Postponing retirement problems: Part 1
It's important to know the difference between a postponed retirement and a deferred retirement.
"Experience is the worst teacher. It always gives the test first and the instruction afterward." This is a quote by Vern Law who played 16 seasons pitching for the Pittsburgh Pirates baseball team. This is a relevant quote to start today's column because it was through some very tough experiences that it was discovered that very important instructions were not followed that would allow lifetime insurance coverage under a postponed Minimum Retirement Age + 10 retirement.
It is also possible that better instructions need to be written for former federal employees who choose the option to postpone applying for retirement under the FERS MRA + 10 retirement option. The postponed retirement date is allowed so that the applicant can avoid a 5% reduction for every year they are under age 62 (prorated by the number of months) at the time the FERS annuity benefit commences.
The FERS Application for Deferred or Postponed Retirement (Form RI 92-19) is used when a former employee wants to apply for an annuity which will begin at least one month after they separate from federal service and they have completed at least five years of creditable civilian service and are eligible for a deferred retirement at age 62, or they have completed at least 10 years of creditable service (including at least five years of creditable civilian service) and are eligible for an annuity at the MRA The MRA is age 57 for individuals born in 1970 or later and as young as 55 if born before 1948. The RI 92-19 should be used by those who are eligible for a deferred annuity at age 62 or the MRA, as well as those who were eligible for an immediate annuity at the MRA, but who chose to postpone the commencing date to reduce or avoid the age reduction.
Today is Part 1 of a two-part column that addresses the option to choose a postponed commencing date of an immediate MRA + 10 retirement. The potential problem that you will see in the following examples is that there was no clear correlation included in the instructions for form RI 92-19 between the date retirement begins and the entitlement to reinstate valuable federal insurance benefits. The instructions on Form RI 92-19 may have lacked three critical elements important when writing instructions: The author(s) of the form failed to consider 1) who would be completing the form, 2) how they would understand and interpret the instructions; and 3) how important it is to know the difference between a postponed and deferred retirement.
Consider the following real-life examples:
Mark separated from federal employment at age 57 after completing 20 years of federal service. He initially filed his application based on the advice of his HR specialist who told him to file after he separated at age 57 requesting to have the retirement begin at age 60. She didn't say how long after he separated, so he mailed the application in immediately after his last day on the job. OPM returned the application explaining that they could not keep an "unprocessed signature" longer than one year. The letter stated the following: "A Deferred Annuity under FERS commences on the annuitant's 62nd birthday with 5 years of creditable civilian service, or if MRA with 10 years of creditable service."
Based on this letter, Mark delayed his application until he was 62 as instructed in the letter that accompanied his returned application. Due to Mark selecting a starting date of the first of the month after his 62nd birthday, Mark found out that he made two very expensive errors.
- He lost two years of benefits since he should have filed the application at age 60 because a postponed retirement is payable with no age reduction at age 60 if the former employee had 20 or more years of service at separation.
- He lost entitlement to his health insurance because he chose his annuity "start date" the first of the month after reaching age 62 rather than the first of the month that he turned age 62.
Mark appealed his loss to OPM based on the letter he received earlier from OPM that he interpreted as instructing him to wait until age 62 to re-apply for his retirement. His request was denied because he was told that the date elected "must fall within a window which opens 31 days after the date the application is received and closes two days before the applicant's 62nd birthday." He was provided instructions to file a request for reconsideration of this denial. For the second time, OPM denied his request to backdate his application to his 60th birthday and denied his request for reinstatement of insurance. He filed an appeal with the Merit Systems Protection Board and lost this appeal as well. Apparently, the law on this matter is clear even though the instructions on Form 92-19 were not.
Tammy (not me!) reached her MRA and completed 10 years of federal service in March 2018. She filed for her postponed retirement to begin on May 1, 2023, the first of the month after reaching age 62. Tammy's husband felt responsible for choosing this date as they both read the instructions on Form RI 92-19, and he agreed with her that it was important to be 62 when the benefit began. After all, she had to reach her MRA before she separated from federal employment to qualify to apply for a postponed retirement. She knew that if she separated before reaching her MRA that the retirement would be considered deferred, and she would not be eligible for reinstatement of her insurance. Little did this couple know that she had to be at least two days younger than age 62 to qualify for a postponed retirement that would have provided the opportunity to reinstate insurance benefits. Tammy is appealing on the grounds that the instructions weren't clear when she chose the date based on no warning to let her know that choosing a date after turning age 62 would result in the permanent loss of insurance benefits. So far, OPM has denied her request to change the date.
Warren is another former employee who resigned from federal service with entitlement to a postponed FERS retirement benefit. He left federal service at the end of January 2022. He turned 62 in November 2023 and requested an annuity commencement date of Dec. 1, 2023. After all, like Tammy, he thought it was important to be at least age 62 to begin the unreduced benefit. Because he chose to begin his FERS annuity the first of the month after reaching age 62 rather than the first of the month of his 62nd birthday, OPM denied him reinstatement of his insurance and denied his credit for his unused sick leave because his application was processed as a deferred, not a postponed retirement. When he realized his error, Warren submitted a request to OPM to change the commencement date to Nov. 1, 2023, rather than Dec. 1, 2023. OPM denied his request and replied to Warren providing only two options:
- Change the annuity to commence retroactive to Feb. 1, 2022, the month after his separation. By choosing to go back to his original separation date, OPM would allow him to reinstate insurance and credit unused sick leave in the computation of his FERS benefit. He would also have to accept a permanent reduction of close to 4% for being under age 62 at the time of his retirement.
- Continue with his initial election to begin the first day of the month after turning 62 with no insurance benefits or sick leave credit.
Something must happen two times to be considered a pattern and the three examples outlined seem to be a pattern of former employees misunderstanding the importance of the commencement date of the postponed annuity and reinstatement of insurance. These three examples are only from my experience; could there be more? I feel certain that there are, and I would love to hear from you if you have been impacted by missing some important points when filing your application for a deferred or postponed FERS retirement. Next week, we'll consider some reasons for these mistakes and how to avoid them.
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