get your refund – except that your application for the refund must be received by Human Resources/Global Talent Management (GTM) at least 31-days before the commencing date of a deferred pension (specific to Foreign Service members). What does this mean? You can’t apply for a deferred pension to start at your MRA, and then two days before the pension is supposed to start you send in an application requesting a refund of contributions.
Source: GRB Your Foreign Service Pension System (12th Edition) Part 2, Section 11, Question 1, page 70
Refund payments include your contributions into the pension system, deposits you’ve made for other civilian service, military buyback deposits, and possibly interest. If you have more than one year of service, interest will also be paid. If you have one year or less, no interest will be paid. The contributions to the pension system that were made by the government are NOT yours and are not part of the refund.
Source: GRB Your Foreign Service Pension System (12th Edition) Part 2, Section 11, Question 3, page 70
For a rough idea of how much money you would receive, look at your final paycheck for each year and see how much you paid into the pension system that year. Under the “DEDUCTIONS” section, it will most likely be labeled, “FSPS Retirement”. Add up each year and you’ll have a basic estimate of your total refundable contribution amount. Civil Service paychecks may show pension contributions as “RETIRE, FERS” or some other reference to the FERS system you pay into (FERS-RAE, FERS-FRAE, etc.)
Whether you worked for 2 years or 32 years, that money is yours. You can request a refund of contributions using Form DS 5003 (Foreign Service) or Form SF 3106 (Civil Service).
The refunded contributions will NOT be taxable – you already paid tax on these dollars. Contributions are made with post-tax dollars. However, the pre-tax interest portion will be taxable if it’s paid to you, and will be subject to 20% tax withholding (this does not mean 20% tax liability – just withholding). How can you delay paying tax on this interest? If your refund is $200 or more you have additional rollover options versus just receiving a check.
Options for refunded post-tax contributions
1. Receive a check
2. Rollover to a Roth IRA or eligible Roth employer plan (post-tax money to a post-tax account)
*Post-tax contributions CANNOT be rolled into your TSP.
Options for pre-tax interest
1. Receive a check (subject to 20% tax withholding)
2. Rollover to your TSP (*Note: TSP will ONLY accept the interest portion, not your refunded contributions)
3. Rollover to a traditional IRA or eligible traditional employer plan (not a taxable event since you’re moving pre-tax money to a pre-tax account)
4. Rollover to a Roth IRA or eligible Roth employer plan – *Note: This is a Roth conversion. You are taking pre-tax money and converting it to post-tax Roth money. This amount will be taxed as ordinary income in the year the rollover takes place.
You should receive a 1099-R for the refund. The 1099-R should indicate the taxable portion vs. the non-taxable portion.
Should you request a refund of your contributions if separated? That’s a very personal decision. If you plan to return to federal service at some point, it may be worth leaving the contributions in the system. If you have at least 5-years of service, you could receive a deferred pension at age 62 if you leave your contributions in the system. If you have at least 10-years of service, you could receive a deferred pension at MRA if you leave your contributions in the system. While you won’t receive the RAS or FEHB, you can still elect a survivor benefit with a deferred pension to provide income for your loved ones after you pass. On the other hand, you could request a refund and invest that money in a retirement account. There is no “rule of thumb” for this decision.
8. HEALTH BENEFITS
Federal Employee Health Benefits (FEHB) – Remember, the only individuals who receive FEHB for life are those who (1) retire with an IMMEDIATE pension and (2) were covered under any FEHB plan for the last 5-years (or for the full period of service since your first opportunity to enroll). In certain circumstances OPM may grant a waiver for the 5-year rule.
Employees may use ANNUAL LEAVE to extend their service time in order to meet the 5-year requirement. More information on the annual leave extension for FEHB in Section 11B. Despite what many people say, you DO NOT have to be in the SAME plan for 5-years, you just have to be covered by any FEHB plan for 5-years. If you switched FEHB plans 5 times in the last 5-years, it doesn’t matter. See Q&A answer 1 from OPM here.
