Last time, I focused on the basic rules governing deposits and redeposits for Civil Service Retirement System (CSRS) and CSRS Offset employees, pointing out how these could increase their annuities when they retire. This time, I’ll do the same for Federal Employees Retirement System (FERS) employees.
The term “nondeduction service” is used to describe federal government employment where you didn’t make any contributions to the Civil Service Retirement and Disability Fund. Unlike the CSRS law that gives credit for that time in determining an employee’s total years of service, the FERS law doesn’t. If you don’t make a deposit, that time won’t be creditable for any purpose.
Although the FERS law bars you from making a deposit for most nondeduction service after 1988, there is one major exception. VISTA or Peace Corps service is creditable, no matter when it was performed, if you make a deposit for the service. On the other hand, if you don’t make a deposit, and that service is initially included in the annuity computation, OPM will re-compute your annuity to exclude it if you later are eligible for a Social Security benefit.
If you were ever employed by another federal retirement system (such as the Tennessee Valley Authority or the Foreign Service), that service is also creditable if you aren’t receiving any benefits for that time under the other system and the service was performed before 1989 or is creditable under the Foreign Service Pension System. To get credit under FERS, you’ll have to obtain a refund of your contributions under that other system and deposit it, with interest, in the fund.
For the first 20 years of the FERS program, employees who left government and withdrew their FERS contributions were barred by law from redepositing that money if they returned. As a result, they couldn’t recapture that time and receive retirement benefits based on that service. That changed when Public Law 111-84 was passed. For the first time it allowed FERS employees who were on the rolls on or after Oct. 28, 2009, to redeposit that money, plus interest. If they did, they’d get full credit for that time in determining their years of service and have it used in their annuity computation when they retire.
If you ever separated from the federal government, took a refund of your CSRS retirement contributions, and later returned to work for the government, the rules are different. If you had less than five years of service, you’d have to deposit 1.3 percent of your earnings for that period, plus interest, for that time to be creditable under FERS.
If you had five or more years of CSRS service, you’d be eligible for a CSRS component in your annuity. If so, you’d get credit for that time in determining your eligibility to retire, whether or not you make a redeposit. However, in order for the time to be used in your annuity computation, you’d have to redeposit the money you withdrew, plus interest. (Since the first pay period in January 1970, the contribution rate for CSRS has been 7 percent. Law enforcement officers and firefighters under CSRS began contributing 7.5 percent on the first pay period after Dec. 31, 1974.)
For FERS employees entitled to a CSRS component in their annuity, there is one exception to the redeposit requirement. If you received a CSRS refund that covers a period of service ending before March 1, 1991, you have a choice. You can either make the redeposit or you can have your CSRS annuity component reduced actuarially based on your age and the amount of the redeposit you owe, including interest, on the day you retire. (This option is not open to disability retirees.)
Interest rates: FERS
If you are making a deposit to capture or recapture prior service that will be creditable to your FERS annuity, the annual interest charged is 3 percent through Dec. 31, 1984. Thereafter, a variable rate is charged. In 1985 that rate reached a high of 13 percent, in 2013 and 2014 a low of 1.625 percent.
Interest rates: CSRS
If you are recapturing service that will be used in a CSRS component of your annuity, the interest rate is 3 percent for pre-Oct. 1, 1982, nondeduction service performed before Oct. 1, 1982, and refunded service if the application for refund was made on or after that date. Interest for nondeduction and refunded service on or after Oct. 1, 1982, is also 3 percent through Dec. 31, 1984. Thereafter, a variable rate is applied.
If you owe any deposits or redeposits, download a copy of the Application to Make Deposits or Redeposits. For FERS go to www.opm.gov/forms/pdf_fill/sf-3108.pdf. For CSRS go to www.opm.gov/forms/pdf_fill/sf-2803.pdf.
Once your personnel office tells you how much you owe, you can decide if it’s worth the cost. If you decide to make the deposit, you can pay it in a lump sum or you can do it through monthly deductions from your pay, with payments as low as $50 a month. Just remember. The longer you wait to complete the payment, the more you’ll have to pay in interest.
You’ll have to decide whether to make a deposit or redeposit based on the amount owed compared with the potential benefits.
Reg Jones was head of retirement and insurance programs at the Office of Personnel Management. Email your retirement-related questions to email@example.com, and view his blog at blogs.federaltimes.com/ federal-retirement.