Separation Before Retirement Eligibility

Chapter 8: Section 5

The following summarizes policies governing benefits for employees who separate before retirement eligibility, which in many cases differ from benefits upon retirement. For further details on each of these benefits, including the rules on retirement eligibility, see the pertinent material in each applicable section of this Federal Employees Almanac.

See Retirement: Main Types and Eligibility Conditions in Chapter 3, Section 1 for status of insurance benefits for those who separate without immediate eligibility for retirement benefits but who later are eligible for and receive deferred benefits as described below, and for those who separate in certain circumstances under the Federal Employees Retirement System with immediate eligibility for retirement but who postpone receipt of their annuity.

Thrift Savings Plan

Upon separation before retirement eligibility, you have the same options for withdrawing your TSP account that apply to retirees. You may leave your money in TSP; transfer all or part of your TSP balance into an Individual Retirement Account or other eligible retirement plan; receive your TSP account balance in a lump sum payment; receive your balance in installments; purchase a life annuity; or use a combination of those choices. Special rules apply in various situations, including for participants with outstanding loans and those with “Roth” balances. See Chapter 6, Section 4.

Federal Employees’ Group Life Insurance

Your life insurance automatically terminates effective with your separation from federal employment. You then have a 31-day extension of coverage during which coverage will continue at no cost to you. During the 31-day period, you may apply for conversion to an individual policy.

You may convert all or any part of your Basic and Optional insurance to an individual policy. However, if you assigned your insurance, only your assignee may apply for conversion. Also, you may not convert Option C family coverage if you no longer have any eligible family members.

The purchase of a policy is a private transaction between you and the insurance company. The cost is determined by the insurance company and is based on your age and class of risk. See Converting to an Individual Policy in Chapter 2, Section 2.

Federal Long-Term Care Insurance Program

As long as you continue paying premiums, FLTCIP insurance will continue under the same premium and benefit terms. If you were paying premiums by payroll deduction, you’ll have to make arrangements with the insurance carrier, LTC Partners, to start paying premiums directly or by automatic debit from your bank account. Any qualified relatives who enrolled while you were eligible (whether you enrolled or not), also can keep the coverage by continuing to pay the premiums. However, once you leave federal employment, they can no longer first apply for the insurance unless they are otherwise eligible.

Federal Employees Health Benefits Program

Enrollment in the Federal Employees Health Benefits (FEHB) program ends on the last day of the pay period during which you separate. Your employing office will terminate your enrollment by completing an SF 2810 and forwarding you a copy. The SF 2810 includes information about the free 31-day extension of coverage and your options under temporary continuation of coverage (TCC) or to convert to an individual contract.

Under TCC, you may continue FEHB coverage for up to 18 months after your separation in the same plan and at the same level of benefits as while employed or any other plan, option, or type of enrollment for which you are eligible, and with the same family member or members covered. You generally would have to pay both the employee and the employer share of the premium plus an administrative charge of 2 percent.

Alternatively, you may convert to an individual (non-group) contract from your current plan. Benefit and premium terms may differ, and you similarly would be required to pay the entire cost.

Eligibility for “premium conversion”—payment of premiums with pretax dollars—ends when you separate.

Also see Temporary Continuation of Coverage in Chapter 2, Section 1.

Federal Employees Dental and Vision Insurance Program

Coverage under the Federal Employees Dental and Vision Insurance Program (FEDVIP) ends when you no longer meet the definition of an eligible employee (see Eligibility in Chapter 2, Section 4). Those who separate with eligibility for a deferred annuity are not eligible to enroll in FEDVIP and cannot continue a FEDVIP enrollment. Those who retire on a Minimum Retirement Age+10 annuity under the Federal Employees Retirement System and who elect to postpone receipt of their annuity lose FEDVIP coverage upon separation from service but can enroll in FEDVIP within 60 days of when they start receiving their annuity. Coverage for family members also ends when you as the enrollee lose coverage.

Under FEDVIP, there is no 31-day extension of coverage, temporary continuation of coverage, or right to convert to an individual policy.

Flexible Spending Accounts

If you separate before the end of a plan year, a health care FSA terminates on separation. Any expenses incurred before separation will still be reimbursable, even if claims are submitted after separation. Any remaining balance in an account is not refunded. A dependent care account balance will still be available for any eligible expense incurred within the plan year.

Retirement—FERS

If you separate before retirement eligibility you have two basic options regarding your retirement, a refund or a deferred annuity.

Refund—You may apply for a refund of your retirement contributions if you have been separated from federal service for at least 31 days (or have occupied a position not covered by the Federal Employees Retirement System for at least 31 days). If you have more than one year of service, interest on the contributions will be part of the refund. The form to use is SF 3106, Application for Refund of Retirement Deductions, available at www.opm.gov/forms, call (888) 767-6738 or write to: Office of Personnel Management, P.O. Box 45, Boyers, PA 10617-0045.