Source: GRB Your Foreign Service Pension System (12th Edition) Part 1, Section 5, page 20
BREAKS IN SERVICE also DO NOT count against you for the 5-year clock (see OPM’s example here). If you were covered for 4-years, had a break in service, returned to service and were covered for 1-year, you’ve met the 5-year requirement. Time that you were covered by FEHB under someone else’s FEHB plan as a family member also counts towards your eligibility. The period of time that you were covered by Tricare also counts, as long as you are covered under FEHB when you separate from service with an immediate pension. Remember, an immediate pension is one that begins within 30-days after your separation.
TANDEMS – If two federal employees are covered under their own FEHB plan, and one of them is RIF’d, that separated employee has experienced a Qualifying Life Event (QLE). This means that the RIF’d employee can be added to the still employed employee's FEHB. However, remember that retirement is NOT a QLE.
From the QLE page:
“You or a family member lose FEHB or other coverage”
“Under another FEHB enrollment because the covering enrollment was terminated, canceled, or changed to Self Only”
“When one of these events occurs, you may...”
“Enroll”
From OPM: “If you are an employee eligible for FEHB coverage, you may enroll, increase or decrease enrollment, change from one plan or option to another, or make any combination of these changes when you or an eligible family member lose coverage under FEHB or any other group health benefits plan”
If you are NOT separating with the eligibility for an IMMEDIATE pension, your FEHB coverage will continue for 31-days after separation. After that, you can elect Temporary Continuation of Coverage (TCC) for up to 18 -months. TCC must be requested in writing within 60-days of separation.
Warning – TCC can be expensive. Active federal employees pay roughly 25-28% of their insurance premium and the government pays the rest. Under TCC, a separated employee pays 102% of the premium. You would be paying your portion, the government’s portion, and a 2% additional administrative fee. If separating from service without an immediate pension, dental and vision coverage cannot be extended. Your coverage ends the day you separate.
Source: GRB Your Foreign Service Pension System (12th Edition) Part 1, Section 5, page 21.
If you’re going to lose FEHB, you should explore plan options on the Health Insurance Marketplace. Based on your household size and income, you may be eligible for Premium Tax Credits (PTC) which can reduce your monthly insurance premium. Don’t discount this option – the PTC are based on INCOME, not assets, so you may qualify for more credits than you think.
Health Savings Account (HSA) – This account and all of the money held in it is YOURS. Even if you separate from your employer (voluntarily or involuntarily), you do NOT lose the money in your HSA. Straight from the Financial Industry Regulatory Authority (FINRA): “An HSA is “portable,” meaning you can take the account with you if you switch jobs or leave the workforce.” An HSA is not the same as an FSA – there is NO “use or lose”. If you’re facing a RIF or planning to retire, you do not have to try and spend down your HSA or worry about losing money in the account.
HOWEVER, your eligibility to make CONTRIBUTIONS to an HSA is contingent upon being covered by an eligible High Deductible Health Plan (HDHP). In order to make HSA contributions, you MUST: (1) Be covered by an HDHP, (2) not have any other health insurance coverage, (3) not be enrolled in Medicare, and (4) not be claimed as a dependent on someone else’s tax return.
If you’re going to be separated from federal service and lose HDHP coverage, you will NOT be able to make contributions until covered by an HDHP again. When you’re only covered by an HDHP for part of the year, the amount you’re allowed to contribute is prorated for those months of coverage.
If you already maxed-out the full annual HSA contribution for 2025, and you’re going to lose HDHP coverage, you’ll have to withdraw some of the excess contribution plus the associated earnings. You will have to pay ordinary income tax on the earnings portion withdrawn. There is NO 20% penalty on this withdrawal of excess contributions like there would be if you withdrew HSA money for non-qualified medical expenses. Excess contributions remaining in your HSA are subject to a 6% penalty. How can you avoid that 6% penalty? Simply withdraw the excess contributions BEFORE the tax filing deadline for the tax year the contributions were made (up until the extension deadline if you filed for an extension). Here's more information from the IRS and OPM on excess HSA contributions.
