Reg Jones Expert's View

There are times when an employee applying for disability retirement is also eligible for an immediate optional retirement. Obviously, this is a one or the other choice.

Making a decision has been a no-brainer for CSRS employees. In their case, if they have around 22 years of federal service or are age 60 or older (one of which applies to just about every CSRS employee) their earned benefit would be the same as what they’d receive under disability retirement. Not only would the benefits be the same but by retiring on an immediate annuity, they’d be spared all the trouble of gathering medical information, having their application reviewed by OPM, and having to provide yearly updates on their medical condition.

Until recently, little thought was given to when immediate optional retirement would be a better choice than disability retirement for FERS employees. That is until the Merit Systems Protection Board decided a case in which OPM had granted disability retirement to someone who would have more appropriately been given an immediate optional retirement.

As a result of the Board’s decision, on February 4, 2014, OPM issued a Benefits Administration Letter in which it stated the following:

Most retiring employees assume their annuity, when processed under the disability benefit rule, will result in a higher annuity that 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 base annuity as the optional annuity, if refunded service in not involved.

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).

From now on, agencies will be responsible for providing employees who have dual eligibility with estimates that outline their benefits for both types of retirement. Then, when OPM adjudicates a retirement application, it will notify the retiree of his or her options before finalizing the case.