For the most part, all federal employees enjoy the same robust benefits, such as the Thrift Savings Plan (TSP), various insurance programs, and of course, the FERS pension. However, special category employees, namely law enforcement officers (LEOs), are eligible for enhanced retirement benefits and are governed by different retirement rules. Because these enhanced benefits and different rules create additional complexities, LEOs must understand their unique situation when creating their financial plan. Read on to review the various ways that LEOs are treated differently than regular federal employees.
1. Early and Mandatory Retirement
Federal LEOs are eligible to retire sooner than other federal employees with an option to retire as early as age 50 with 20 years of covered service or any age with 25 years of covered service.
Additionally, there is a mandatory retirement age due to the high physical demands of LEO positions. LEOs are generally subject to mandatory retirement at age 57 or as soon as 20 years of service have been completed after age 57.
Financial Planning Tip: Once you reach the 20-year service requirement, you can take a non-covered position and avoid mandatory retirement if you want to remain in the Federal workforce. Keep in mind that you don’t need to retire from a covered position to receive the enhanced FERS multiplier (more on this benefit below).
2. Enhanced Pension Multiplier
Due to the expectation that LEOs will have a career that ends at an earlier age with fewer years of service, they are offered an enhanced pension multiplier designed to provide an adequate retirement income.
The FERS pension is based on the average of your highest-paid consecutive three years of service (“high-3”), multiplied by your years of creditable Federal service, and by a percentage multiplier (either 1% or 1.7%). As an LEO, your first 20 years of service will receive the enhanced pension multiplier of 1.7%, with any remaining years of service using a 1% multiplier. Considering that other Federal employees only receive a multiplier of 1% or 1.1%, this is a significant benefit for LEOs.
Here is the formula for calculating your FERS pension:
High-3 Salary X First 20 Years of Creditable Service X 1.7% = A
High-3 Salary X Remaining Years of Creditable Service X 1% = B
A + B = FERS Special Provision Annual Pension
Financial Planning Tip: As I mentioned earlier, you can take a non-covered position to avoid mandatory retirement and still receive the enhanced pension multiplier for your years in a covered LEO position.
3. Special Retirement Supplement
Federal employees who retire before age 62 may be eligible for a pension supplement called the Special Retirement Supplement (SRS), also known as the FERS Supplement. The SRS was designed to bridge the gap between when you retire and 62 (the age you become eligible for Social Security). Since many LEOs leave Federal service before age 62, the SRS is a significant benefit for LEOs.
No Earnings Test
Like Social Security benefits, the SRS is subject to an earnings test. Hence, Federal employees who have earnings from wages or self-employment that exceed the Social Security annual earnings limit may have their SRS reduced or stopped until their earnings fall below the threshold. The earnings limit for 2021 was $18,960, and for every $2 that exceeds this limit, the SRS will be reduced by $1. That being said, LEOs are not subject to the same earnings limit. Meaning regardless of how much you earn, your supplement will not be reduced or stopped until you reach your Minimum Retirement Age (MRA). Once you reach your MRA, you’ll be subject to the earnings limit, just like any other FERS retiree.
4. Special Thrift Savings Plan Withdrawal Rule
While most Federal employees must wait until age 59½ or until they separate from service at age 55 or older to take withdrawals from their TSP without incurring the 10% early withdrawal penalty, Federal LEOs are offered a more lenient option. LEOs who separate from service at age 50 or older or after 25 years of service, can take penalty-free withdrawals from their TSP.
5. Immediate COLAs
Unlike regular federal employees who must wait until age 62 before becoming eligible for cost of living adjustments, SCEs are immediately eligible. This is an enormous benefit, as some LEOs may retire as early as their late 40s and would see their pensions eroded by inflation without this benefit.
Final Thoughts
As a Federal law enforcement officer, you have some robust and distinct retirement benefits that can help you achieve your retirement goals. Understanding your unique benefits and how they fit into your overall financial plan is essential to ensuring you can live your ideal life. In addition to this article, you should review the OPM website and consult with your human resource personnel. If you do not feel confident in creating your financial plan or want a professional opinion, you should consult with a qualified financial planner.
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2023 Legislative Change Notice
The SECURE ACT 2.0 passed and impacted many of the articles on this website. While the articles were correct when written, it’s impossible to re-write every article. Please consult a qualified professional (i.e., CFP®, CPA, or attorney) before implementing any strategy.