Flexible Spending Accounts (FSA) – Limited Expense Health Care FSAs (LEX HCFSA) and Healthcare FSAs (HCFSA) are terminated as of the date of separation. Expenses you incurred prior to separation will be reimbursed, but nothing after that date. If you have use or lose balances in the account they are forfeited. Unspent money can be used to settle claims submitted prior to separation, but any unspent money left over after paying those prior claims will be lost. A Dependent Care FSA (DCFSA) has a grace period and can be used to pay for dependent care expenses until the end of the calendar year, or until the account is depleted if you are actively making contributions through December 31st of the benefit period.
Source: OPM
Source: FSAFEDS
9. SEPARATE FROM FOREIGN SERVICE AND REJOIN AS CIVIL SERVICE OR VICE VERSA?
If you separate from either the Foreign Service or Civil Service and later rejoin the federal workforce in a position covered by the other pension system, you have a few options.
(1) If you received a refund of your pension contributions, you can redeposit the refunded amount plus interest (see Section 10).
(2) If you left your pension contributions in FSPS, you can transfer them to FERS (See 3 FAM 6133.8). If you left your pension contributions in FERS, you can transfer them to FSPS (See 3 FAM 6133.7).
If you separate now, and later become a federal employee again, you would be subject to the retirement eligibility and benefits of the system you’re covered by in that rehired position. If you’re under FSPS now, separate from service, and then later get hired in a FERS covered Civil Service position, you would be subject to the FERS eligibility rules and benefits.
If instead you switched from a FERS covered Civil Service position to an FSPS covered Foreign Service position, you would be subject to the FSPS eligibility and benefits. However, remember that you must have at least 5-years of creditable civilian service under FSPS to qualify for FSPS benefits. You cannot work 20-years under FERS, transfer to FSPS at age 50, and then retire at age 51 with the immediate unreduced FSPS pension and benefits that come with it.
10. REDEPOSIT REFUNDED CONTRIBUTIONS
Foreign Service – 3 FAM 6133.2 (b)(3) – “On or after October 28, 2009, a participant may make a redeposit of retirement contributions withheld and refunded under FERS or FSPS. Reemployed participants may make a redeposit of the amount refunded, plus interest to have credit for his or her service reinstated. If the redeposit has not been paid, the creditable civilian service is eliminated from the annuity computation.” The form used for a Foreign Service redeposit is a DS-5001.
Source: GRB Your Foreign Service Pension System (12th Edition) Part 2, Section 4, Question 5, page 39.
If you decide to rejoin the Foreign Service and DON’T pay back the refunded contributions, you will still receive credit for retirement, leave, promotion, pay increases, and RIF credits, but you will not receive any credit for the pension CALCULATION if you don’t pay the redeposit.
Source: GRB Your Foreign Service Pension System (12th Edition) Part 2, Section 4, Question 7, page 40.
Civil Service: From OPM – Employees are allowed to make a payment in order to receive retirement credit for, “any period of civilian service during which retirement deductions were withheld from your pay and refunded to you.” Standard Form 3108 is used to pay a redeposit. If you decide to rejoin the federal government and DON’T pay back the refunded contributions, you will still receive retirement credit for ELIGIBILITY purposes, but you will not receive any credit for the pension CALCULATION. So, you could be eligible for retirement using years that you did not make a redeposit for, but those years would not be included in the total service computation for your pension.
11A. ANNUAL LEAVE – LUMP-SUM PAYOUT
If you separate from federal employment, you are eligible to receive a lump-sum payment for your current annual leave balance, paid at your current rate. The rate paid is your “Basic Pay” – base pay + locality pay + LEAP (if applicable). It does not include any post-differential or service need/difficult to staff incentive unless you separate from a hardship/differential post and are physically present at post on the date of separation (3 FAM 3266.2).
