Reemployed Annuitant: What Happens When a Federal Retiree Returns to Federal Service

Federal agencies routinely bring retired employees back — to fill critical skill gaps, cover vacancies during hiring freezes, or respond to agency reorganizations. If you're a FERS or CSRS retiree being asked to return, the rules are complex and the financial tradeoffs are substantial. Here's exactly what happens to your annuity, your FERS supplement, your TSP, and your health insurance when you go back.

The default rule: salary offset

When a federal retiree returns to federal service as a civilian employee, they become a reemployed annuitant. By default, the retiree keeps receiving their annuity and earns a salary from the new position — but the two overlap. The law requires the salary to be offset by the gross annuity amount, so the net paycheck is reduced.¹

The formula:

The "gross annuity" that offsets salary includes both the basic FERS or CSRS pension payment and, if you're under age 62 and still receiving it, the FERS annuity supplement. The annuity payment from OPM continues uninterrupted during reemployment — what changes is that your employment pay is reduced by that amount.

Salary offset example

The retiree's total income equals the position rate — not the position rate plus the annuity. The offset eliminates the "double dip" economically. What the retiree gets is the same as if they were a current employee at that grade level, but paid via two separate streams.

The exception: dual compensation waiver

Agencies can apply to OPM (or use their own statutory authority) for a dual compensation waiver, which allows a reemployed annuitant to receive both the full annuity and the full position salary simultaneously — with no offset.²

Agencies most commonly seek waivers for:

• Positions that are extremely difficult to fill (cybersecurity, certain engineering, air traffic specialties)
• Critical knowledge transfer — a retiring senior official asked to stay on for continuity
• Emergency or surge hiring when the competitive hiring process would take too long
• Positions in remote or hardship locations where the candidate pool is thin

What changes with a waiver

The waiver is financially superior in total income, but comes at the cost of no additional retirement benefit accrual, no TSP access, and no job security. Reemployed annuitants with waivers can be separated at any time without RIF procedures.

Building new retirement benefits without a waiver

If you return without a waiver and contribute FERS retirement deductions from your reduced salary, the new period of service counts toward additional retirement benefits under 5 CFR Part 837:

Supplemental annuity (1–4 years of new service)

If you complete at least one year of continuous full-time service (or the part-time equivalent), you become entitled to a supplemental annuity on separation. This is a separate, additional annuity computed on the new period of service:¹

• Formula: new service years × 1% (or 1.1% if age 62+ with 20+ total years) × highest 3-year average salary from either period
• This supplemental annuity is paid in addition to your original annuity
• If you served less than one year, there is no supplemental benefit — your original annuity resumes unchanged

Redetermined annuity (5+ years of new service)

If you accumulate at least five years of additional service, you may elect a redetermined annuity instead. This replaces — not supplements — your original annuity. It recalculates your entire career as if you had served continuously:¹

• Total service = original career + new period of service
• High-3 salary = highest 36-month average from either period (can use the higher of the two)
• Formula applied to total combined service at applicable multiplier

The redetermined annuity is typically the better outcome for anyone returning at a higher grade level for 5+ years — because the new high-3 at the higher GS grade is applied retroactively to the entire career.

TSP when reemployed

Whether you can contribute to TSP depends on whether you have a waiver:

• Without waiver: You regain TSP contribution eligibility. If the break in federal service was 31 days or longer, you have 60 days from reemployment to elect contribution levels. The agency automatic 1% contribution resumes immediately; agency matching resumes once you elect to contribute your own money.³
• With dual compensation waiver: You are not eligible to contribute to the TSP or receive agency contributions. The waiver restricts you from building any new federal retirement benefits.

Your existing TSP balance is unaffected in either case. You don't need to touch it, roll it over, or make any changes simply because you returned to federal service. The balance remains invested and continues to grow.

