The US Postal Service last year failed to promote the unique advantages of VERA to FERS employees. Attached is an actual offer from USPS of voluntary early retirement to a FERS employee that was age 56 with less than 25 years of service. Normally he would need 30 years of service to get an unreduced annuity. In a VERA that was reduced to 20 years. The VERA offer and annuity estimate he received did not mention or include his monthly FERS retirement supplement–an omission of roughly $1,000 per month!
Postal employees in the post-1983 retirement system, FERS, get three incentives to retire early in a VERA. The oft-heard complaint about a “penalty” for retiring early in a VERA applies mainly to the dwindling number of older CSRS employees. They make up less than 20% of the USPS workforce today. FERS employees enjoy these advantages in a VERA:
First, their Basic annuity is not reduced regardless of age (this is the VERA annuity estimate that USPS automatically provides).
Second, and often overlooked, they receive an extra monthly payment called a “FERS annuity supplement” between Minimum Retirement Age (MRA is about 56) and age 62 (the USPS does not provide this information automatically). The FERS annuity supplement normally applies after MRA and 30 years of service. In a VERA, however, the minimum years of service to qualify for the FERS annuity supplement is reduced to 20. Few people appear to be aware of how substantial this amount is.
Third, many FERS employees have large sums in their Thrift Savings Plan (TSP) accounts due in part to matching funds from the USPS. This money can be withdrawn as an annuity at any age without an early withdrawal penalty. See “Important Tax Information About Payments From Your TSP Account” at http://www.tsp.gov/forms/octax92-32.pdf . Lump-sum withdrawals can be made without an early withdrawal penalty after retirement and age 55.
VERA flopped in the USPS because eligibles in FERS only received an estimate of their Basic annuity. They also needed to know what their FERS annuity supplement would be after MRA and the possible annuity from their Thrift Savings Plan. The USPS did not provide retirement counseling before the VER deadlines. So why would a low response rate be a surprise?
doncheney [at] live.com