Discontinued Service Retirement: Eligibility, Annuity, and Filing

Discontinued service retirement is an immediate federal annuity for employees who lose their jobs involuntarily and meet minimum age and service thresholds: any age with 25 years of creditable service, or age 50 with 20 years. It is available under both the Civil Service Retirement System (CSRS) and the Federal Employees Retirement System (FERS), though the money it pays and the penalties it carries differ sharply between the two. If you have just received a reduction-in-force notice, a directed reassignment you cannot accept, or word that your position is being abolished, this is the retirement provision that may apply to you.

Who Qualifies

The service-and-age thresholds are the same under CSRS and FERS:

Any age, with at least 25 years of creditable federal service, or
Age 50 or older, with at least 20 years of creditable service.

There is one more timing rule that catches people. You must have served in a position covered by your retirement system for at least one of the last two years before your separation.¹ An employee who moved into a non-covered role in their final two years can be shut out of an immediate annuity despite decades of prior covered service.

The separation itself must be involuntary, and it cannot be a removal for misconduct or poor performance.² That “involuntary” label is where most disputes arise.

What Counts as an Involuntary Separation

Clear qualifiers include a reduction in force, the abolishment of your position, and a transfer of function that eliminates your role. These usually happen in budget cuts or reorganizations, and the involuntary nature is not in doubt.

A directed reassignment to a location outside your commuting area also qualifies. If your agency orders you to relocate and you decline, the resulting separation is treated as involuntary rather than a resignation.² The same protection exists under FERS.³

Voluntary early retirement authority (VERA) also fits here. When OPM determines an agency is undergoing substantial reorganization or workforce restructuring and the agency offers early-outs, employees who take them are treated as involuntarily separated for annuity purposes.

The Reasonable-Offer Trap

You lose eligibility if you turn down a reasonable offer of another position. Under both CSRS and FERS, a “reasonable offer” is one within your commuting area, one you are qualified for, and one that is no more than two grade levels (or pay levels) below your current position.³ The offer must be in writing, carry the same work schedule and tenure, and come from your current agency or an agency that received your function through transfer.⁴

The threshold is two grades below, not same grade. A GS-13 who declines a GS-11 job within commuting distance forfeits the discontinued service annuity. A GS-10 offer, on the other hand, would drop more than two grades and would not count as reasonable. Your agency documents whether such an offer was made and declined, and OPM reviews that record before approving retirement.

You Cannot Also Take Severance

Discontinued service retirement and federal severance pay are mutually exclusive. OPM’s severance rules require that the employee not be eligible for an immediate retirement annuity at separation.⁵ Eligibility, not election, is the test: if you meet the age and service marks, you are considered eligible whether or not you file. This is why younger employees swept up in a RIF sometimes get severance while more senior colleagues get an annuity.

How the Annuity Is Calculated

Both systems build the annuity on your “high-3” average salary, meaning the highest average basic pay over any three consecutive years of service. Usually that is your last three years, but an earlier stretch counts if pay was higher then. Basic pay includes salary and shift differentials, not overtime, bonuses, or awards.⁶

CSRS

The CSRS formula is tiered:

First 5 years: 1.5% of your high-3 per year
Years 5 through 10: 1.75% per year
Years beyond 10: 2% per year⁷

Then comes the CSRS age penalty. If you retire under CSRS before age 55, the annuity is permanently reduced by one-sixth of one percent for every full month you are under 55, or 2% per year. A CSRS retiree at age 50 loses 10%, and the reduction does not go away when you reach 55.⁸

FERS

FERS uses 1% of your high-3 multiplied by total years of service. If you are 62 or older with at least 20 years, the multiplier rises to 1.1%, though most discontinued service retirees are younger than that.⁶

The important FERS advantage: no age-based reduction. A 50-year-old FERS employee retiring under this provision gets the full calculated annuity, no penalty for being under 55.⁸ If you transferred from CSRS to FERS and carry a CSRS component, only that CSRS portion gets the age cut; the FERS portion is not reduced.

