An integrated circuit package system includes attaching an adhesive segment spacer to an interposer assembly; mounting an integrated circuit over a carrier; mounting the interposer assembly over the integrated circuit with the adhesive segment spacer exposing an inner region of the integrated circuit and covering a periphery of the integrated circuit; and forming an encapsulation over the integrated circuit, the interposer assembly, and the adhesive segment spacer with the interposer assembly exposed with a recess in the encapsulation.