New rules proposed last week by the Office of Personnel Management will allow federal employees to ease into retirement by working part time while receiving partial pensions — and could transform how managers handle generational shifts in their offices.
The phased retirement rules, published last week in the Federal Register, will allow an employee who is eligible for retirement and meets other requirements to work half time at the end of his career, while receiving half of the pension he would have received had he fully retired at that time. While that phased retiree continues to work, he will continue to accrue additional service credit toward his final pension.
Phased retirees will be required to spend at least 20 percent of their working time in “mentoring activities.” OPM suggested that phased retirees mentor the employees who will take over for them when they completely retire, but said that is not the only way phased retirees could fulfill that mentorship requirement.
This proposal has the potential to transform how managers engage in succession planning and deal with the retirement wave that has been hitting agencies in recent years, said Jessica Klement, legislative director for the National Active and Retired Federal Employees Association. And it could help managers keep their agencies operating in the face of hiring freezes that sometimes prevent them from replacing valued employees when they retire.
“I think this comes at a really interesting time, because there’s been so many hiring freezes," Klement said. “You are doing your agency a huge service by staying on in phased retirement, if they cannot hire someone to replace you. This may be a good way to prevent the brain drain that comes with this retirement wave.”
A contract specialist at the Defense Logistics Agency, who asked that his name not be printed, told Federal Times that he is now planning to retire in December 2014, when he has 35 years of service under his belt. But if phased retirement is coming, he said he may work part time another two years or so to add a little more to his pension and Thrift Savings Plan, and strengthen his nest egg.
“I’ve been told you’re fine,” the contract specialist said. “But if I retire, I don’t want to have to worry about where my money is coming from.”
He said he also would welcome the opportunity to pass on knowledge to younger contract specialists, and show them the tricks he learned over the last few decades.
“I’m there if they need help,” he said.
But he’ll first have to decide whether the additional money would be worth his time, or if he’d rather spend all his time volunteering, cooking, traveling and engaging in other retirement activities.
When a phased retiree decides to fully retire, OPM will calculate a “composite retirement annuity.” This will consist of the full pension the employee had earned at the time he entered phased retirement, plus half of the amount of annuity he would have earned during the phased retirement period had he been working full time.
This means the employee will receive a higher pension than he would have if he had completely retired instead of working part time. But the composite pension will be lower than it would have been if he had kept working full time.
The public has 60 days to submit comments on the proposed regulations to OPM. The regulations do not say when phased retirement is likely to become available.
OPM is now only planning to allow phased retirees to work 50 percent of the time. OPM may in the future alter its regulations to allow different so-called “working percentages,” but said it will first have to evaluate phased retirement’s progress.
Klement said NARFE will encourage OPM to allow phased retirees to work different percentages of time.
Phased retirees will still get health benefits under the Federal Employee Health Benefits Program, and will still be enrolled in the Federal Employees’ Group Life Insurance program, and will be considered as full-time employees. That means that employees’ agencies will pay the full-time share of their FEHBP premiums, and FEGLI benefit coverage amounts will be based on the full-time salary for their positions.
The Obama administration first proposed phased retirement in February 2012, as part of its fiscal 2013 budget. Former OPM Director John Berry called the plan a “no-brainer,” and said it would help older employees who want to take more time for themselves — but aren’t yet ready to fully retire — to continue to contribute and pass on their decades of accumulated knowledge.
Phased retirees under the Federal Employees Retirement System who are not yet eligible for Social Security will not get the so-called FERS supplement. That supplement pays traditional FERS retirees who are not yet 62 the amount they would have gotten from Social Security if they had been eligible. The monthly supplement usually ranges from a few hundred dollars to more than $1,000.
Klement said the lack of a FERS supplement probably won’t discourage many people who are considering phased retirement.
Colleen Kelley, president of the National Treasury Employees Union, praised OPM for issuing the regulations.
“Agencies are facing significant budget cuts, and phased retirement could help with budget savings,” Kelley said. “In addition, the federal government is facing a retirement wave, but many of these eligible workers are not ready to step completely out of the workforce.”
Kelley said phased retirement will help agencies retain vital institutional knowledge and provide a longer transition period for agencies that need to replace retiring workers.
A phased retiree could choose to re-enter full-time service, according to the regulations. But after doing so, that employee could never again re-enter phased retirement status.
OPM said that no unused sick leave could be used to calculate an employee’s phased retirement annuity. But when that employee enters full retirement, sick leave credit will apply.
Not every interested federal employee will be able to take phased retirement. An employee’s agency must agree to allow him to phase into retirement, and he must have been employed full time for the preceding three years to be eligible.
Employees subject to mandatory retirement — such as law enforcement officers, firefighters, nuclear materials couriers, air traffic controllers, some Customs and Border Protection officers, or members of the Capitol Police or Supreme Court police — will not be allowed to enter phased retirement.
U.S. Postal Service employees will be able to take phased retirement. But they won’t have to spend 20 percent of their time mentoring.