What happens to your benefits when you leave federal service.

The day you separate from federal service, a clock starts. You have 31 days to make decisions about your health insurance, life insurance, and other benefits — and some of those decisions are permanent. Miss the conversion window on FEGLI and you may not be able to get comparable coverage at any price, depending on your health status. Let your FEHB lapse without electing Temporary Continuation of Coverage and you face a gap that pre-existing condition rules once made catastrophic. Panic-cash your TSP and the IRS takes 30 cents on every dollar before you see it.

The federal benefits system is designed to be comprehensive during your career. At separation, that comprehensiveness becomes complexity — because different benefits follow entirely different rules depending on how you leave. A voluntary resignation, a Reduction in Force, a voluntary retirement, and a disability retirement each produce a different outcome for each benefit. Understanding the matrix before your last day is not optional. It is the difference between protecting what you built and leaving it on the table.

Section IThe four separation types — how each one changes the rules

Federal employees can leave service in four primary ways, and the benefit rules are materially different for each. Voluntary retirement unlocks continuation rights that voluntary resignation does not. A RIF-driven separation may qualify for benefits that a routine resignation would not. Disability retirement triggers a different pension calculation entirely. Before reviewing your benefit options, identify which category applies to your situation — because the rules that follow depend on it.

Section IIFEHB — your most time-sensitive decision

The Federal Employees Health Benefits Program provides a free 31-day temporary extension of coverage to all separating employees, regardless of separation type. During those 31 days, your FEHB coverage continues at no cost to you. What you do at the end of those 31 days determines your health insurance situation for months or years to come — and it is the decision most employees are least prepared to make.

Employees who do not meet the retirement eligibility criteria for continuing FEHB have two options: elect Temporary Continuation of Coverage (TCC) for up to 18 months, paying the full premium plus a 2% administrative fee; or convert to an individual policy offered by your current carrier, without medical underwriting. TCC is the federal equivalent of COBRA. The full premium is steep — federal employees typically pay only 25–28% of the total premium during their career, so the out-of-pocket jump at separation is significant. But for employees with ongoing medical needs or pre-existing conditions, TCC is often the right choice until employer-sponsored coverage from a new position begins.

Section IIIFEGLI — the 31-day conversion window

Your Federal Employees' Group Life Insurance coverage also receives a free 31-day extension after separation. During those 31 days, you are covered at no cost. After 31 days, coverage ends — unless you act. You have two options: convert your coverage to an individual policy (no medical exam required, but individual rates apply, which can be very expensive for older employees), or port your Option B coverage if you are leaving for a reason other than retirement and meet certain criteria. Unlike health insurance, there is no federal TCC equivalent for FEGLI — once the 31-day window closes without action, the coverage is gone.

For retiring employees, the calculus is different. Basic FEGLI coverage continues into retirement, but the premium structure changes. Starting at age 65, Basic coverage reduces by 2% of the original face amount each month for 25 months, ultimately settling at 25% of the original value — unless you elect a different reduction option. Option B can be continued into retirement by paying the full premium, which increases significantly at each five-year age band. Option A reduces by 75% at age 65 with no cost after that. Evaluate these tradeoffs carefully before retirement — changes made after retirement are extremely limited.

Section IVTSP — your most portable asset

The Thrift Savings Plan is yours. It always was. Your own contributions are 100% vested immediately; the government's automatic 1% contribution vests after three years of federal service, and the matching contributions (up to 4% of salary) also vest at three years. When you separate, you have four options for your TSP account: leave it in TSP, roll it over to a traditional IRA, roll it over to a new employer's 401(k), or cash it out. The first three are all rational choices. The fourth is almost never the right answer.

Cashing out your TSP triggers immediate federal income taxes on the full amount — taxed as ordinary income in the year of the distribution — plus a 10% early withdrawal penalty if you are under age 59½. On a $100,000 account for a 40-year-old employee in the 22% bracket, that is roughly $32,000 lost to taxes and penalties before you see a dollar. TSP has some of the lowest expense ratios of any retirement account in the country. Even if you are moving to the private sector, leaving your balance in TSP or rolling it to an IRA preserves every dollar you have earned.

Section VFERS pension — the vesting question

Your FERS pension is the most consequential benefit at separation — and the one most affected by how long you served. The vesting threshold is five years of creditable civilian service. Employees who separate before reaching five years have no pension benefit; they can take a refund of their own FERS contributions (without interest), but doing so forfeits any future entitlement to a pension if they later return to federal service. Employees who vest and then leave before meeting retirement age requirements have a deferred annuity option — but the numbers depend heavily on how long they wait to collect.

The Minimum Retirement Age (MRA) under FERS depends on your birth year. Employees born in 1970 or later have an MRA of 57. Those born between 1953 and 1964 have an MRA of 56. The FERS Supplement — a monthly payment approximating your Social Security credit for federal service — is available to eligible retirees until age 62, at which point Social Security eligibility begins. It is subject to an earnings test if you work after retirement.

Section VIAnnual leave and sick leave — what you keep and what you lose

Annual leave is straightforward: it is always paid out as a lump sum upon any separation, to any employee, at the hourly rate of pay on the date of separation. There is no ceiling. There is no waiting period. Whether you are resigning after two years or retiring after thirty, your full leave balance is paid within one to three pay periods of your separation date. See Topic 05 — Annual Leave Strategy for a detailed payout calculator and accumulation strategy.

Sick leave is handled differently — and the rules depend entirely on whether you are retiring or not. Employees who resign or are separated through a RIF without retirement eligibility forfeit their entire sick leave balance. No payout, no credit. It disappears. Employees who retire under FERS (including disability retirement) have their full sick leave balance converted to additional creditable service for the purpose of calculating their pension. As of 2014, 100% of unused sick leave is credited for FERS retirees. The conversion rate is 2,087 hours of sick leave equals one year of additional service credit.

Section VIIFEDVIP, FSAFEDS, and benefits that end at the door

Several benefits end on your last day of pay status or the last day of the pay period in which you separate, with no conversion or continuation options. FEDVIP dental and vision coverage terminates at separation for employees who are not retiring. Retired employees can continue FEDVIP enrollment in retirement through the same open season process and pay the same premiums as active employees — this is a frequently overlooked benefit that many new retirees forget to maintain. If you are retiring, do nothing; FEDVIP continues automatically. If you are resigning, coverage ends.

Flexible Spending Accounts through FSAFEDS are also terminated at separation. Healthcare FSA funds contributed (and not yet reimbursed) may be available for qualifying medical expenses incurred before the termination date, but the account closes. Any unspent balance in an LPFSA or DCFSA is forfeited. If you are approaching separation and have a significant balance, accelerate any eligible medical spending — dental work, glasses, prescriptions — before your last day.

Section VIIIThe separation action checklist — before and after your last day

The decisions below are time-bound. Some must be made before you separate; others have a window after. Missing any of these creates outcomes that range from inconvenient to permanent. Work through this list with your HR office at least 60 days before a planned separation date.

Section IXBenefit survival by separation type — at a glance

The chart below summarizes how each major benefit category fares across the four separation types. Green indicates the benefit survives or provides a meaningful payout. Yellow indicates partial benefit or conditional survival. Red indicates the benefit is forfeited or terminated without recourse.