Did you work under either Civil Service Retirement System or Federal Employees Retirement System, leave government, withdraw your retirement contributions, and then come back to work for the government? If you did, when you retire your annuity will be reduced unless you redeposit that money, plus accrued interest.
Should you make that redeposit or not? I’ll help you find the answer that fits your situation by explaining who is eligible for an actuarial reduction and how to find out whether that reduction is a better deal than making a redeposit.
First, let me spell out the redeposit rules.
CSRS and CSRS Offset
As a rule, you have to redeposit that money, plus interest, to get full credit for a period of refunded CSRS service. If you don’t, you’ll still get credit for that time in determining your years of service as well as your high-3 years of average salary; however, the time covered by that refund won’t be used in the computation of your annuity. So, if you worked for the government for 30 years but received a refund covering three of them, only 27 years would be used in your annuity computation.
While that’s the rule, there’s one important exception. If you received a refund for a period of CSRS service that ended before March 1, 1991, you have a choice. You can either make the deposit or decide not to. The decision is up to you. But before you decide, you need to know what the consequences would be. If you don’t make the deposit, you’ll receive credit in determining your length of service and have it used in your annuity computation (unless you retire on disability); however, your annuity will be reduced actuarially based on your age and how much you owe.
FERS
If you took a refund of your FERS retirement contributions for a period of service that ended before March 1, 1991, it’s up to you. If you don’t make the deposit, you’ll get credit in determining your length of service and have it used in your annuity computation (unless you retire on disability); however, your annuity will be reduced actuarially based on your age and how much you owe. If you got that refund on or after March 1, 1991 you’ll have to redeposit that money, plus accrued interest, to get any credit for that time.
FERS with a CSRS Component
If you took a refund of your CSRS retirement contributions and later returned to work under FERS, how that redeposit service is treated will depend on the amount of time you were covered by CSRS. If you had fewer than five years of CSRS service, you’ll have to redeposit that money, plus accrued interest, for the time to be creditable for any purpose.
On the other hand, if you had five or more years under CSRS that refunded service will be treated exactly the same way it is for a CSRS or CSRS Offset employee. In other words, you’ll get credit for that period of time, whether or not you make a redeposit. However, in order for the time to be used in your annuity computation, you’ll have to make a redeposit unless — as mentioned above — the refunded service ended before March 1, 1991. In that case, you can elect not to pay the redeposit and have your CSRS annuity component reduced actuarially.
Actuarial reductions
Actuarial reductions are based on economic assumptions and demographic factors, such as life expectancy. They are determined by the Board of Actuaries of the Civil Service Retirement System (which covers both CSRS and FERS).
They are expressed as “present value factors.” For CSRS-covered service, they range from 329.9 for someone 40 years old to 48.8 for someone age 90. For most FERS-covered service, they range from 216.8 to 48.0. For special category FERS employees, they range from 295.8 at age 40 to 206.4 at age 62; thereafter, they are the same as all other FERS employees. In short, the larger the number, the smaller the reduction in your annuity.
If you owe a redeposit and are eligible for an actuarial reduction, the number that corresponds to your age is divided into the redeposit owed (including interest) to determine the dollar amount of the monthly reduction. (Your personnel office has a copy of the most recent present value factors.)
Should I make a redeposit?
It all depends. To find the answer that fits you, you’ll need to do the math. First, you need to find out how much you owe, including interest. To get that information, download a copy of the Application to Make Deposit or Redeposit (Standard Form 2803 for CSRS) or Application to Make Service Credit Payment (3108 for FERS), available online at www.opm.gov/forms. Fill out the form and send it to OPM.
Second, you’ll need to get an estimate of what your monthly annuity would be. When OPM lets you know what you owe, you can go back to your personnel office, find out what the present value factor is for your age at retirement and calculate how much of a dollar reduction there would be in your monthly annuity. Once you’ve compared what you’d receive with and without making a redeposit, you can decide whether you’d be better off putting the redeposit money there or somewhere else.
10 Comments
Mr. Jones,
I just sent you an email about this topic!
Can the redeposit be made after retirement but before OPM finalized the retirement paperwork?
Will OPM send the redeposit info to me or do I need to contact them about it?
Thank you for your help!
David
Yes, OPM will notify you about the redeposit needed and allow you to complete that redeposit before your retirement application is finally adjudicated.
Mr. Jones,
I transferred from CSRS to FERS in December 1987 with 5.5 years of service. I left the government in December 1996, and shortly thereafter took a refund of my CSRS deposit.
SF 2803 states “For service which ended before March 1, 1991, if your final separation occurred on or after October 29, 2009, you will receive credit in your annuity computation for the period of service covered by the refund.”
Based on that statement in the SF 2803, I would NOT be eligible for an actuarially reduced annuity because my final separation was before 10-29-2009.
Am I understanding this correctly?
Thank you,
Steve
Since you took a refund after February 28, 1991, you would have to repay that money, plus accrued interest to get credit for that time in determining your length of service and to have it used in your annuity computation.
for the above question, would it be paid back lump sum or use the Actuarial reductions from the retired pay?
If you are referring to the answer that referred to a “refund after February 28, 1991,” to get credit for that time the amount would have to be redeposited in full before retirement. There is no actuarial reduction option.
For FERS, to find out the amount of the Redeposit owed (Service Credit Payment), you need to complete form SF-3108, then turn into your HR office. They review it and send to OPM. It take about 9 months for OPM to get back to you. They will send you a statement showing what you owe, including interest. The form can be downloaded from OPM’s site: https://www.opm.gov/forms/pdf_fill/sf3108.pdf
You can pay the Redeposit through monthly payments (from your bank account, not payroll deduction) or as a lump sum (send in a check). You can also use https://pay.gov to pay the Service Credit Payment, which offers the option of paying by bank account or credit/debit card payments. You select OPM to pay this way.
Thank you for your detailed summary, which I’ll share with the rest of our readers.
Also, working the numbers the loss does not seem significant if I do not redeposit. Am I doing something wrong in my calculations?
I don’t know if you are doing anything wrong; however, I can tell you that the larger the deposit, the less likely it is that it would be worth making.