The payment is made as if you continued working and simply took annual leave. So, if you separate December 31st and there’s a pay raise effective January 11th, a portion of your lump-sum payment will reflect that pay raise as if you continued working. If you have 6 weeks of annual leave and a pay raise becomes effective two weeks after you separated, the first two weeks should be paid at your old rate, and the remaining 4 weeks should be paid at the new rate, as if you continued working.
The lump-sum payment is taxable in the year you receive it. This payment will be subject to federal tax, state tax (if applicable) and payroll tax (7.65%). Warning – the federal tax withholding may appear disproportionately higher than what you’re used to seeing. Why? This lump-sum payment is considered a “supplemental wage payment” in the eyes of the IRS. There are a few ways federal taxes can be withheld from supplemental wages. For those who: (1) have supplemental wages less than or equal to $1 million, (2) have the supplemental wages identified separately from regular wages, and (3) had income tax withheld from their regular wages in the current or immediately preceding calendar year – a flat 22% can be WITHHELD by the employer. Remember, withholding is not your actual tax liability. If this 22% was too much, you’ll settle up at tax time when you determine your actual tax liability after all adjustments, credits, and deductions are applied.
For those receiving the RAS, this lump-sum payment does NOT count towards earned income for purposes of the earnings test.
Source: OPM Form RI 92-22
Source: AFSA FSPS Annuity Supplement
If you are reemployed by the federal government before the end of the period covered by the lump-sum payment, you may have to pay back the amount that covers the days between your date of reemployment and the end of your lump-sum payout period. So, if you receive 4-weeks of annual leave payment and rejoin the government one week later, you may have to pay back 3-weeks’ worth of that annual leave payment.
Source: OPM Q&A
11B. ANNUAL LEAVE – FOR RETIREMENT ELIGIBILITY
During a RIF, annual leave CAN be used to become eligible for an immediate pension and continue FEHB coverage in retirement. The annual leave balance includes your current balance plus the annual leave you will earn while in leave status between your effective RIF date and the first day you become eligible for an immediate annuity. If you’re going to be RIF’d on 7/1/25, but would become eligible for an immediate pension on 8/1/25, and you have 5 weeks of annual leave, you could go on leave status until becoming eligible for that immediate pension on 8/1/25.
From OPM: “An employee has the right to use accrued annual leave and remain on the agency's rolls past the effective date of reduction in force separation...An employee who will be separated by adverse action after declining geographic relocation to a position in a different local commuting area has the same right to use annual leave to reach initial eligibility to an immediate annuity; and/or continuation of health benefits participation into retirement.”
12. SICK LEAVE
You cannot use sick leave to become retirement eligible or to calculate the high-3 average salary. So, if you have 19.5-years of service, need 20-years for immediate retirement eligibility, and have 6 months of sick leave, you cannot use that sick leave to become eligible. Unused sick leave is used to boost your pension once you become eligible, if you’re retiring with an immediate pension.
If you separate from federal service and file for a deferred pension later, you will not receive any credit for unused sick leave. If you separate from service and later return, the amount of sick leave you had at prior separation will be restored.
Please note that one sick day does not equal 8-hours. In the land of federal retirement, every year has 360-days and 2087 hours. This means each “sick day” is worth roughly 5.8 hours. There is a sick leave conversion chart to figure out how many months/days you get credited for your unused sick leave hours.
