Ask The Experts: Retirement

By Reg Jones

Deposits and redeposits, part 1

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Based on the mail I’ve been getting, there’s a lot of confusion about the rules governing deposits and redeposits to get credit for prior service in determining your eligibility to retire and having that time used in your annuity computation when you retire. In this column, I’ll deal with the rules that apply to Civil Service Retirement System and CSRS Offset employees. In my next column, I’ll do the same for Federal Employees Retirement System employees.

Deposits

The term “nondeduction service” applies to any period of federal government employment where retirement deductions weren’t taken from your pay. If you are a CSRS and CSRS Offset employee, you can make a deposit to get credit for that nondeduction service. The deposit equals the amount of the contributions you would have made to the Civil Service Retirement and Disability Fund if your job been covered by CSRS, plus accrued interest.

Retirement eligibility

If you are covered by CSRS or CSRS Offset when you retire, most kinds of federal government employment that aren’t covered by CSRS count toward the years of service needed to be eligible to retire. That includes federal government employment where only Social Security deductions were taken from your pay. It also includes employment covered by another federal retirement system, such as the Foreign Service, as long as you aren’t receiving any benefits for that time under the other system.

Annuity computation

When you performed that nondeduction service has a significant effect on the way it will be treated.

If you had any nondeduction service before Oct. 1, 1982, you’ll get credit for that time in determining your eligibility to retire; however, unless you make a deposit, your annuity will be reduced by 10 percent of the amount you would have paid into the fund, plus interest.

If you had any nondeduction service on or after Oct. 1, 1982, it, too, will be creditable for determining your eligibility to retire; however, if you don’t make a deposit to get credit for that time, it won’t be used in the computation of your annuity.

Redeposits

With one important exception, if you ever separated from the federal government, took a refund of your CSRS retirement contributions, and later returned, you’ll have to redeposit that money, plus accrued interest, before the time can be used in the computation of your annuity. However, if you don’t make the redeposit, you will still get credit for the time in determining your length of service for retirement, as well as for determining your “high-3.” Your high-3, is the average of your three highest consecutive years of average pay, regardless of when they occurred in your career.

Here’s the exception: If you received a CSRS refund covering a period of service that ended before Oct. 1, 1991, you won’t have to pay the redeposit if you don’t want to. You’ll receive full credit for it in your annuity computation (unless you retire on disability). However, your annuity will be actuarially reduced based on your age and the amount of the redeposit you owe, including interest, on the day you retire.

Contribution rates

Beginning with the first pay period in January 1970, the contribution rate for CSRS has been 7 percent (7.5 percent for law enforcement officers and firefighters beginning with the first pay period in January 1975). If the nondeduction service you performed was before that date, the contribution rate will be lower.

Interest rates

Interest for pre-Oct. 1, 1982 nondeduction service earned before Oct. 1, 1982 (and refunded service if the application for a refund was made on or after that date) equals 3 percent. Interest for nondeduction and refunded service on or after Oct. 1, 1982 equals 3 percent through Dec. 31, 1984. Thereafter, a variable rate is applied. (In 1985 the rate reached an all-time high of 13 percent. In 2014 it’s at an all-time low of 1.625 percent, the same as it was in 2013.)

If you owe any deposits or redeposits, go to www.opm.gov/forms/pdf_fill/sf-2803.pdf and download a copy of Standard Form 2803, Application to Make Deposits or Redeposits. Once you’ve filled it out, take it to your personnel office. When they tell you how much you owe, you can decide if it’s worth the cost.

To help you make that decision, use the following formula: 0.015 x your high-3 x 5 years of service, plus 0.0175 x your high-3 x 5 years of service, plus 0.02 x your high-3 x all remaining years and full months of service.

As you can see, if you have over 10 years of actual CSRS service, each additional month of credit your get by making a deposit or redeposit is worth 1/6 percent. That’s 2 percent per year.

If you decide to make the deposit, you can pay it in a lump sum or set up a payment schedule, 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.

Reg Jones was head of retirement and insurance programs at the Office of Personnel Management. Email your retirement-related qustions to fedexperts@federaltimes.com, and view his blog at blogs.federaltimes.com/ federal-retirement.

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