Plan would allow federal workers to phase into retirement

August 14, 2012

The government’s central personnel agency says that allowing federal employees to phase into retirement is one of its important goals and it will make the option available “as soon as possible.”

However, participation will be “entirely voluntary” for both employees and their employing agencies, and certain categories of workers will be excluded, the Office of Personnel Management added in a fact sheet it recently sent to agencies.

Under phased retirement, an agency will be able to offer employees who are retirement-eligible the choice of switching to part-time work. They would draw a partial salary and a partial annuity, both prorated according to the time worked.

Phased retirement had been proposed for years as helping employees interested in cutting back on their work schedules rather than retiring fully, while the government would continue to benefit from their expertise. The law envisions that phased retirees would spend a fifth of their working time mentoring younger employees.

The authority was enacted as a cost-saving part of an unrelated bill signed last month, but the option will not be available until OPM issues implementing rules. OPM has not released an expected start-up date.

Under the traditional law in effect until then, when federal retirees return to work for the government they continue to receive their full annuities, but their pay generally is reduced by an equal amount. Limited exceptions allow for full receipt of both.

“An effective phased retirement plan has been a long-sought goal. However, under prior law, the problem was that an individual who was retirement-eligible but wished to continue employment on a part-time basis generally had little economic incentive to do so because an employee’s potential retirement benefits would often be equal to or greater than their salary would be for part-time employment,” OPM said.

While the law authorizing phased retirement would allow retirees to work between one and four days a week on average, OPM told agencies that at the outset, at least, only half-time work will be allowed.

Phased retirement will be available only to those who meet standard retirement eligibility rules and who also had been working full-time for the three previous years. Employees who are subject to mandatory retirement will be excluded; most of them work in law enforcement, air traffic control and firefighting.

Phased retirees will be treated as employees for purposes of health and life insurance coverage and survivor benefits, OPM said. When they decide to retire fully, their annuity benefits will be paid in full, with increases reflecting their additional working time.

The Congressional Budget Office in May estimated that, on average, phased retirees would remain in that status for three years before retiring fully. CBO also estimated that 1,000 employees would enter phased retirement each year; OPM has not released any estimate of its own.

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