When You Become Vested for Retirement

The other day, a federal employee who had just put in enough time to move from career-conditional to career status asked me when he could retire. It continues to amaze me how often people who have recently entered government ask me that. And no small number of them are hoping that their experience in the private sector or the armed forces can be used to meet that threshold, whatever it is.

(Note: We’re speaking only of FERS here because no one has been first hired into CSRS since the 1980s.)

The answer is simple. You have to have five years of actual service to be vested in the retirement system. Other employment – even active duty service in the armed forces for which you’ve made a deposit – doesn’t count. Only after you are vested in the retirement system will you be eligible for an annuity.

Their next question is this. When will I be able to claim that annuity? If you have at least five years of service but fewer than 10 when you leave government, there’s only one possibility: you can apply for it at age 62.

After 10 years of service it gets more complicated.

Under FERS, if you worked for at least 10 years before leaving, you could retire at your MRA (minimum retirement age, which ranges between 55 and 57 depending on your year of birth). However, your annuity would be reduced by 5 percent for every year you were under age 62. You could reduce or eliminate that penalty by postponing the receipt of your annuity to a later date. Of course, if you stuck around for at least 20 years, you could retire on a penalty-free annuity at age 60 or at your MRA with 30.

No matter when you leave, your annuity will be based on your total years of service and the average of your highest three years of basic pay on the day you leave. Here’s the standard formula for computing that annuity:

.01 x the average of your highest three consecutive years of basic pay x your years and full months of service. (The multiplier is increased to .011 if you retire at age 62 or later with at least 20 years of service.)

To summarize, all you need is five years of service to be vested in the retirement system. If you leave before completing five years, you won’t have any title to an annuity. And if you don’t intend to return to government service, your only option would be to ask for a refund of your retirement deductions.

However, if you know you’ll be coming back (or are undecided), it makes sense to leave your retirement deductions in the fund. If you did come back, you wouldn’t have to redeposit the money, plus accrued interest, to get credit for that time. If you don’t come back, you can ask later for a refund, which you’ll get with accrued interest.