What is a FERS Discontinued Service Retirement? For Those Who Involuntarily Separated from Federal Service

Discontinued Service Retirement (DSR) is a type of retirement available to federal employees who face involuntary separation from their positions.  This guide aims to provide a comprehensive overview of DSR, its eligibility criteria, and how it interacts with other retirement benefits such as the Federal Employees Retirement System (FERS) annuity, health and life insurance benefits, and the Thrift Savings Plan (TSP).

What is Discontinued Service Retirement and How Does it Work?

Definition and Overview of Discontinued Service Retirement

A DSR is for FERS employees who are involuntarily separated from federal service due to no fault of their own. This retirement option is designed to provide financial security to employees who do not meet the age and service requirements for voluntary retirement but are forced to leave their positions due to reasons such as workforce reductions or reorganization. Unlike a voluntary “early out” retirement (VERA), DSR allows employees to retire earlier than the standard retirement age, provided they meet specific criteria. The Office of Personnel Management (OPM) oversees the administration of DSR.

How Does Discontinued Service Retirement Differ from Other Types of FERS Retirement?

Discontinued Service Retirement differs from other types of retirement primarily in its eligibility criteria and the circumstances under which it is granted. What makes a DSR distinct is that the separation from federal service is involuntary, unlike a typical immediate, deferred, or postponed retirement, or even an “early out” (VERA) retirement – which, unlike a DSR, has to be officially offered and approved by the employing federal agency. Employees who do not meet the typical age and services requirements for voluntary retirement can still qualify for a DSR if they are separated from federal service involuntarily and not for personal performance issues or inefficiency. providing an opportunity for these individuals to access their FERS annuity earlier than they would under normal retirement conditions.

Recently Released Feds May Be Eligible for a DSR: Retirement Eligibility and Minimum Civilian Service 

To qualify for Discontinued Service Retirement, a federal employee must meet specific criteria. Similar to VERA requirements, you must have at least 25 years of creditable federal service at any age or be at least age 50 with 20 or more years of creditable civilian service. Importantly, the separation must be involuntary and not due to misconduct or delinquency. Employees who meet these requirements can apply for DSR and begin receiving their annuity benefits, which are calculated based on their years of service and salary history. CSRS and FERS employees that don’t have enough years of creditable service to retire otherwise, and recently lost their job due to a RIF (Reduction in Force), might still be able to apply for a pension. Note if a “reasonable offer” of a reassignment within the federal government is made to the exiting employee, and they decline the offer of another position, they are no longer eligible for a DRS. 

Estimate your retirement income with our Federal Pension Calculator for FERS

Understanding Involuntary Separation and Its Impact

Involuntary separation is a key factor in determining eligibility for Discontinued Service Retirement. This type of separation occurs when an employee is forced to leave their position due to reasons such as agency downsizing, reorganization, or some other elimination of their position that was not based on their personal performance. The involuntary separation must not be due to personal misconduct or performance issues. The impact of involuntary separation is significant, as it allows employees to access their retirement benefits earlier than they would under voluntary retirement conditions, without having to postpone or defer their retirement annuity. 

How Does FERS Annuity Work with Discontinued Service Retirement?

Calculating Your FERS Annuity

The FERS annuity for employees who retire under Discontinued Service Retirement is calculated based on their years of service and the average of their highest three years of salary, known as the “high-3” average, similar to a regular . The annuity is typically 1% of the high-3 average salary multiplied by the total years of service. For more information about this computation, here’s a “how-to” guide for calculating your FERS pension.

Eligibility for FERS Retiree Annuity Supplement with DSR

For FERS employees (and FERS transfers with at least one year of FERS service) younger than 62, they are eligible to receive the special retirement supplement (SRS) with a DSR. The SRS provides additional income until they reach age 62 and become eligible for Social Security benefits, however it is subject to an earnings test if the retiree gains income from another job. This supplement is designed to bridge the gap between the employee’s retirement and the age at which they become eligible for Social Security benefits. It is calculated based on the employee’s years of service and is intended to provide additional financial support during the early years of retirement.

FEHB, FEGLI, and TSP Benefits After Discontinued Service Retirement

Continuing FEHB Program Coverage

Federal employees who retire under Discontinued Service Retirement can continue their coverage under the Federal Employees Health Benefits (FEHB) Program. This program provides comprehensive health insurance coverage to retirees, ensuring they have access to necessary medical care. To maintain FEHB coverage, retirees must have been enrolled in the program for at least five continuous years immediately preceding their retirement.

FEGLI Life Insurance Benefits for Retirees

Federal Employees’ Group Life Insurance (FEGLI) benefits are also available to retirees who qualify for Discontinued Service Retirement. Retirees can continue their FEGLI coverage into retirement, provided they meet certain eligibility criteria. Life insurance requirements for a DSR are identical to those with who voluntarily retire from federal service with an immediate pension. 

Impact on Thrift Savings Plan

Retirees who qualify for Discontinued Service Retirement can continue to manage their TSP accounts, making withdrawals from their traditional TSP and Roth TSP accounts as needed to supplement their retirement income. The TSP offers various withdrawal options, including lump-sum payments, installment payments, and annuities. Retirees can also choose to leave their funds in the TSP to continue growing tax-deferred. If the employee is under age 55 when they retire (or under age 50 for special provisions employees), then the 10% age-based IRS penalty applies. If retiring from federal employment with an immediate pension at 55 or older, the the 10% penalty is not applicable when withdrawing from a traditional TSP account. 

Comparing DSR Option and Rules with Other Early Retirement Types

Voluntary vs. Involuntary Retirement: Key Differences

Voluntary and involuntary retirement differ primarily in the circumstances under which they occur and the eligibility criteria involved. Voluntary retirement is typically based on meeting specific age and service requirements, allowing employees to retire at their discretion. In contrast, involuntary retirement, such as Discontinued Service Retirement, occurs when employees are separated from federal service due to factors beyond their control. Understanding these key differences is crucial for federal employees as they plan their retirement and evaluate their options.

Deferred Retirement when Employee Separates from Federal Service

Deferred retirement is another option available to federal employees who leave federal service before meeting the age and service requirements for immediate retirement benefits. Under deferred retirement, employees can delay receiving their retirement benefits until they reach the minimum retirement age. This option may be viable for employees who do not qualify for Discontinued Service Retirement but wish to preserve their retirement benefits for the future. Deferred retirement is an option for FERS employees with at least five years of civilian service, but it means forfeiting other benefits like FEHB. If you qualify for DSR, but don’t have the service requirements for an immediate pension otherwise –  deciding between deferring, postponing, or applying for a DSR CSRS or FERS annuity can be costly, complex decision. Talk with a financial planner that specializes in federal benefits.

Rules for CSRS and FERS are Different with DSR

The Civil Service Retirement System (CSRS) is the retirement system that preceded FERS and no one hired by the government after 1983 would be CSRS or CSRS offset employees. This means even people who joined the government workforce back then at the age of 18 would now be at least 59 years old and therefore likely for an immediate pension. Unlike FERS, a DSR with CSRS entailed a 2% reduction for each year the employee is under the age 55, but even CSRS who take a DSR in 2025 would be old enough to not worry about this possible age penalty.