If employees retire voluntarily under the Civil Service Retirement System (CSRS), they can set their retirement date for the first, second, or third day of the month and their annuity will begin the following day. For example, assuming the retirement is effective April 3rd; their annuity check is payment for the annuity which accrued from April 4th to April 30th. If they retire voluntarily on the fourth day or after, they will not begin to accrue an annuity until the following month. If employees voluntarily retire under the Federal Employees' Retirement System (FERS) their annuity will begin the first day of the following month that they retire. For example, assuming their retirement is effective April 30th; their annuity check is payment for annuity which accrued from May 1st to May 31st. Assume their retirement date is effective May 1st: their annuity check is payment for annuity which accrued from June 1st to June 30th.
Some consideration should be taken if employees will be receiving a large lump-sum payment for annual leave upon retirement. Taxes are applied to lump-sum payments in the year in which the employees receive the money. Example: An employee retiring September 30 could incur a larger tax burden by collecting almost a full year's salary plus a large lump-sum payment for unused annual leave. Information about the taxation of annuity is explained in IRS Publication 721 ( http://www.ssa.gov/).
Employees will want to plan retirement date and annual leave use if they expect to have "use or lose" leave to their credit. The maximum carry-over is normally 240 hours. Excess annual leave is lost at the beginning of a new leave year. When employees retire, they will be paid for all of their accumulated annual leave (including that which is above their maximum carry-over). Leave can only be earned during complete pay periods. If employees do not complete a full pay period of work prior to retirement, they will not add any leave to their balance for that pay period.
CREDIT FOR SICK LEAVE:
Under CSRS, credit for unused sick leave balance, is used in computing the annuity payments. Under FERS, 50 percent of the unused sick leave balance is used in computing the annuity payments, in the case of an annuity entitlement based on a separation from service from October 28, 2009, through December 31, 2013; and 100 percent of the unused sick leave balance is used in computing the annuity in the case of an annuity entitlement based on a separation from service occurring on or after January 1, 2014.
For those employees who were vested in the CSRS system and later switched to FERS, the lesser of (1) the amount of sick leave at the time of retirement or (2) the amount of sick leave when FERS was elected, is included in the CSRS portion of the annuity computation.
COST-OF-LIVING ADJUSTMENT (COLA):
For CSRS retirees, the cost-of-living adjustments are effective each December first and the first cost of living adjustment is prorated by the number of months employees are on the annuity roll. FERS retirees do not receive a COLA until age 62, except for disability, survivor benefits, and other special provision retirements (Firefighters, Air Traffic Controllers, and Law Enforcement Officers). For FERS annuitants who are not eligible to receive a COLA during the first year or more on the annuity roll, the initial COLA received (after becoming eligible) is the full COLA without proration. The increase is normally 1% less than the increase in the consumer price index as determined by law.
Employees are eligible to continue Federal Employees Group Life Insurance (FEGLI) into retirement if they retire on an immediate annuity, are insured on the date of retirement and have been continuously covered for the five years preceding retirement or since their first opportunity to enroll. This eligibility requirement extends to each of the options (A, B & C) available under the FEGLI plan to include the number of multiples for these options (B & C). Employees will complete an SF 2818 as part of their retirement application indicating what level of FEGLI they wish to carry into retirement.
Employees are strongly encouraged to visit the FEGLI calculator on OPM’s website at: http://www.opm.gov/calculator/worksheet.asp. The calculator is an invaluable tool that will help them see how their FEGLI premiums will change over time. It will also allow them to determine the amount of the insurance coverage they will have as well.
Employees must continue Basic life insurance in order to continue any Optional coverage. Employees cannot elect more coverage at retirement than they currently have. If they elect to waive their FEGLI at retirement, they will not be able to pick up the coverage at a later date.
There are three levels of coverage for Basic: 75% reduction, 50% reduction and no reduction. Remember, if employees wish to continue any of the Optional coverage, they must continue their Basic. Option A will automatically reduce once they are retired and at age 65 and there is no longer a cost. There are two levels of coverage for Options B and C: full reduction or no reduction.
Federal Employee’s Health Benefits (FEHB) coverage continues if employees have been enrolled since first eligible or for five continuous years immediately prior to the date of their retirement. The cost will remain the same as if they were a current employee. Employees will still be entitled to the same privileges as a current employee in making changes during open season and other changes that occur. The Office of Personnel Management will notify employees of the open season periods. If employees are not in receipt of cash benefits from Social Security, at age 65 they must register for Medicare by contacting their local Social Security office. During retirement, Medicare becomes the primary payor at age 65 and FEHB is secondary.
Even though Medicare becomes primary, it may be to the employees benefit to keep their FEHB coverage. Their spouse is eligible to continue FEHB coverage after the employees’ death only if employees had self and family coverage and they elect to provide a survivor annuity .
If eligible to continue FEHB coverage into retirement, their health benefits continue without interruption even though premiums are not collected until their retirement case has been adjudicated. Premiums for the period from retirement to case completion will be deducted from the first payment after their retirement case is adjudicated at OPM.
THRIFT SAVINGS PLAN (TSP):
If employees are enrolled in TSP when they retire, they will be given information about the options available. Their options include withdrawing all of their money in a lump-sum, elect equal payments, elect an annuity, roll the money over into an IRA, or leaving the money in their TSP account. If they decide to leave their money in the account, they can no longer make contributions, but their account will continue to draw interest.
