The federal government allows employees covered by the Federal Employees Retirement System (FERS) and who are unable to work due to either a mental or a physical condition to retire under what is called a FERS “disability” retirement. Since it is in the best interest of both an employee and the federal government for an employee to remain gainfully employees as long as the employee can provide useful and efficient service, disability retirement should be considered as a last option. Disability retirement should be used only when attempts have been made to preserve an employee’s federal employment, and those attempts have failed.
This column is the third of four columns presenting the rules for FERS disability retirement. In this column, the differences between a FERS immediate (and unreduced) retirement and a FERS disability retirement is presented.
A FERS employee who is eligible for an immediate and unreduced retirement is entitled to a FERS annuity starting one to two months after the employee retires. The annuity will be paid to the retired employee (referred to as a FERS “annuitant”) for the annuitant’s entire life. The FERS annuitant can choose to give a survivor FERS annuity to a spouse or to an insurable interest (a maximum survivor annuity equal to 50 percent of the annuitant’s gross annuity at the time of is or her death) for the survivor annuitant’s life. A FERS annuitant is eligible for an annual cost-of-living adjustment (COLA) that is applied to the FERS annuity. COLAs start the year after the FERS annuitant becomes age 62.
Note that a FERS employee can qualify for a regular (immediate) retirement whether the employee is disabled or not. Table 1 presents the combination of minimum age and minimum years of service that will allow a FERS employee to retire under the regular (immediate) retirement rules:
Table 1. Minimum age/Minimum Years of Service for an Immediate and Unreduced FERS Retirement
Table 2. Minimum Retirement Age (MRA) by Birth Year
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A FERS employee who retires under a regular (immediate) retirement before age 62 will receive the FERS basic annuity and the FERS retirement annuity supplement. The retirement annuity supplement ceases the month the annuitant becomes age 62 at which time the annuitant can apply for their Social Security retirement benefit. Assuming a FERS employee retires under the immediate retirement rules sometime during or after the year the employee becomes age 55, the annuitant can make penalty-free withdrawals (no 10 percent early withdrawal penalty) from his or her traditional TSP account.
With respect to a FERS disability retirement, there are a number of factors that a FERS employee applying for a disability retirement should consider before applying for a FERS disability retirement. These factors are:
· An applicant for FERS disability retirement must prove eligibility through medical and other evidence, even if the applicant is eligible for a regular (immediate) retirement as presented above.
· A FERS disability annuitant under age 60 must provide OPM an annual earnings report if the annuitant decides to work. The disability annuity is subject to termination if the annuitant is no longer considered disabled.
· A disability annuitant under age 60 must provide medical evidence at his or her own expense. The disability annuity is subject to termination if the annuitant is found to have recovered from his or her disability.
· A disability annuitant who is also eligible for a regular (immediate) FERS retirement will be entitled to an immediate FERS annuity (computed using the usual rules for computing an annuity under the non-disability rules) if the disability annuitant is found to be recovered or restored to full earning capacity. However, the new annuity will be computed based on the same high-three average salary used in computing the FERS disability annuity, with no adjustment for cost-of-living adjustments (COLAs) for the period after the individual retired on disability.
· An employee must be permanently unable to work in order to be offered preferential treatment for disability retirement versus a regular retirement.
· A disability annuitant may continue to be enrolled in the Federal Employees Health Benefits (FEHB) program during his or her disability retirement. This assumes that the disability annuitant was enrolled in the FEHB program during the last five years ending on the day the FERS employee retired under the disability retirement rules.
· A disability annuitant is eligible to continue or elect dental and/or vision insurance offered through the Federal Employee Dental and Vision Insurance Program (FEDVIP) during their disability retirement.
· A FERS disability annuitant is not eligible for the FERS retirement annuity supplement.
· If a FERS employee is approved for a FERS disability retirement before the year they become age 55, the annuitant will have to wait until he or she becomes age 59.5 in order to make penalty-free withdrawals from their traditional Thrift Savings Plan (TSP) account. A FERS annuitant, whether the annuitant retired under the regular or the disability retirement rules, must also wait until age 59.5 to make penalty-free and tax-free withdrawals from their Roth TSP account.
Edward A. Zurndorfer is a CERTIFIED FINANCIAL PLANNER®, Chartered Life Underwriter, Chartered Financial Consultant, Registered Health Underwriter and Enrolled Agent in Silver Spring, MD. Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, located at 833 Bromley Street Suite A, Silver Spring, MD 20902-3019