FEHB (health insurance) during reemployment

If you were enrolled in FEHB as an annuitant (premiums paid from your OPM annuity check), reemployment transfers that enrollment to your new employing agency. The key changes:⁴

• Your FEHB enrollment record moves from OPM to the new agency's HR office
• Premiums are deducted from your employment salary instead of your annuity
• You may change plans during the reemployment open season or after a qualifying life event
• If you are reemployed in a position that is not eligible for FEHB coverage, your annuitant enrollment continues under OPM

Importantly, FEHB enrollment during reemployment continues to count toward the 5-year FEHB requirement needed to carry coverage into retirement. If a retiree returned before completing 5 years and then has a second separation, the combined pre-retirement + reemployment FEHB time counts.

FEGLI (life insurance) during reemployment

Federal life insurance under FEGLI is restructured when you return:

• Your annuitant FEGLI coverage (Basic, Option A, Option C) is suspended for the duration of reemployment
• You automatically receive the same Basic, Option A, and Option C coverage as an active employee — if you were enrolled in those as an annuitant
• Option B coverage rules differ: as an employee, you can re-elect Option B during the reemployment open season or qualifying event
• When you separate again, your annuitant FEGLI coverage resumes at the level you had when you retired

FERS supplement and the earnings test during reemployment

This is where reemployment creates a financial surprise most annuitants don't anticipate. The FERS annuity supplement earnings test applies to W-2 wages — including the net salary you earn as a reemployed annuitant. The 2026 exempt amount is $24,480. For every $2 you earn above that threshold, your supplement is reduced by $1.⁵

In practice: virtually any federal salary will exceed $24,480, which means the FERS supplement is reduced to zero during any year you are reemployed with meaningful federal salary.

Supplement earnings test with salary offset

Even under the default salary offset arrangement, your net W-2 wages (the reduced salary) count as earnings for the supplement test. Using the earlier example:

• Net salary (W-2 wages): $81,400
• Earnings over the exempt amount: $81,400 − $24,480 = $56,920
• Supplement reduction: $56,920 ÷ 2 = $28,460 — but the supplement is only $21,600/year
• Result: supplement is eliminated entirely for that tax year

OPM administers this through an annual earnings survey (Form RI 92-22, sent each spring). Supplement payments continue monthly during the year, but OPM adjusts the following year's payments to recover any overpaid amount. Reemployed annuitants receiving the FERS supplement should set aside a portion of supplement payments to cover the year-end adjustment.

The supplement naturally ends at age 62 regardless, so this only affects annuitants who are between their Minimum Retirement Age and 62.

FERS supplement rules: supplement continues if you stopped working before reaching MRA

One nuance: the FERS supplement doesn't start just from being a retiree — it requires having retired under an immediate retirement and reaching MRA (if on a postponed annuity under MRA+10, the supplement never pays). Under most circumstances, a reemployed annuitant receiving the supplement was already at or past their MRA before the reemployment.

RIF protections for reemployed annuitants

Reemployed annuitants under a dual compensation waiver are explicitly excluded from Reduction in Force protections under 5 CFR Part 351. They can be separated at any time, for any reason, without RIF procedures. This is one of the key tradeoffs accepting a waiver position:

• With waiver: at-will, no RIF rights, no retention standing, no bump-and-retreat rights
• Without waiver, competitive service appointment: standard RIF protections apply based on tenure, performance, and veterans preference
• Without waiver, excepted service: limited protections depending on the specific hiring authority

Social Security while reemployed

As a reemployed annuitant earning wages, you pay Social Security and Medicare taxes on your employment income — just like any employee. This may add quarters of coverage toward SS eligibility if you weren't already fully insured (40 quarters). It may also increase your projected SS benefit if the new earnings exceed any of your prior 35 highest earnings years in the benefit computation.

Worked example: GS-15 cybersecurity specialist returns after 2 years

Setup: A GS-15 IT specialist retired at age 60 with 32 years of federal service. They receive $52,800/year in basic FERS annuity and a $22,800/year FERS supplement ($75,600 total gross annuity). Their agency asks them to return as a GS-15 ($155,000 position rate) for a 2-year cybersecurity modernization project — without a dual compensation waiver.