The Internal Revenue Code requires that employees receive a portion of their TSP account (their "required minimum distribution" or "RMD" ) beginning in the calendar year when the employees become age 70½ and are separated from service. If they do not begin receiving payments from their account or withdraw their entire account balance, the TSP is required to make the required distribution to them by April 1 of the following year. If employees separate after age 70½, their account will immediately be subject to the IRS minimum distribution requirements.
For more information on TSP, visit their website at https://www.tsp.gov or call 1-877-968-3778.
Federal Employee Dental and Vision Insurance Program (FEDVIP):
If employees are enrolled in the Federal Employee Dental and Vision Insurance Program (FEDVIP), they may take it with them in retirement; there is no 5-year enrollment requirement. They will need to contact BENEFEDS one week prior to their retirement date to inform them of their retirement. These premiums can be withheld from their retirement; however they will receive a direct bill from BENEFEDS for premiums until their retirement claim has been adjudicated. It is important that they mail their premiums in a timely manner in order to avoid possible cancellation of this benefit. The number for BENEFEDS is 1-877-888-3337 or TTY 1-877-889-5680. For more information on this program, please visit their website at https://www.benefeds.com.
Long Term Care Insurance (LTCI):
If employees are enrolled in Long Term Care Insurance (LTCI), their coverage will automatically continue into retirement as long as they continue to pay the premiums. Deductions for LTCI do not automatically transfer to the retirement system. If employees currently pay premiums through direct deposit and they opt for deduction from their annuity, LTC will work with OPM to set up the deduction. This can only be done with adjudication of their annuity. Prior to adjudication, employees will be direct billed by LTC Partners. Employees are responsible for contacting LTC Partners and letting them know of their upcoming retirement and making payment arrangements. It is important that employees mail their premiums in a timely manner to avoid possible cancellation of this benefit. If employees currently mail their premiums directly, they do not need to make any changes; retirement will not have a bearing on this arrangement.
If employees are not enrolled in LTCI at retirement, they can apply for this benefit after retirement. The number for LTC is 1-800-582-3337. Employees can find out more information on their website at http://www.ltcfeds.com.
Flexible Spending Account (FSA):
If employees are participating in the Flexible Spending Account (FSA), they will no longer be eligible to continue this benefit. Employees’ Health Care Flexible Spending Account (HCFSA) or Limited Expense (LEX) HCFSA will terminate as of the date of their retirement. There are no extensions. Any health care expenses incurred prior to the date of separation will be reimbursable but those incurred after the date of separation are not. If employees used their entire elected amount before FSAFEDS has deducted it from their account, they will not be responsible for the remaining payments. They can continue to use the remaining balance in their Dependent Care Flexible Spending Account (DCFSA) to pay for eligible dependent care expenses until the end of the benefit period or until their account balance is used up, whichever comes first. For more information on FSA, employees can contact them at 1-866-643-2245 or visit their website at http://www.fsafeds.com.
Payment Schedule/Interim Pay:
Employees should receive their last paycheck on the normal schedule. After OPM has received their retirement papers, they should receive an interim payment equal to approximately 75% to 80% of their full annuity. This process should take about 8 weeks following their retirement date.
During the interim pay period, no deductions will be taken for health or life insurance. The interim payment schedule will continue until all records have been verified by OPM. At that time, employees will receive a full annuity check including any additional back pay lost during the interim pay cycle minus FEHB, FEGLI, and any other appropriate deductions.
Many employees move after retirement. When completing the retirement application, employees should use their permanent retirement address. The address listed on their retirement application is the only one that OPM will use to contact them, including sending their interim annuity payments.
When employees’ records are transferred to OPM, current allotments and direct deposits will stop. Public Law 103-356 now requires that annuity payments beginning on or after January 1, 1995, be paid through electronic funds transfer.
If they choose not to receive their checks through direct deposit, they must request, in writing, that this requirement be waived.
The OPM has agreements with some states to allow the withholding of state income taxes from annuity payments. After employees receive the adjusted annuity payment statement from OPM, they should contact the local state income tax office near them to obtain the appropriate tax withholding form. Federal income tax will be withheld unless employees elect not to have withholding apply. If employees choose not to complete a W4 P with their retirement packet, their deductions will be withheld as though they are married with three withholding allowances.
Processing the Retirement Application:
Employees will be required to complete a retirement application and possibly submit other forms and documents. Retirement forms and additional information can be located on the Army Benefits Center-Civilian (ABC-C) website: https://www.abc.army.mil. Retirement forms and additional documents should be mailed to ABC-C at ABC-C, 303 Marshall Ave, Ft. Riley, KS 66442-5004. Employees can call ABC-C for assistance with applications at 877-276-9287, Monday thru Friday, 6am-6pm central time. ABC-C will review their application, verify their service record, and forward the package to the servicing payroll office. Documents reflecting their pay and retirement history are added to the package and forwarded to OPM.
The OPM Retirement Operations Center at Boyers PA reviews the application package and assembles the information into a retirement file. If their entitlement to an annuity is clear, OPM will normally authorize recurring interim annuity payments to provide employees with income until their claim is completed. Interim payments are generally authorized within 8 to 10 days after OPM receives the retirement package. Employees should check with ABC-C to find out how long it typically takes for their retirement package to reach OPM. Employees should receive their first interim payment within 2 to 3 weeks after OPM has received the retirement package.
Employees will be assigned a Civil Service Annuity (CSA) number by OPM. Employees must use this number when corresponding with or calling OPM. Once employees receive their CSA number, they may contact OPM at (888) 767- 6738 from 7:30 a.m. to 6:00 p.m. (Eastern Time), to report a change of address, non-receipt of payment, health benefits changes, verification of income, or changes in electronic funds transfer account.