Before you can receive a refund, generally you must notify your spouse and any former spouse that you have filed the application. Also, you may be barred from receiving a refund if the refund would end the court-ordered right of any spouse or former spouse to future benefits based on your service.

A refund of all deductions voids any retirement options, including survivor benefits.

A refund may be paid directly to you or rolled over into an IRA or into a qualifying retirement plan of another employer. See the information on the form regarding procedures and tax consequences.

See Redeposit Service in Chapter 3, Section 3, for rules on recapturing service time after taking a refund and later returning to federal employment.

Deferred Annuity—If you have left your retirement contributions or deposits in the fund when you separated from the government, and you are not eligible for an immediate retirement benefit, you may be eligible for a deferred annuity.

If you have at least five years of creditable service, you may receive a deferred annuity beginning on the first day of the month after you attain age 62.

If you have at least 10 years of creditable service, you may receive a deferred annuity as early as the first day of the month after you attain your Minimum Retirement Age (MRA). However, your deferred annuity will be reduced by 5/12 percent for each month (5 percent per year) by which the commencing date of annuity precedes your 62nd birthday, unless you: have at least 30 years of service; have 20 years of service and postpone the commencing date until you are age 60; or have at least 20 years of service as an air traffic controller, firefighter, law enforcement officer, or member of Congress.

The form to use is RI 92-19, Application for Deferred or Postponed Retirement, available through the contact points above. Submit it to OPM no sooner than two months before you are eligible to receive a deferred annuity.

The deferred annuity is based on the length of your service and your high-3 average salary (see High-3 Salary Base in Chapter 3, Section 4) on the day you left government. The annuity computation formula is 1 percent of your high-3 average pay times years of creditable service, with full months beyond a full year credited proportionately.

You must pay any deposit needed to receive credit for military service in the computation of your deferred annuity to your employing agency before you separate from federal employment.

Unused sick leave is not creditable toward a deferred annuity. Also see Chapter 3, Section 4. If you die before applying for a deferred annuity and you have less than 10 years of creditable service or no eligible survivor, any contributions remaining in the retirement fund are paid in a lump sum (with interest) to your designated beneficiary or person in the order of precedence set by law.

If you die before applying for a deferred annuity, your surviving spouse is entitled to a survivor annuity if:

• you have at least 10 years of creditable service for which withholdings or deposits remain in the fund (five years of which is creditable civilian service); and

• your spouse was married to you at the time of your separation from federal service.

Your surviving spouse may elect to receive a lump-sum payment of your retirement contributions in lieu of the survivor annuity.

Retirement—CSRS

If you separate before retirement eligibility you have two basic options regarding your retirement, a refund or a deferred annuity.

Refund—You may apply for a refund of your retirement contributions if you have been separated from federal service for at least 31 days or have occupied a position not covered by the Civil Service Retirement System (or Federal Employees Retirement System) for at least 31 days. The form to use is SF 2802, Application for Refund of Retirement Deductions, available at www.opm.gov/forms, call (888) 767-6738 or write to: Office of Personnel Management, P.O. Box 45, Boyers, PA 10617-0045.

Before you can receive a refund, you generally must notify your spouse and any former spouse that you have filed the application. Also, you may be barred from receiving a refund if the refund would end the court-ordered right of any spouse or former spouse to future benefits based on your service.

A refund of all deductions voids any retirement options, including survivor benefits, until the refund is redeposited. A refund may be paid directly to you or transferred into an IRA or into a qualifying retirement plan of another employer. See the information on the form regarding procedures and tax consequences. See Redeposit Service in Chapter 3, Section 3 for rules on recapturing service time after taking a refund and later returning to federal employment.

Deferred Annuity—If you have at least five years of creditable civilian service, do not receive a refund of all retirement contributions, and are not eligible for an immediate retirement benefit, you may be eligible for a deferred annuity at age 62. The form to use is OPM Form 1496A, Application for Deferred Retirement, available at the contact points above. Submit it to OPM no sooner than two months before you turn age 62. The deferred annuity begins on your 62nd birthday. The deferred annuity is based on the length of your service and your “high-3” average salary on the day you left government and is calculated according to the following formula (full months beyond a full year are credited proportionately):

• 1.50 percent per year for the first five years (7.50 percent) plus

• 1.75 percent per year for the next five years (8.75 percent) plus

• 2.00 percent per year for service over 10 years.

You must pay any deposit needed to receive credit for military service in the computation of your deferred annuity to your employing agency before you separate from federal employment.

Unused sick leave is not creditable toward a deferred annuity.

No survivor annuity is payable to a former employee’s spouse, former spouse, or children if the former employee has title to a deferred annuity but dies before reaching age 62, or reaches age 62 but dies before filing an application for CSRS retirement. The only benefit payable in either case would be a lump-sum payment of the former employee’s retirement contributions, without interest. Also see Chapter 3, Section 4.

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