Discontinued Service Retirement (DSR)

Federal employees are facing a barrage of attacks and a historically unprecedented threat of mass terminations through involuntary separations. For federal employees covered by the Federal Employees Retirement System (FERS), unexpected job loss can be a stressful and uncertain time. While the circumstances are unfortunate, understanding your retirement options, particularly Discontinued Service Retirement (DSR), can provide a crucial lifeline. This article outlines, in general terms, the key aspects of DSR under FERS and compares it to Deferred Retirement, helping you navigate this challenging situation. This article should not be construed as legal or technical advice. Each situation is subject to the impact of unique facts and circumstances that may be applicable. If you require the services of a professional consultant, visit our consulting page.

Discontinued Service Retirement is a retirement option available to FERS employees who are involuntarily separated from federal service provided such separation was not due to misconduct or delinquency. This typically occurs due to:

• Reduction in Force (RIF): This is the most common reason, where agencies downsize due to budget cuts, restructuring, or other organizational changes.
• Reorganization: When an agency undergoes significant restructuring that eliminates positions.

To be eligible for DSR under FERS, you must meet one of the following sets of criteria:

• Age 50 with 20 years of creditable service: This is the most common eligibility pathway.
• Any age with 25 years of creditable service: This option provides retirement benefits regardless of age, provided the service requirement is met.

The calculation for a DSR annuity is similar to a regular FERS retirement annuity, but with a crucial difference. The basic formula is:

1% x High-3 Average Salary x Years of Creditable Service

• High-3 Average Salary: This is the average of your highest three consecutive years of basic pay.
• Years of Creditable Service: This includes all your qualifying federal employment.

The key difference with DSR is that there is no age reduction if you retire before the Minimum Retirement Age (MRA). Under regular FERS retirement, retiring before the MRA results in a reduction of your annuity. This makes DSR a valuable benefit for those facing involuntary separation before reaching their MRA.

Compared to Deferred Retirement Under FERS

By comparison, Deferred Retirement is an option for FERS employees who leave federal service voluntarily before meeting the age and service requirements for immediate retirement. Instead of receiving an immediate annuity, the employee can postpone receiving benefits until they reach a certain age.

Here’s a table summarizing the key differences:

Feature	Discontinued Service Retirement (DSR)	Deferred Retirement
Separation Type	Involuntary (RIF, reorganization, etc.) not due to misconduct.	Voluntary resignation or separation.
Eligibility	Age 50 with 20 years or Any age with 25 years.	5 years of creditable service.
Annuity Start	Immediate upon separation (if eligible).	Upon reaching MRA (with possible reduction) or age 62.
Age Reduction	No age reduction for retiring before MRA.	Possible reduction if annuity begins before age 62 (unless MRA+30 or age 60 with 20 years).
Health Insurance	May be eligible to continue FEHB (at full cost).	Not eligible to continue FEHB.

Key Takeaways from the Comparison

• Control: DSR is for situations outside your control, while Deferred Retirement is a best described as a planned choice.
• Timing: DSR provides immediate benefits (if eligible), while Deferred Retirement requires waiting until a later age.
• Annuity Reduction: The absence of an age reduction is a major advantage of DSR.
• Health Benefits: FEHB continuation is a significant benefit of DSR that is not available with Deferred Retirement.

Important Considerations (DSR)

• Involuntary Separation: The separation must be involuntary and not due to misconduct, delinquency or resignation.
• Availability of Other Positions: If the agency offers you a comparable position, refusing it may disqualify you from DSR.
• Health Insurance: You may be eligible to continue your Federal Employees Health Benefits (FEHB) coverage into retirement, although you will be responsible for the full cost of the premiums.
• Thrift Savings Plan (TSP): Your TSP remains your own, and you can manage it according to your retirement plan.
• Social Security: DSR does not affect your eligibility for Social Security benefits.

What to Do If You Face Involuntary Separation

1. Contact your agency’s Human Resources office immediately: They can provide specific information about your situation and available options.
2. Request a formal explanation of the separation: Ensure you understand the reasons for the action.
3. Gather all relevant documentation: This includes your service records, pay stubs, and any official notices regarding the separation.
4. Consult with a financial advisor: They can help you understand the financial implications of DSR (or Deferred Retirement if applicable) and develop an adjusted retirement plan.

Conclusion

Facing involuntary separation is a daunting experience. However, understanding the provisions of Discontinued Service Retirement and how it differs from Deferred Retirement under FERS can provide a sense of control and a path forward. By familiarizing yourself with the eligibility requirements and annuity calculation, you can make informed decisions about your future. If you are facing this situation, remember to seek initial guidance from your agency’s HR office and a qualified financial advisor. For expert consultation on the process and requirements or application, contact our office.

Disclaimer: This article provides general information about Discontinued Service Retirement and Deferred Retirement under FERS and should not be considered legal or financial advice. Consult with appropriate professionals for personalized guidance.

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