As the Trump administration seeks to downsize the federal government, some employees may be assessing their potential financial situation in the event of termination. Retirement benefits are an important part of the picture.
Fortunately, for the vast majority of employees, termination has no negative effect on retirement benefits, at least once those benefits are vested. (We discuss vesting timelines below.) This remains true even if the employee is accused of misconduct. There are a few narrow exceptions, discussed at the end of this post.
Some caveats before we go further: Federal retirement rules are complicated. For advice specific to your situation, consider consulting a union, attorney, or other expert. The discussion below applies to most federal employees covered by the Federal Employees’ Retirement System (FERS), which took effect in 1987. We do not discuss less common benefits such as the annuity supplement.
Federal employee retirement benefits
Federal employees generally receive three types of retirement benefits: (1) participation in the thrift savings plan, (2) an annuity based on salary and years of service, and (3) social security. We now discuss each.
Thrift savings plan
Federal employees are immediately vested in the thrift savings plan as to their own contributions and the agency’s matching contributions. This means the employee is entitled to keep those funds regardless of what may happen with their employment.
As to the agency’s 1% automatic contribution, an employee becomes vested after working in the government for three years, or two years for some narrow categories of employees.
For more details, see here and page 5 here.
An employee’s benefits under the thrift savings plan are not affected by termination, once the employee is vested.
Annuity
There are several paths through which a federal employee can become entitled to an annuity. Under most of these paths, it does not matter whether the employee was terminated or left government voluntarily.
First, an employee can choose to immediately start receiving an annuity if they fall into any of these categories:
- Age 62 with 5 years of service. 5 USC 8412(c)
- Age 60 with 20 years of service. 5 USC 8412(b)
- Age 55-57 with 30 years of service. 5 USC 8412(a).
- Ages 55-57 with 10 years of service, but with a reduced annuity amount. 5 USC 8412(g), 5 CFR 824.404.
In these categories, an employee’s eligibility is not affected by termination.
Certain categories of employees may be entitled to a full annuity earlier than set forth above. These include law enforcement officers, firefighters, CBP officers, and air traffic controllers, who become eligible after 25 years of service, or after 20 years of service at age 50. 5 USC 8412(d)(1) and 8412(e).
In addition, as a general matter, employees who are involuntarily terminated can retire early after 25 years of service, or after 20 years of serve at age 50, with some exceptions. 5 U.S.C. 8414(b).
However, for these categories of employees, the employee may lose the right to retire early if removed “for cause on charges of misconduct or delinquency.” 5 USC 8412(d)(1) and 8412(e); 5 U.S.C. 8414(b). But this does not affect the employee’s eligibility for regular retirement as described above. We discuss further at the end of the post.
Social security
Social security benefits are not affected by termination.
The situations in which termination affects retirement benefits
There are rare cases in which termination may affect retirement benefits.
First, if you are terminated before you are vested, then your benefits may be affected. As noted above, employees are typically vested after three years of service for the TSP and five years of service for an annuity. However, you always remain entitled to your own TSP contributions and the government’s matching contributions, even if you are terminated with less than three years of service.
Second, in certain cases, employees may lose the right to retire early if removed for misconduct. However, this limitation does not apply if you have reached normal retirement milestones (like age 60 with 20 years of service). Also, it does not apply to employees separated for performance issues or due to a reduction in force. Further, there are legal options for challenging an accusation of misconduct affecting retirement benefits.
Third, employees may lose retirement benefits if convicted of certain serious crimes such as espionage (5 USC 8312), and in other similar situations (5 USC 8313, 8314).
Finally, different rules may apply to foreign service officers, employees of the VA covered by Title 38, workers hired into the government before 1987, and other limited categories of employees.
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-Danny Rosenthal and Charlotte Schwartz, attorneys at James & Hoffman.