With the September 30 Deferred Resignation Program (DRP) date approaching, now is the time to review what happens to your benefits when you separate from federal service. Understanding your options can help you make informed decisions and avoid costly mistakes.
FERS Retirement Options
If you leave before reaching retirement eligibility, you have two main choices:
- Refund of Contributions: Request a lump sum of your retirement contributions, including interest. The taxable portion can be rolled into an IRA or employer plan to avoid immediate withholding. If you return to federal service later, you can redeposit refunded contributions to restore your service credit.
- Deferred Retirement: With at least five years of creditable service, you may defer your annuity and claim monthly payments once you reach eligibility age.
Thrift Savings Plan (TSP)
Your TSP account remains open if you have at least $200 vested. You are always vested in your contributions and the agency match, though the 1% automatic contribution requires three years of service (two for some employees). After DRP separation, you can:
- Leave funds in the TSP to benefit from low fees.
- Roll money into another qualified retirement plan.
- Make withdrawals—though distributions before 59½ may face a 10% penalty unless you qualify for exceptions (such as separating at 55 or older or monthly payments based on life expectancy).
You may choose monthly withdrawals, a one-time partial withdrawal, or even purchase an annuity.
Health and Insurance Coverage
- FEHB: Free coverage continues for 31 days. You may extend up to 18 months by paying both the employee and government shares, plus a 2% fee.
- FEGLI: Free for 31 days after separation, with the option to convert to an individual policy.
- FEDVIP: Ends immediately upon separation with no extension.
- FSAs: Coverage ends at separation, though remaining balances can be used for eligible expenses already incurred.
Leave Balances
- Annual Leave: Paid out in a taxable lump sum.
- Sick Leave: Has no cash value after separation.
Next Steps
The DRP date gives you time and space to plan your next move. But decisions around retirement benefits, TSP withdrawals, and health coverage are complex. Consider speaking with a Federal Retirement Consultant (FRC®) for a personalized analysis so you can move forward with confidence.