13. VOLUNTARY EARLY RETIREMENT AUTHORITY (VERA)
A VERA is similar to a DSR, except it is a VOLUNTARY “early-out” option. Remember, DSR and RIF are INVOLUNTARY separations. Agencies must request VERA and receive approval from OPM. VERA allows agencies to lower their retirement eligibility thresholds, making more individuals eligible for immediate retirement. VERA and VSIP (voluntary) are often times offered prior to a RIF (involuntary) to try and reduce numbers without forcing people out. VERA can lower the retirement eligibility threshold to:
(1) Age 50 + 20-years total creditable service
(2) Any age + 25-years total creditable service
This doesn’t have a huge impact on the Foreign Service, since one of the VERA age/service combinations (age 50 + 20-years of service) is one we already have as an option under regular circumstances. With a VERA, generally, employees that meet the age/service combination can retire with an immediate unreduced pension (1% multiplier & FEHB for life).
There are eligibility requirements for VERA such as having been continuously employed by the agency for at least 31-days, not being in a “time-limited” appointment, and not being removed for misconduct or unacceptable performance. Further details can be found in the OPM VERA Guide.
For Civil Service members covered under FERS, OPM reports that with a VERA, the RAS would start once the employee reaches their MRA.
For Foreign Service members covered under FSPS, the resource document titled Deferred Resignation Program Specific Considerations provided by American Foreign Service Association (AFSA) states that an immediate pension and the RAS would be payable with a VERA.
Section 855 of the Foreign Service Act (22 U.S.C. 4071d) states: “A participant who is entitled to an immediate annuity under subsection (b) shall be entitled to receive an annuity supplement while the annuitant is under 62 years of age. Subsection (b) includes Section 811 (RIF). Additionally, the GRB publication titled Your Foreign Service Pension System (12th Edition) Part 2, Section 8, Question 2, page 53 asks, “Who is eligible for the Retiree Annuity Supplement? The answer lists multiple scenarios to include employees retiring, “on an immediate involuntary annuity (not an MRA annuity).”
FEHB coverage will continue with a VERA if you meet the eligibility requirements for continued coverage in retirement (5-years of prior coverage + immediate pension). If you don’t meet these requirements at the time of VERA separation, OPM may provide a waiver. More information from OPM regarding VERA can be found here.
14. VOLUNTARY SEPARATION INCENTIVE PAYMENT (VSIP)
When authorized by OPM, a buyout can be offered to certain employees who agree to voluntarily separate from federal service with a certain timeframe. Agencies who are “downsizing or restructuring” can offer employees a lump-sum payment up to $25,000 (some agencies have higher VSIP caps like DOD with $40,000). VERA and VSIP (voluntary) may be offered prior to a RIF (involuntary) to try and reduce numbers without forcing people out. A VSIP can be offered as a solo benefit, but it can also be combined with a VERA. Receiving a VSIP does not eliminate your other pension options (immediate, deferred, postponed, etc.).
There are VSIP eligibility requirements to include having been employed by the federal government for a continuous period of at least three years. There are instances where you could have to pay the VSIP back if you return to federal service within 5-years of separating. For full details on VSIP, click here. Here's an additional resource from OPM: Top 10 FAQs Regarding VERA & VSIP
15. RETIREE ANNUITY SUPPLEMENT (RAS)
Foreign Service members who are separated VOLUNTARILY or INVOLUNTARY and receive an IMMEDIATE UNREDUCED pension ARE eligible for the Retiree Annuity Supplement. If you're a member of of the Foreign Service, whether your separation is by RIF, VERA, or other programs - if you separate and start receiving an immediate unreduced pension (within 30-days), you get the RAS.
Section 855 of the Foreign Service Act (22 U.S.C. 4071d) states: “A participant who is entitled to an immediate annuity under subsection (b) shall be entitled to receive an annuity supplement while the annuitant is under 62 years of age. The annuity supplement shall be based on the total creditable service of the annuitant and shall be computed in accordance with sections 8421(b) and 8421a of title 5, United States Code, AS IF THE PARTICIPANT WERE A LAW ENFORCEMENT OFFICER retired under section 8412(d) of such title.” This means you would receive it immediately, regardless of age (as long as you’re under 62) and it would not be subject to the earnings test until you reach MRA.