The FERS Annuity Supplement

FERS was built as a three-part system: the basic annuity, Social Security, and the Thrift Savings Plan. Retiring on discontinued service before you can draw Social Security leaves a gap, and the annuity supplement partly closes it.

The supplement approximates the Social Security benefit earned during your FERS-covered service. OPM estimates your full-career (40-year) Social Security benefit, then prorates it by actual FERS years. Roughly: a $1,000 estimated full-career benefit and 30 years of FERS service produce about $750 per month.⁹

Timing matters. If you retire on discontinued service before your minimum retirement age (MRA), the supplement does not begin until you reach the MRA. That age runs from 55 to 57 depending on year of birth.¹⁰ The supplement ends at 62.

The supplement is also subject to an earnings test like Social Security’s. Earn more than the annually set exempt amount and your supplement drops by $1 for every $2 over the limit.¹¹ The exempt amount was $23,400 in 2025. A post-federal second career can wipe the supplement out entirely.

Health and Life Insurance

Carrying Federal Employees Health Benefits (FEHB) into retirement is often worth more over time than the annuity itself, particularly if you are too young for Medicare. Two conditions apply: you must retire on an immediate annuity, and you must have been continuously enrolled in FEHB for the five years immediately before retirement (or since your first opportunity, if less than five years).¹²

Discontinued service retirement satisfies the first condition. The five-year rule is where people lose out. Dropping FEHB briefly during your last five years to save on premiums can break continuous enrollment and end your right to carry coverage into retirement. Premiums come out of your annuity, so plan for that reduction in net income.

Federal Employees’ Group Life Insurance (FEGLI) works the same way. To keep basic life insurance in retirement, you need an immediate annuity plus five years of continuous enrollment (or the entire period it was available to you).¹³ Once you become an annuitant, you cannot add or increase coverage.

Your TSP After Separation

Your Thrift Savings Plan account stays put. You can leave it invested and are not forced to withdraw until you hit the IRS required-minimum-distribution age. Employee contributions stop at separation, and agency matching contributions end the moment you leave pay status.¹⁴

Withdrawal options after separation include partial distributions, a full distribution, a TSP-purchased annuity, or installment payments, in any combination. Rollovers to an IRA or another eligible plan are allowed.

Mind the early withdrawal penalty. Separating before the year you turn 55 means most TSP withdrawals taken before 59½ carry a 10% IRS penalty on top of regular income tax.¹⁴ The separation-from-service exception applies only if you leave during or after the calendar year you turn 55.¹⁵ Certain federal law enforcement officers, firefighters, and air traffic controllers get age 50 instead.

If you have an outstanding TSP loan at separation, you must pay it off, arrange monthly repayments, or accept foreclosure. A foreclosed balance becomes taxable income for the year, potentially with the 10% penalty as well.

Survivor Benefits

At retirement, you must decide whether to provide a survivor annuity for your spouse. The election is essentially permanent, and it deserves careful thought during what is already a rough moment.

CSRS caps the survivor annuity at 55% of your unreduced benefit. FERS caps it at 50%. Electing the full FERS survivor benefit reduces your own annuity by 10% for life. FERS also allows a partial 25% survivor benefit, which reduces your annuity by 5%.¹⁶

A married retiree who wants less than the maximum, or no survivor benefit, needs written spousal consent. The consent form is part of the application and must be notarized.¹⁶ Agencies cannot waive this. Without consent or a court order, OPM defaults to the maximum survivor election and reduces your annuity accordingly.

Filing the Application

CSRS employees use Standard Form 2801. FERS employees use Standard Form 3107.¹⁷ Mark the retirement type as “Discontinued Service.” A wrong or blank box can cause OPM to process the claim as a deferred retirement, meaning no annuity payments until standard retirement age.

