The Five-Year Rule and What it Means for Your Retirement

5.26.23: Audio automatically transcribed by Sonix

5.26.23: this mp3 audio file was automatically transcribed by Sonix with the best speech-to-text algorithms. This transcript may contain errors.

Val Majewski:
Welcome back to the Federal Retirement Show. I'm your host, Val Majewski, with American Benefits Exchange. Really appreciate you joining me today. And we're going to be going over a topic you may have heard this before, and there's a number of instances where this comes up, but you may have heard of the five year rule. What exactly is that? What is the five year rule? What do we mean by five years? What are all the circumstances in which the five year rule apply? Well, we're going to go over a few of those today and hopefully you'll get better insight of what is meant when you hear the term five year rule. So let's dive into the material. Let's go over these instances when the five year rule applies to you, your federal career, when it comes also to your federal retirement. So the first one where the five year rule takes place is when it comes to your federal employee health benefits. Now, I'm going to read this verbatim. You can follow along with me here on the screen if you're watching. But the federal employee health benefits requires a retiring employee to be covered under FB for the five years of service immediately before retirement, or if less than five years for all service since the employee's first opportunity to enroll in FB. What does this mean? Well, this means if you want to have the ability to keep your federal employee health benefits in retirement, you need to have those benefits for at least five consecutive years prior to retirement or if less than five years for all of your eligible time prior to retirement.

Val Majewski:
Now there's a couple things in here. There's a couple other circumstances within the FB five year rule that I want to cover, but let's look at a couple examples. What do I mean by this five year rule and how does this apply? Well, there's a couple things that I've seen in my experience working with federal employees, just like you and the family decisions that are made now, let's say that you, the federal employee, have FB or you're eligible to get it, but you've realized your spouse who also works and also has the ability to go into a health insurance plan, maybe they have better benefits, maybe those benefits are equal to the FB plan. Maybe those benefits are cheaper than FB and you've decided for whatever reason that you are going to be going under your spouse's health insurance plan. You're covered by another eligible plan. You do have health insurance. However, it was not covered under FB, so if you think that you've had your spouse's benefits the entire time and at the last minute you're going to shift over to FB for retirement purposes, you're mistaken. They're not going to allow you to do that because you need to have FB for at least five consecutive years prior to retirement. Now let's look at a different example. Let's say that you and your spouse are both federal employees and instead of getting two individual plans, you've decided to get a spouse or yourself plus one or a family plan within FB and you've been covered under that for your entire working career.

Val Majewski:
Now that will count and will satisfy the five year rule because you were covered under either your FB plan or a spouse's FB plan. But as I mentioned earlier, the outside health insurance that your spouse would have if they work outside the government and you chose to go in that direction, those years would not count towards the requirement. Now what else counts? Well, breaks in service will count. I said it's five consecutive years prior to retirement. Now, let's say that you worked for three years for the government. You separated from service, right? You separated. That's important. And then you came back and got rehired and then picked up FB again. And the total between those two equaled five years consecutively with a break in service in the middle, you would still be eligible for the FB continuation in retirement if there was a legitimate break in service. Now, if you were working that entire time and you just canceled FB at a certain point in time and wanted to pick it back up. So let's say you worked for three years, canceled it for a certain period of time and said, Well, I need to get it now for at least two years prior to retirement, you'd be mistaken because that's not a break in service.

Val Majewski:
That was a cancellation of your benefits and you'll need to make sure you keep those benefits or when you turn them back on for at least five consecutive years in order to be eligible to continue those in. Calm it now. There's another way in which you can keep your benefits. And we're not talking about a break in service. We're talking about a delayed retirement. So there's two types of retirement, right? There's there are or two main types that people utilize in order to keep their FB. You've got retiring on an immediate annuity. That's if you're satisfying any of the normal requirements and you're going to retire on an immediate annuity. You can keep your FB Assuming that you satisfied the five year rule or postponed retirement, you can still keep your for again, assuming that you satisfied the five year rule. So postponed means you've got you've hit that minimum time and age and you have at least ten years of service. You're not eligible for an immediate unreduced pension. But let's say you wanted to postpone in order to not get a reduced pension. Well, you will not have your FB for that period of time while you're postponing, but once you pick up your pension, typically at age 62, you'll be eligible to continue the FB, assuming again that you satisfied the five year rule. So that's the five year rule as it applies to your health insurance, your FB Now, how does the five year rule apply to Fegley? I'm going to read this verbatim to you.

Val Majewski:
You can follow along with me on the screen if you're watching. In order to be eligible to continue Fegley into retirement, you must have been insured for the five years of service immediately before the date your retirement annuity starts, or for the full period of service during which you were eligible to be insured if less than five years. Again, very similar to the FB fegley. You must have fegley for the and each part of fegley that you wish to continue in retirement for the five consecutive years prior to your annuity start date or the entire amount of time if you have less than five years. So it works very similarly, except we're talking about now individual parts, so basic and all the optional coverages count. So if you want to be able to keep basic, you've had to have basic for at least five consecutive years prior to retirement. If you want to keep option A, option B, option C, you must have had each one or all depending on which ones you want to continue for the five consecutive years prior to retirement. Now we talk about Fegley and you may have heard the term open season. This is a very rare occurrence. So if you do not have an optional coverage and you're thinking, well, I want to continue that in retirement and you want to elect it now, you can't do so without showing evidence of insurability.

