Q. I’m contemplating retirement, but I want to make sure what I’m hearing is correct. My service computation date is January 1980, so I have almost 33 years’ service. However, after my first seven years of service, I chose to retire and stay at home with my two babies. Thinking I wouldn’t return, I withdrew my retirement, which was in the $6,000-$7,000 amount.
After 3½ years, I came back and worked another four years and then again resigned to stay home with a third child. I returned a year later (1989) and have been here since that time. I switched to FERS when it first became available, but I don’t remember enough about the switch to recall being asked if I wanted to pay back my earlier retirement withdraw. Now I’m told that when I retire, they’ll be deducting $17,000 from my retirement checks to pay back the withdrawal of $6,000 in retirement so many years ago.
I withdrew $6,000- $7,000; why do I have to pay back $17,000? Would it be to my advantage to pay it all back before I retire? I’ll be 56 next month and don’t really plan to retire until 2014, when I would be 58.
A. No one can deduct money from your annuity payments to get credit for a period of service where you took a refund of your retirement contributions. A redeposit can only be made before your annuity is finalized by OPM, and that deposit must be in full. The reason the amount you owe is so much greater than the amount refunded to you is the interest that has accumulated. To show you how that can pile up over time, the interest rate in 1988 was 8.375 percent, in 1989 9.125 percent, in 1990 8.75 percent, etc.
Fortunately for anyone making a redeposit, interest rates have fallen in recent years. In 2008 it was 4.75 percent, in 2009 3.875 percent, in 2010 3.125 percent, in 2010 2.75 percent and this year 2.25 percent.
Because you took a refund of your retirement contributions before Feb. 28, 1991, you’ll get credit for that time in determining your total length of service. And you’ll have a choice. You can either redeposit the full amount owed or have your annuity actuarially reduced based on the amount you owe and your age when you retire. You’ll have to decide if it’s worthwhile to make the redeposit.