Who is covered under subsection (b)? “Any participants who retires VOLUNTARILY or MANDATORILY under section”:
607 – Expiration of Time in Class
608 – Retirement Based on Relative Performance
611 – Reduction in Force
811 – Voluntary Retirement
812 – Mandatory Retirement
813 – Reassignment and Retirement of Former Presidential Appointees
Additionally, the GRB publication titled Your Foreign Service Pension System (12th Edition) Part 2, Section 8, Question 2, page 53 asks, “Who is eligible for the Retiree Annuity Supplement? The answer lists multiple scenarios to include employees retiring, “on an immediate involuntary annuity (not an MRA annuity).”
16. SPECIAL CATEGORY EMPLOYEE (SCE)
A “Qualified Public Safety Employee”, as defined in 26 USC 72(t)(10)(b), includes federal law enforcement officers, federal firefighters, customs and border protection officers, air traffic controllers, nuclear materials couriers, U.S. Capitol Police Officers, Supreme Court Police Officers, and U.S. Department of State Diplomatic Security Special Agents.
A note for Diplomatic Security Service special agents. If you are a special agent in the Foreign Service (2501) – you fall under the Foreign Service Pension System rules, so your regular voluntary retirement finish line is age 50 with 20-years of service just like the rest of the Foreign Service community. If your SF-50 has you coded as FSPS, your mandatory retirement age is 65, regardless of your job title. Special agents who are in the Civil Service (1811) – you fall under the FERS SCE provisions. If your SF-50 has you coded as M FERS, your mandatory retirement age is 57.
SCEs can retire once they reach:
(1) Age 50 with 20-years of SCE service, or
(2) Any age once they reach 25-years of SCE service
If you don’t meet either of these, you will not be entitled to an immediate SCE pension (1.7% multiplier, immediate RAS, immediate COLAs, and FEHB for life). If you are 49-years old, with 26 total years of federal service BUT only 22-years are in an SCE-covered position, you would NOT be eligible for the SCE benefits. In order to get the SCE benefits you MUST satisfy either #1 or #2 above, in an SCE position. For this hypothetical individual, if a VERA was offered, they would be eligible for an immediate unreduced VERA pension (1% multiplier, FEHB for life, RAS starting at MRA, and COLAs at 62). They’re eligible for the VERA because they satisfy the 25-years of service + any age test.
Note: You are NOT required to retire FROM an SCE position. So, theoretically if you have 20-years of SCE service, but you’re under age 50 and faced with an involuntary separation, there’s still a way you could receive the SCE retirement benefits. (1) Leave your contributions in the pension system after separation, (2) later return to federal service in ANY capacity (does not have to be SCE), (3) work for a short amount of time, and then (4) retire with an immediate unreduced SCE pension because you satisfied the two-prong test: (1) You completed 20-years of SCE service and (2) You are over age 50 at the time of separation.
For more information on this, here’s an excellent recent article from Barfield Financial.
17. THRIFT SAVINGS PLAN (TSP)
If you separate from federal service BEFORE reaching 3-years of service you are not vested in the TSP which means the 1% agency automatic contributions and their earnings are forfeited. Some positions vest in two years, but the vast majority of employees are vested in their TSP after 3-years. Once you are vested, everything is yours. Even if you have less than 3-years of service, your contributions and the agency matching contributions are yours.
The only thing you lose if separated before 3-years of service is the 1% agency automatic contributions and their earnings. For Foreign Service members, this is the “TSP Basic” under “BENEFITS PAID BY GOVERNMENT” on your paycheck. You will not forfeit “TSP Matching” (used for matching contributions when you making traditional TSP contributions) or “TSP GM” (used for matching contributions when you make Roth TSP contributions.
If you separate from federal service, your TSP account can stay open but you cannot contribute any additional money since contributions are made via payroll deduction and you won’t be receiving paychecks.
