Considering Phased Retirement?

As you near retirement age, there are a number of different factors you’ll likely be thinking about. You might realize that you aren’t as financially prepared to retire as you had anticipated, you might have trepidation about not having something to occupy your day, or you might just really like your job. If you fall into one of these categories, you might benefit from the new phased retirement option available to federal employees.

On August 8, OPM issued its final rules for phased retirement for CSRS and FERS employees, two years after Congress approved the program. Under phased retirement, eligible federal employees can work and be paid for 20 hours per week, and collect half of their annuity at the same time. The caveat? They must spent at least 20 percent of their hours mentoring younger employees, particularly those who will be expected to fill their position. Not only does the government save money, it prevents decades of experience from walking out the door before knowledge transfer can take place.

Applications for phased retirement are expected to open on November 6. To be eligible, an employee must have been working full time for the three years prior to entering the program. Additionally, an employee covered under CSRS must be either 55 or older with 30 years of federal service, or 60 or older with 20 years service. For those employees who were hired under FERS, they must reach the minimum retirement age with 30 years of service, or age 60 with 20 years of service to be eligible for phased retirement. Additional requirements on eligibility can be set by each agency, who were given a lot of leeway under the final rules to determine how best to make the program work for them.

If an employee is accepted into the phased retirement program, there are a variety of things to know, particularly as it relates to benefits:

• The annuity will be calculated once when the employee enters the program, and again when that employee fully retires. This ensures that a new three-year high reached during phased retirement will be taken into consideration.
• Employees will continue to receive their full health care contribution and costs will not change.
• Employees will continue to be eligible to participate in the Thrift Savings Plan; contributions (either from the employee or employer) will be made based on salary and will not take the annuity payouts into account.
• Employees will continue to accrue annual leave and sick leave, but at 50% of a full-time schedule (because the employee will be only part time). This generally means four hours of annual leave and two hours of sick leave per pay period; it is unlikely that the employee will be qualified to receive compensatory leave.

Phased retirement is not an entitlement—both the employee and the employer must agree on the terms of the arrangement, and it is up to the agency to determine whether the employee meets specific qualifications to participate, how that employee’s performance will be evaluated, what tasks the employee will be required to complete, how mentoring will be handled, and whether the employee will be limited on the amount of time he or she can remain in the program. Interest in the program has been strong, and it is expected that once applications open, participation will continue to grow as the economy improves.

There are a number of benefits of entering phased retirement:

• You can test the retirement waters and determine how you would most like to spend the next phase of your life
• You have backup income in case you find you are not as financially prepared as you had anticipated
• You have peace of mind that, when you do finally retire, you have prepared your replacement to the best of your ability

If you are interested in participating, talk to your HR representative and find out the specifics for your agency’s program. And before you enter into a phased retirement agreement, be sure you fully understand what will be expected of you and what changes (if any) will be made to your benefits.