SECTION 1. EARLY DEFERRED ANNUITIES OF CERTAIN FORMER EMPLOYEES OF THE 
              DEPARTMENT OF DEFENSE.

    (a) Definitions.--For purposes of this section--
            (1) the term ``Civil Service Retirement System'' means the 
        retirement system under subchapter III of chapter 83 of title 
        5, United States Code;
            (2) the term ``defense contractor'' means any entity that--
                    (A) contracts with the Department of Defense to 
                perform a function previously performed by Department 
                of Defense employees; and
                    (B) performs that function at the installation at 
                which such function was previously performed by 
                Department of Defense employees or in the vicinity of 
                such installation;
            (3) the term ``early deferred retirement age'', as used 
        with respect to a transferred employee, means the earliest age 
        at which such transferred employee would have been eligible for 
        immediate retirement under subsection (a) or (b) of section 
        8336 of title 5, United States Code, if such transferred 
        employee had remained continuously employed, until attaining 
        such age, in the position held by such employee when separated 
        from Federal service as described in paragraph (6)(A);
            (4) the term ``severance pay'' means severance pay under 
        section 5595 of title 5, United States Code;
            (5) the term ``separation pay'' means separation pay under 
        section 5597 of title 5, United States Code; and
            (6) the term ``transferred employee'' means a former 
        employee of the Department of Defense (other than a former 
        temporary employee) who--
                    (A) while employed by the Department of Defense at 
                a military installation to be closed or realigned 
                pursuant to recommendations of the Defense Base Closure 
                and Realignment Commission that were approved by the 
                President in 1995 under section 2903(e) of the Defense 
                Base Closure and Realignment Act of 1990 (Public Law 
                101-510; 10 U.S.C. 2687 note) and while covered under 
                the Civil Service Retirement System, was separated from 
                Federal service in a reduction-in-force resulting from 
                conversion from performance of a function by Department 
                of Defense employees at such military installation to 
                performance of such function by a defense contractor at 
                such installation or in the vicinity of such 
                installation;
                    (B) has completed 5 years of civilian service 
                creditable under section 8332 of title 5, United States 
                Code, by the date of separation from Federal service as 
                described in subparagraph (A);
                    (C) is employed by the defense contractor within 60 
                days following such separation to perform substantially 
                the same function performed before the separation;
                    (D)(i) remains employed by the defense contractor 
                or a successor defense contractor, or a subcontractor 
                of either, until attaining early deferred retirement 
                age; or
                    (ii) is involuntarily separated from employment 
                referred to in clause (i) before attaining early 
                deferred retirement age for reasons other than 
                misconduct; and
                    (E) at the time separated from Federal service as 
                described in subparagraph (A), was not eligible for an 
                immediate annuity under the Civil Service Retirement 
                System.
    (b) Retirement Benefits of Transferred Employees.--For purposes of 
determining eligibility for a deferred annuity under section 8338(a) of 
title 5, United States Code, a transferred employee shall be deemed 
to have satisfied the age requirement under such section 8338(a) upon 
attaining early deferred retirement age.
    (c) Computation of Average Pay.--(1)(A) This paragraph applies to 
the computation of the annuity of a transferred employee who retires 
under this section who immediately before separation from Federal 
service as described in subsection (a)(6)(A) was employed in a position 
classified under the General Schedule.
    (B) In the computation of an annuity referred to in subparagraph 
(A) for a transferred employee, the average pay of the transferred 
employee under section 8331(4) of title 5, United States Code, shall be 
adjusted at the same time and by the same percentage that rates of 
basic pay are increased under section 5303 of title 5, United States 
Code, during the period beginning on the date on which the transferred 
employee separates from Federal service as described in subsection 
(a)(6)(A) and ending on the date on which the transferred employee 
attains early deferred retirement age.
    (2)(A) This paragraph applies to the computation of the annuity of 
a transferred employee who retires under this section who immediately 
before separation from Federal service as described in subsection 
(a)(6)(A) was a prevailing rate employee as defined under section 
5342(a)(2) of title 5, United States Code.
    (B) In the computation of an annuity referred to in subparagraph 
(A) for a transferred employee, average pay under section 8331(4) of 
title 5, United States Code, shall be adjusted at the same time and by 
the same percentage that rates of basic pay for positions that are in 
the same area as, and are comparable to, the last position the 
transferred employee held as a prevailing rate employee, are increased 
under section 5343(a) of such title during the period beginning on the 
date on which the transferred employee separates from Federal service 
as described in subsection (a)(6)(A) and ending on the date on which 
the transferred employee attains early deferred retirement age.
    (d) Service for a Defense Contractor Not Creditable Service.--
Service performed by a transferred employee for a defense contractor 
(or a successor or subcontractor referred to in subsection (a)(6)(D)) 
after separation from Federal service as described in subsection 
(a)(6)(A) shall not be treated as creditable service for purposes of 
computing the amount of an early deferred annuity under this section.
    (e) Separation and Severance Pay.--A transferred employee who 
receives separation pay or severance pay upon separation from Federal 
service as described in subsection (a)(6)(A) is not eligible to receive 
an early deferred annuity under this section unless the employee repays 
the full amount of such pay (with interest as determined by the Office 
of Personnel Management) to the Department of Defense before attaining 
early deferred retirement age.
    (f) Receipt of Benefits While Employed by a Defense Contractor.--A 
transferred employee may commence receipt of an early deferred annuity 
in accordance with this section while continuing to work for a defense 
contractor.
    (g) Lump-Sum Credit Payment.--If a transferred employee dies before 
attaining early deferred retirement age, such employee shall, for 
purposes of section 8342 of title 5, United States Code, be treated as 
a former employee not retired who dies, as described in subsection (d) 
of such section. For purposes of the preceding sentence, the term 
``transferred employee'' shall have the meaning such term would have 
under subsection (a)(6) if subparagraph (D) thereof were disregarded.
    (h) Implementing Regulations.--The Office of Personnel Management 
shall promulgate regulations to carry out the provisions of this 
section.
    (i) Effective Date.--This section shall take effect on August 1, 
1996, and shall apply to any transferred employee whose date of 
separation from Federal service, as described in subsection (a)(6)(A), 
occurs on or after that date.
Provides early deferred annuities for certain former Department of Defense (DOD) employees separated from Federal service due to a reduction-in-force resulting from the conversion of the performance of a DOD function to that of a private contractor.
To provide for early deferred annuities under chapter 83 of title 5, United States Code, for certain former Department of Defense employees who are seperated from service by reason of certain defense base closures, and for other purposes.