Even if you’re not a federal employee, you can still rollover/transfer funds into the TSP (except for Roth IRA money). You can still rebalance your account via interfund transfers. You also have the option to rollover/transfer your TSP to an IRA or eligible employer plan (not a taxable event). Please consider all of the pros and cons before moving money into or out of the TSP. Here are some things to consider before rolling over, according to the Financial Industry Regulatory Authority.
If you do separate from service and decide to withdraw pre-tax/traditional TSP money, it will be taxed as ordinary income and may be subject to a 10% early-withdrawal penalty if you’re under age 59 ½. There are multiple ways to avoid the 10% early withdrawal penalty – one of the most common being the “Rule of 55”.
*This graphic is not exhaustive - there are other exceptions. Please make sure you're fully aware of the nuances and consult with a professional.
Generally, non-SCE employees can avoid the 10% early-withdrawal penalty if they separate from federal service in or after the year they reach age 55. “Qualified Public Safety Employees” (as defined in 26 U.S.C. 72(t)) can distribute money from their TSP without the 10% penalty if they separate from service in or after the year they turn 50, or at any age if they have at least 25-years of service with the employer that provides their plan. This rule allowing early access to retirement funds ONLY applies to the employer plan of the employer you’re separating from. So, for feds, we’re only talking about the TSP. You cannot separate from federal service and then get penalty-free access to money held in an old employer’s 401(k) prior to age 59 ½ (unless another exception applies).
The “Rule of 55” for penalty-free distributions ONLY applies to traditional TSP money, not Roth TSP money. In order for Roth TSP money to be completely tax and penalty free you must satisfy a two-prong test. (1) 5-years have passed since you made your first Roth TSP contribution. The 5-year clock starts January 1st of the year you made the contribution. (2) You must be 59 ½, permanently disabled, or deceased. That’s it. For Roth TSP money to be “qualified”, you must satisfy those two tests. "Qualified" Roth IRA money also has a very similar two-prong test, but there are nuances to this, especially with rollovers and conversions.
Source: Tax Rules About TSP Payments
Rollovers – Remember, you can always rollover/transfer old employer plan money (401(k), 457(b), 403(b)) into your TSP. So, if you’re separating from federal service in or after the year you turn 55, and need access to money held in an old employer’s 401(k), you could move that money into your TSP and avoid the 10% penalty. If you’re over 55, separated from federal service, and considering moving money from your TSP to an Individual Retirement Account (IRA), think twice about all of the pros and cons. If you move your TSP money into an IRA prior to age 59 ½, you just made those penalty-free TSP dollars subject to the 10% early withdrawal penalty (if no other exceptions apply). The “Rule of 55” does NOT apply to IRAs.
What if you’re under age 55 when you separate from federal service and you’re also not an SCE? There are other exceptions to the 10% penalty (outlined by the IRS here), however I would think hard before touching this money. Tax-advantaged retirement money is special. Whether it’s tax-deferred traditional money or tax-free Roth money, time and compound interest are your best friends.
18. WHAT SHOULD YOU DO RIGHT NOW?
#1 – Cash
With the historic bull run in the U.S. stock market since the end of the Global Financial Crisis, I’ve heard time and time again that, “cash is trash”. I’m here to tell you that cash is not trash. Cash is oxygen when your life is under water. It does not matter whether you’re the newest hire at a wobbling tech startup or you’re a senior government official with an iron-clad collective bargaining agreement and union protection – life happens. People get sick. People get injured. People get laid-off. “It won’t be me” is a dangerous mindset to have.
Even if you’re eligible for an immediate pension today, that paperwork is going to take time to process. While OPM is going through their process, you’ll be receiving interim payments that are roughly 60-80% of your actual finalized payment for 3-5 months (OPM estimate).
How much cash should you have? That depends on your spending. Most financial advisors will say to have 3-6 months of expenses in cash. This isn’t a bad rule of thumb. It really depends on your household cash flow and job replacement options. Are you living off one income? Are your fixed expenses more than your current income? Is your job highly specialized? Would it take more than 6-months to find work?