Val Majewski:
So if you want to get on that five year rule plan and make sure you have basic as well as any of the optionals that you plan on keeping into retirement, you're going to have to show evidence of insurability in order to acquire those unless the government comes out with another open season, which I said is extremely rare. So when it comes to Fegley same type of rule as your FB, you need to at least have it for the five consecutive years prior to retirement in order to be eligible to continue. And it meant for each individual Fegley option. Basic option A, option B, option C, each of those you must have had for at least five consecutive years before retirement in order to continue them. I'm reiterating this because it's very important when it comes to the five year rule and satisfying it. I don't want you to be shocked when it comes to retirement and you may or may not be eligible to keep these things because of not satisfying these requirements. So when it comes to FB and Fegley general rule of thumb, you must have the coverage for five consecutive years prior to retirement in order to be eligible to continue those benefits in retirement. Now, what is the five year rule when it comes to retirement? Now there's the five year rule for the insurance is health and life insurance.

Val Majewski:
But what is the five year requirement when it comes to retirement? Now, a federal employee is eligible to retire in one way, shape or form once they have at least five years of credible service. Five years. Five years of credible service, really, at any age. And I'm going to get into that in just a second. But you are eligible for some sort of retirement once you've accumulated five years of credible service as a federal employee. Now, if you're a Fers employee, I'm assuming with they're not making any more CSRs employees. So the bulk of you that are watching the show watching this episode are fers here are the requirements that you need to satisfy in order to retire on an immediate pension as a Fers employee. You can go back to our Fers episode where we've dived deep into the first system and these requirements, but real quick to retire full benefits, immediate pension, you need to satisfy one of these three by 62 with at least five years of service age 60, with at least 20 years of service or hit your minimum retirement age, which is anywhere between age 55 and 57, depending upon your birth year, and have at least 30 years of service. Those are the standard. Full retirement requirements for Fers employees. Now, certainly there are buyouts that occur. There are special offers that are given to groups of employees if they involuntarily maybe they retire because of a reduction in force or a riff.

Val Majewski:
Just understand under normal circumstances, these are the requirements to retire on an immediate pension as a first employee. Now you can also retire on an immediate pension if you satisfy the A plus ten provision, and you can do so if you hit your minimum retirement age and have at least ten years of service, you can retire on an immediate. However, its reduced pension. Okay, but let's go back to that five year requirement. Right? I said normally and typically if you want to retire with full benefits you have to have five years of service. And hit age 62. So age 62 with at least five years of service. But what do I mean by just five years and anything? Right. So if you have.

Val Majewski:
A five years of service. At any age, you can do what's known as deferred retirement. I've seen one which I worked with, was 47 years old. She had five years of service and said, I've got another job lined up, another opportunity. I am going to file for deferred retirement as a federal employee and go work this other job. Deferred retirement. Now, what does that mean? You have at least five years of service You file for deferred retirement. You will not be eligible to continue your health benefits or your family. So going back to the other two, but you can collect and start collecting a pension at age 62. So they'll calculate it. Unreduced based on your years of service and you'll start collecting that at age 62. So it is deferred until age 62. If you have at least five years of service and you could be any age.

Val Majewski:
Now postponed.

Val Majewski:
Retirement. You can go back to our video again that talks about deferred versus postponed, but postponed is when you have satisfied the plus ten provision. Right. You hit your minimum retirement age and have at least ten years of service. Instead of taking a reduced immediate pension, you can postpone your pension until typically age 62 and it will be unreduced. You just go without getting paid for that gap of time from whenever you retired until age 62 and you go without your insurances. Until age 62. At age 62. It just talked about it before. You can pick up your your FB and and continue the health insurance there through postponed retirement. But when we talk about the five year rule right there are multiple kind of versions of this but we went over five year rule for your health benefits. Five year rule for your life insurance and this is pertaining to keeping both of those in retirement. If you want to be eligible to keep both of those in retirement. And then we talk about the five year rule or the five year kind of minimum when it comes to applying for retirement. Now, it's not something we normally teach. It's not something we normally educate federal employees on doing when it comes to just saying, hey, put in five years and file for deferred retirement, but in unique circumstances where people need to change their careers or do something different or another job opportunity is available somewhere else they can file for or apply for deferred retirement, at least collect something at age 62 for the federal service time that they had.

Val Majewski:
And I know these things are very general in nature. Okay. Very general in nature. Your situation might be a little more specific. There might be more details, there might be more things when it comes to your personal deal. Right? So if you have more questions about the five year rule about deferred retirement and postponed retirement or anything else, when it comes to your federal benefits, please reach out to us. That's what we're here for. You can go back and see our previous episodes where we talked about being your personal h.R. Department. We go over the why we've done this show, why we're providing this information to you. But if you do have questions, if you do have concerns, if you do have situations that you want to review because i know your situation is very unique and is different than the person that you're working next to reach out to us, How do you do that? You go to federal retirement show.com, fill out the form. We'll continue to be in touch and you can make sure that you're going to get your questions answered. Well, I appreciate you joining me today to learn about the five year rule and how it pertains in these three instances. Again, my name is Val Majewski with American Benefits Exchange. I really appreciate you joining me and taking the time out of your schedule to watch this and hopefully all of the other episodes we have. Look forward to seeing you on a future session.

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