Option A: Return with salary offset (no waiver)

• Net salary: $155,000 − $75,600 = $79,400/year
• Total income: $155,000/year (same as if still employed at GS-15)
• FERS supplement: earnings test eliminates it entirely ($79,400 >> $24,480); OPM will recover ~$22,800/year in supplement overpayments after year-end survey
• Effective total first-year income: $155,000 − $22,800 (supplement clawback) = ~$132,200
• TSP: eligible — can contribute up to $32,500 in 2026 (base $24,500 + age 50+ catch-up $8,000; ages 60–63 super-catch-up brings it to $35,750); agency matching resumes⁶
• After 2 years: earns a supplemental annuity of ~2 × 1% × $155,000 = $3,100/year added to existing annuity permanently

Option B: Return with dual compensation waiver

• Net salary: $155,000 (full, no offset)
• Total income: $155,000 + $52,800 (basic annuity) = $207,800
• FERS supplement: still eliminated by earnings test (W-2 wages of $155,000 >> $24,480)
• Effective first-year income: $207,800 − $22,800 (supplement clawback) ≈ $185,000
• TSP: NOT eligible — no employee or agency contributions
• After 2 years: no supplemental annuity — no new retirement benefit accrued
• Job security: none — can be separated any day without cause

Which option wins?

Option B (waiver) provides ~$52,800 more per year in cash. Option A (no waiver) gives $3,100/year more in permanent pension, TSP contribution access (potentially $60K–$70K in additional retirement savings over two years with matching), and job protections. For a two-year engagement, the waiver wins financially for the employee — but the permanent retirement benefit gain under the offset option has long-term value beyond the two years.

Common questions

Does my original retirement date change when I return?

No. Your original federal retirement date is preserved for all purposes. The new period of service creates a supplemental or redetermined annuity — it doesn't restart your retirement clock.

What happens to the FERS supplement when I turn 62 during reemployment?

The FERS supplement stops at age 62 regardless of employment status. Your basic annuity continues. This is separate from the earnings test reduction.

Can I take TSP distributions while reemployed?

Generally, no — if you are reemployed in a position that brings you back under FERS/CSRS coverage, in-service withdrawal rules apply (typically no in-service withdrawals from TSP before 59½ except for financial hardship). If you are over 59½, you may be eligible for age-based in-service withdrawals. Consult the TSP Service Office for your specific situation.

Does reemployment affect my FERS COLA?

No. Annual cost-of-living adjustments to your basic annuity continue during reemployment. The FERS diet COLA applies as normal — zero before age 62, then the capped formula after. Reemployment does not suspend or delay COLAs.

What if I want to work as a federal contractor instead?

Contractor employment with a private firm that holds a federal contract is not the same as reemployment in federal service — there is no salary offset, no annuity implications from OPM's perspective, and no FEHB transfer. The only impact is on the FERS supplement earnings test if your contractor wages (W-2 income) exceed $24,480. Many retirees prefer contractor roles for this reason.

How long can I stay as a reemployed annuitant?

There is no federal time limit on reemployed annuitant status. Some temporary appointment authorities have time limits (1-4 year terms), but the reemployed annuitant status itself doesn't expire. However, waiver authorities granted by OPM often specify a time-limited period.

Sources

1. 5 CFR Part 837 — Reemployment of Annuitants (eCFR): salary offset rules, supplemental annuity (§837.503), and redetermined annuity (§837.504).
2. OPM — Dual Compensation Waivers: agency authority and process for waiving salary offset.
3. TSP — Form TSP-1 (Election Form) and TSP.gov guidance on contribution eligibility for returning federal employees.
4. OPM Healthcare Insurance — Returning as a Reemployed Annuitant: FEHB and FEGLI transfer rules.
5. OPM — FERS Annuity Supplement Earnings Test and Annual Survey (RI 92-22): $24,480 exempt amount for 2026.
6. TSP.gov — 2026 Contribution Limits: $24,500 base elective deferral; $8,000 age 50+ catch-up (total $32,500); ages 60–63 super catch-up $11,250 (total $35,750).

Rules verified against 5 CFR Part 837, OPM guidance, and TSP.gov as of May 2026. Supplement earnings test threshold ($24,480) reflects the 2026 Social Security Administration exempt amount, consistent with the 2026 FERS annuity supplement earnings test applied by OPM.

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