Where should you keep it? Consider using a High-Yield Savings Account or a money market mutual fund so that you can at least earn some interest. Your standard big bank savings account is probably paying a lot less than these other options. Whichever account you choose, just make sure the cash is immediately available (not locked into a product that penalizes early withdrawals) and isn’t invested in something volatile that can drop in price.
If you don’t have adequate cash savings and you’re maxing out your retirement accounts (TSP & IRA), you may want to consider reducing your contributions down to just the amount needed to receive the free employer match, and build up your cash cushion. After you’ve built an emergency fund that’s appropriate for your situation, then go back to funding other goals.
#2 – Awareness
You have to know your numbers. At the bare minimum, know your true household cash flow (income & expenses). For those overseas, talk to friends and family to see what they’re paying for certain expenses so that you can plan for how much it’ll cost to return to the U.S. Know the financial benefits and options available to you if you were involuntary separated today.
#3 – Preparation
The time to buy homeowners insurance isn’t when your house is on fire. Plan for every contingency now. In addition to having an emergency fund, maybe that means updating your resume. Gathering documents that would be needed to apply for new jobs. Talking with your spouse about whether you would even need to get another job. I'm not saying live in a constant state of panic or doom and gloom; just be prepared so that surprises are less surprising.
#4 – Avoid the Noise & Be Skeptical
There is a LOT of noise right now regarding our employment. Be very careful with advice or information you’re reading on social media. Some people with the best intentions may be giving you terrible guidance. Remember, you could be Foreign Service getting Civil Service advice or vice versa. You could be an FS-03 getting guidance from an FS-01 that they believe applies to you but doesn’t. This document is no different. I do not work for HR and never have. There are plenty of things I don’t know. This document simply reflects the publicly available information as I know it today.
I understand that things are up in the air and our circumstances can change very quickly. However, we need to make decisions right now based on the best available information we have today. I could speculate about a lot of things, but all that does is waste my time going down the rabbit hole. I’m preparing for tomorrow based on what I know today, and I think you should do the same thing.
Take a breath.
Be prepared.
Be informed.
And be kind to each other.
-Tyler
About the Author
Tyler Weerden, CFE is a financial planner and the owner of Layered Financial, a Registered Investment Advisory firm. In addition to being a financial planner, Tyler is a full-time federal agent with 15 years of law enforcement experience on the local, state, and federal level. He has served in both domestic and overseas Foreign Service assignments. Tyler has experience with local, state, and federal pension systems, 457(b) Deferred Compensation, the federal Thrift Savings Plan (TSP), Individual Retirement Arrangements (IRAs), Health Savings Accounts (HSAs), and invests in rental real estate. He holds a Bachelor of Science degree, a Master of Science degree, passed the Series 65 exam, and is a Certified Fraud Examiner (CFE).
Disclaimer
Layered Financial is a Registered Investment Adviser registered in the Commonwealth of Virginia and State of Texas. Registration does not imply a certain level of skill or training. The views and opinions expressed are as of the date of publication and are subject to change. The content of this publication is for informational or educational purposes only. This content is not intended as individualized investment advice, or as tax, accounting, or legal advice. Nothing in this article should be seen as a recommendation or advertisement. Layered Financial and its Investment Advisor Representatives have no third-party affiliations and do not receive any commissions, fees, direct compensation, indirect compensation, or any benefit from any outside individuals or companies. Although we gather information from sources that we deem to be reliable, we cannot guarantee the accuracy, timeliness, or completeness of any information prepared by any unaffiliated third-party. When specific investments, types of investments, products, or companies are mentioned, such mention is not intended to be a recommendation or endorsement to buy or sell the specific investment, solicit the business, or use that product. The author of this publication may hold positions in investments or types of investments mentioned in articles. This information should not be relied upon as the sole factor in an investment-making decision. Readers are encouraged to consult with professional financial, accounting, tax, or legal advisers to address their specific needs and circumstances.
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