A new phased retirement option approved by Congress on June 29 and signed into law by President Obama last week represents a significant change in how federal employees and agencies will plan for retirement.
Employees taking phased retirement for a few years at the end of a career would take a small reduction in future pension payouts in order to begin to draw a reduced pension while working reduced hours. Several factors weigh in the decision:
Length of service before phased retirement. An employee who is well into his third or fourth decade of service at the time of phased retirement will have a post-phased pension that is closer to the pension he would have earned if he had worked full-time those years.
Type of retirement plan. An employee who has spent all or part of his career in the Civil Service Retirement System — which has a far more generous accrual rate than the newer Federal Employees Retirement System — will not lose as much pension during his phased period.
Length of phased service. Employees who work longer in a phased retirement period will accrue more years of service, and as a result find their total phased pension is closer to what their pension would have been if they had worked full-time all those years.
Phased retirement will enable older employees to ease into retirement over a period of several months or years. Most semi-retired employees will work half-time and retire half-time, though the bill allows eligible feds to work one to four days a week and retire for the remainder.
The Obama administration, which proposed the phased retirement concept in February as part of its fiscal 2013 budget proposal, hopes it will alleviate the government’s “brain drain” problem by giving employees with decades of experience more time to pass on their expertise and wrap up crucial projects.
Several federal employees nearing retirement age told Federal Times they are excited to have the opportunity to phase into retirement.
“You can’t golf five days a week,” said Patrick Burke, a disability examiner for the Social Security Administration in Philadelphia. “There’s a lot of us who are eligible [to retire], and it would really hurt if a lot of us retired completely in the next year or two.”
But other feds are skeptical about whether it makes sense to them.
“I’m not sure,” said Angie Maldonado, the Coast Guard’s policy and systems division chief. “They keep touting how wonderful it is. Well, show me the numbers. Having to work after retirement is not much of an advantage.”
Maldonado said it would be much more lucrative for a fed to fully retire and later come back to work for the government, earning both a pension and a salary under a dual compensation waiver.
But Maldonado fears those highly expensive dual compensation waivers will be a thing of the past once phased retirement become a reality. The so-called deficit reduction supercommittee last year proposed adopting phased retirement as a way to reduce re-employment of retirees.
“I don’t know what the future is for re-employed annuitants,” Maldonado said.
How it works
The ideal candidate for semi-retirement would likely be a fed who was already planning to completely retire soon and who takes the phased option to add another few years onto his years of service.
An employee under phased retirement would receive an annuity that is reduced proportionally by the amount of time he works. So if an employee works half-time, he would get half his pension; if he works one-fifth of the time, he would get four-fifths of his pension. A phased retiree would continue to accrue pay raises through step increases, and his partial annuity would be increased by the standard annual cost-of-living adjustment.
Once a semi-retired employee enters into full retirement, the government will calculate a partial pension for his phased period and add it to his full pre-phased pension.
But no matter how much an employee worked during the phased period — be it one day a week or four — the government will give him service credit as if he were working full time.
A semi-retiree would be able to return to full-time status if his employing agency agrees, and his phased-retirement period would be treated as part-time employment. But he would not be able to move back into phased-retirement status.
Partial pensions during the semi-retirement period would not include credit for unused sick leave. Law enforcement officers — including Customs and Border Protection, Capitol Police and Supreme Court police officers — firefighters, nuclear materials couriers and air traffic controllers, all of whom face a mandatory retirement age, would not be eligible for phased retirement.
Employees phasing into retirement will also be required to spend at least 20 percent of their working hours mentoring younger employees, except at the Postal Service.
The Congressional Budget Office estimates phased retirement would save $427 million over the next decade by spacing out retirements and new hires. February’s budget said agencies would save by not having to immediately replace employees phasing into retirement, by delaying payment of full retirement benefits, and by reducing the government’s need to rehire retirees.
In a statement sent to Federal Times, Office of Personnel Management Director John Berry — who earlier this year called phased retirement one of the budget’s most important federal staffing measures — applauded Congress for passing it.
“Phased retirement is an important off-ramp to help retain critical skills and knowledge when some of our most valued employees near retirement,” Berry said. “As we roll out the Recent Graduates program [for hiring younger employees] and recruit a diverse range of new talent into federal service, phased retirement also will help agencies and employees share the knowledge and experience of experts nearing retirement with incoming employees.”
Weighing the options
Semi-retirement might not be for everybody.
For one thing, an employee’s agency will have to approve his request to work part-time.
And perhaps the most crucial factor a federal employee must consider is his own financial situation and desires for retirement. Can he afford the slight hit his pension would take if he enters into semi-retirement early? And is he not ready to completely quit working?
One Agriculture Department project manager, who asked for his name not to be used, said he doesn’t want to stop working just yet. He wants to mentor some of the younger employees around his office, and finish some long-standing projects. But there are also home repairs and chores piling up that he doesn’t have time to take care of while working full time.
Steve Bernstein, an auditor in the U.S. Agency for International Development’s Office of the Inspector General, said that if phased retirement is not an option, he probably will retire from the government and look for part-time work elsewhere.
But if he is approved for phased retirement, he will have more time to pass on his institutional knowledge.
“People come up to me and ask me all sorts of questions, about anything from personnel issues, to life overseas, to some audit that happened 10 years ago,” Bernstein said. “It would be a good transition.”
Burke, who is 60 and thinking about semi-retirement next year, said he wants to continue working on SSA’s ongoing case backlog. But the daily grind is starting to get to him.
“I work in the city, and commuting every day gets on your nerves,” Burke said. “It would be nice to have half the week off.”