Your package must include an SF-50, the Notification of Personnel Action, that documents the involuntary separation. Your agency’s HR office prepares the SF-50 and codes it to show the separation was not for cause. Without that coding, OPM cannot confirm eligibility.

File through your agency’s HR office, which forwards the package to OPM. Some agencies work electronically; others still use paper. If your agency is being dissolved or shrunk hard, HR may be shorthanded, so begin as soon as you receive the RIF or separation notice.

After You File

OPM authorizes interim payments for immediate retirement applicants. Interim payments typically run 60% to 80% of your estimated net annuity and start within about eight days after OPM receives your complete package.¹⁸ They bridge the wait while OPM audits your service record. When the audit ends, you receive a final annuity letter with your permanent monthly amount and a lump sum for any shortfall between the interim payments and what you were owed.¹⁹

You can track your claim through OPM’s online retirement services portal using your claim number.

If OPM Denies the Claim

An initial denial gives you 30 calendar days from the decision date to request reconsideration in writing. The request must explain why you believe the decision is wrong and include your name, address, date of birth, and claim number.²⁰ OPM may extend the deadline if you can show you were unaware of it or were prevented from filing on time by circumstances beyond your control.

After reconsideration, OPM issues a final decision. Still no? You can appeal to the Merit Systems Protection Board (MSPB), and the final decision letter includes filing instructions. Do not file with the MSPB before OPM issues its final reconsideration decision; the Board will likely dismiss it as premature.

Coming Back to Federal Service

Some discontinued service retirees return to government work later. The financial rules depend on when and where you are rehired.

Inside the Department of Defense, discontinued service annuitants rehired after November 2003 generally receive full salary and full annuity with no offset. They make no retirement contributions during the reemployment, and the added service does not increase the annuity or death benefits. A 2008 amendment lets these reemployed annuitants elect to make retirement contributions and earn additional retirement credit, but the tradeoff is giving up the dual salary-and-annuity setup. That election is irrevocable.²¹

Outside DOD, the rules can differ by agency and appointment type. In many cases, your salary is offset by your annuity, so you effectively earn only the difference. Before accepting a reemployment offer, ask the hiring agency’s HR office exactly how the offset rules would apply to your appointment.

1
U.S. Office of Personnel Management. CSRS Information – Eligibility
2
Office of the Law Revision Counsel. 5 USC 8336 – Immediate Retirement
3
Office of the Law Revision Counsel. 5 USC 8414 – Early Retirement
4
eCFR. 5 CFR 550.703 – Definitions
5
U.S. Office of Personnel Management. Severance Pay Frequently Asked Questions
6
U.S. Office of Personnel Management. FERS Information – Computation
7
U.S. Office of Personnel Management. CSRS Information – Computation
8
U.S. Office of Personnel Management. CSRS and FERS Handbook – Chapter 44 Discontinued Service Retirement
9
U.S. Office of Personnel Management. Information for FERS Annuitants
10
Government Retirement & Benefits, Inc. FERS Retirement Eligibility
11
U.S. Office of Personnel Management. Learn More About the FERS Annuity Supplement Survey
12
U.S. Office of Personnel Management. Health
13
U.S. Office of Personnel Management. Continuation of Life Insurance Coverage As an Annuitant or Compensationer
14
Thrift Savings Plan. Information for TSP Participants Leaving Federal Employment
15
Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
16
U.S. Office of Personnel Management. Learn More About Survivor Benefits and Retirement
17
U.S. Office of Personnel Management. Application for Immediate Retirement Civil Service Retirement System
18
U.S. Office of Personnel Management. Retirement Processing Times
19
U.S. Office of Personnel Management. Retirement Quick Guide
20
U.S. Office of Personnel Management. CSRS and FERS Handbook – Chapter 3 Reconsideration and Appeal
21
Defense Civilian Personnel Advisory Service. Reemployed Annuitants