OPM recently sent guidance on special considerations that apply when someone who applies for disability retirement also is eligible for regular retirement. Following are key points of the guidance.
Disability retirement versus Immediate Optional retirement
Most retiring employees assume their annuity, when processed under the disability benefit rule, will result in a higher annuity than the immediate optional annuity. However, retiring under the disability provision when age and service requirements are met will result in an earned rate annuity, which produces the same basic annuity as the immediate optional annuity, if refunded service is not involved.
Note: MRA + 10 retirements do not apply as this annuity is reduced for age.
There are disadvantages of retiring under the disability provision instead of the immediate optional provision. Under FERS disability rules, the annuity supplement is not payable. Also, for a FERS disability retirement with a CSRS component, the actuarial reduction provision for pre 3-1-1991 refunds of CSRS contributions is not available. Since the retired provisions provide different benefits, the annuitant must be given the right to choose the annuity that is more advantageous. However, each retiree is unique and there may be a good reason for the individual to choose a disability retirement over the immediate optional retirement (i.e., state benefits or taxes).
The agency must inform employees in this situation at retirement of their dual eligibility and provide them with estimates outlining both types of retirement. OPM will notify the retiree of his/her retirement options before final adjudication by sending an election letter.
Optional Retirement vs. Disability Retirement—CSRS
There are concerns important to disability annuitants both before and after retirement of which the employee should be aware.
* Even if eligible for optional retirement, an applicant for disability retirement must prove eligibility through medical and other evidence.
* A disability annuitant under age 60 must provide annual earnings reports, and the annuity is subject to termination if the annuitant is restored to earning capacity.
* A disability annuitant under age 60 must provide medical evidence at his or her own expense, and the annuity is subject to termination if the annuitant is found to be recovered.
* A disability annuitant who was also eligible for optional retirement would generally be entitled to an immediate annuity if found recovered or restored to earning capacity; however, the new annuity would be computed based upon the same average salary used in computing the disability annuity with no adjustments for increases in the cost of living for the period after the individual originally retired on disability.
* Unless an individual is permanently and totally disabled for all work, Federal income tax provisions no longer offer preferential treatment for disability retirement over optional retirement. Any employee having questions related to Federal tax treatment of retirement benefits should be directed to consult with the Internal Revenue Service.
* Disability retirees are not eligible to elect the alternative annuity.
* Disability retirees may not elect an insurable interest annuity.
* A disability annuitant must make a redeposit of refunded contributions plus interest to receive credit in a CSRS annuity computation for the service covered by the refund. In contrast, an optional retiree who fails to redeposit a refund for a period of service ending before March 1, 1991, will receive credit for the service (subject to a reduction in the annuity based upon the amount of the redeposit due).
Optional Retirement vs. Disability Retirement–FERS
There are concerns important to disability annuitants both before and after retirement of which the employee should be aware.
* Even if eligible for optional retirement, an applicant for disability retirement must prove eligibility through medical and other evidence.
* A disability annuitant under age 60 must provide annual earnings reports, and the annuity is subject to termination if the annuitant is restored to earning capacity.
* A disability annuitant under age 60 must provide medical evidence at his or her own expense, and the annuity is subject to termination if the annuitant is found to be recovered.
* A disability annuitant who was also eligible for optional retirement would generally be entitled to an immediate annuity if found recovered or restored to earning capacity; however, the new annuity would be computed based upon the same average salary used in computing the disability annuity with no adjustments for increases in the cost of living for the period after the individual originally retired on disability.
* Unless an individual is permanently and totally disabled for all work, Federal income tax provisions no longer offer preferential treatment for disability retirement over optional retirement. Any employee having questions related to Federal tax treatment of retirement benefits should be directed to consult with the Internal Revenue Service.
* Disability retirees are not eligible to elect the alternative annuity.
* Disability retirees are not eligible for the retiree annuity supplement.
* Disability retirees may not elect an insurable interest annuity.
* A FERS disability annuitant who has a CSRS component must make a redeposit of refunded contributions plus interest to receive credit in a CSRS annuity computation for the service covered by the refund. In contrast, an optional retiree who fails to redeposit a refund for a period of service ending before March 1, 1991, will receive credit for the service (subject to a reduction in the annuity based upon the amount of the redeposit due).
