Deposit Woes

My last two columns on service credit deposits -- that is, payments to the federal retirement fund to receive credit for certain types of military and civilian service -- generated a lot of comments and e-mails. It seems that this subject has struck a nerve with many readers. Three themes in particular jumped out at me and seemed worth exploring in a little more detail:

• Gripes about the Office of Personnel Management's processing system.
• Questions about the procedure to pay a redeposit of refunded Federal Employees Retirement System contributions.
• Confusion about military service and the deposit related to this credit.

A Few Words About OPM

It might surprise you to learn that retirement processing at OPM continues to be a partly manual, paper-based process. The agency has tried to develop a computer system that would automate the process of handling service credit deposits, but apparently it has failed to accurately provide the results needed.

I think this is why some employees have been frustrated with the response from OPM when attempting to make payments for service credit. Here's what I suggest:

• When making deposit payments to OPM, pay by check and maintain a copy of the canceled check. This will prove that your check was received and cashed.
• Make copies of your deposit application and any communications received from OPM. In addition, be sure to have copies of these communications filed in your official personnel folder.
• Agencies have software that can accurately compute the amount of civilian and military deposits. If you don't feel comfortable paying your deposit directly to OPM, then have your agency figure what you owe and pay yourself that amount. This means putting the money you owe for the deposit in a savings account or other safe investment to have available to pay back when you retire or before. Civilian deposits can be paid to OPM at the time your retirement is processed. Military deposits must be paid to your agency prior to retirement. (There have not been problems with military deposits, since agency payroll offices accept these payments, not OPM). By postponing the payment, interest will continue to accrue on the unpaid balance of your deposit. The 2010 interest rate is 3.125 percent.

FERS Redeposits

Regarding the recent change in the law that now allows refunded FERS retirement contributions to be repaid, OPM is still working on the procedures to accept these payments from employees. Here is the latest word from the agency on the subject, in Benefits Administration Letter 10-101:

"Since FERS was enacted, the law has provided that individuals who took refunds of their FERS employee contributions irrevocably lost service credit for the period of service covered by the refund. Section 1904 permits individuals who are subsequently re-employed to make a redeposit of the amount refunded, plus interest, and to have credit for the service reinstated. For the purpose of survivor annuities, redeposit may also be made by survivors.

"Interest will be based upon the same basic rules applicable to [the Civil Service Retirement System]. OPM will issue new regulations and revised forms prior to the redeposits being accepted. This change applies to individuals who are employed under FERS on or after Oct. 28, 2009. Individuals retiring on or after Oct. 28, 2009, and employed under FERS will be given the opportunity to make the redeposit upon the adjudication of their benefit."

Military Deposits

Here are a few questions and answers about this sometimes tricky subject:

I have 26 years of military service. The period from 1986 to 1998 was reserve time while employed as a federal employee. Would it be good to pay into the retirement system for the credit?

Since you are going to qualify for a reserve military retirement at 60, you are entitled to receive credit under either FERS or CSRS for active-duty military service performed outside your civilian federal career. You will not have to waive your reserve retirement, but you will have to pay a military service credit deposit for any active-duty service you performed that was not covered by annual leave or military leave during your civilian career. This will add additional years and months to your retirement eligibility, as well as to the computation of your benefit.

To understand the relative value of the benefit, you should do two things:

• Calculate the amount of your military service deposit (a human resources specialist at your agency can assist you with the required paperwork).
• Request two retirement estimates, one with the active service included and the other without it. You then will be able to see the difference to your retirement by adding the military service to the computation of your retirement benefit.

I receive a retirement from the Air Force after serving for 17 years and retiring under an early retirement program. I decided to make a deposit into FERS in order to obtain credit for the 17 years because my FERS pension would be more than my Air Force retirement (which I would have to waive). I will be 56 in less than five years, but might not be ready to retire under FERS at that time. Am I eligible to get a refund if I decide not to waive my Air Force retirement?

I have good news for you: You do not have to waive your military retirement until about 90 days before you plan to retire. Turning 56 does not have anything to do with needing to waive your military retirement.

You still haven't addressed the reserve technician program. I had four years active duty prior to October 1982 and then joined the Air Reserve Technician program under CSRS on Oct. 23, 1982. I will be eligible for retirement at 55, military retirement at 60 and Social Security at 62. Do I need to pay the deposit, and will my retirement be reduced when I turn 62?

First of all, here's a definition of reserve technician from OPM: "A civilian employee who is a member of the Army National Guard of the United States, the Army Reserve, the Naval Reserve, the Marine Corps Reserve, the Air Force Reserve or the Coast Guard Reserve who is assigned to duties in one of these components and who is required to maintain a specific military grade in order to continue in his/her civilian employment."

Under CSRS, a technician is treated the same as any other employee. A technician who is involuntarily separated (but not for delinquency or misconduct) from his or her position can get a discontinued service annuity at any age with 25 years of service, or at 50 with 20 years of service. The annuity is reduced at a rate of 2 percent for each year the employee is under 55.

A National Guard technician who is medically disqualified for military duty and who has five years of creditable civilian service can receive disability benefits without meeting the usual CSRS disability criteria. This special provision does not apply to military reserve technicians.

Under FERS, a technician who is separated from civilian service because he or she no longer qualifies as a member of a military reserve component could retire and receive an unreduced annuity at 50 with 25 years of service. If military status is lost due to disability, FERS disability benefits are payable after only 18 months of FERS service. Also, a special retirement supplement is paid until the employee turns 62. It is not subject to the Social Security earnings test until the employee reaches his or her minimum retirement age. But technicians are not eligible for the 1.1 percent annuity formula under FERS, no matter how long they work or their age at retirement.

Regarding military payback: Once paid, does this military time also count toward the FERS special supplement?

No, military service is never used to compute the FERS supplement. I've never received a good explanation as to why, but military service credit is provided to compute the FERS basic retirement benefit only.

I retired from the Army on Jan. 1, 2002, with 26 years of active-duty service. I became a FERS employee on April 7, 2003. I plan to retire in 2016 with 14 years of service. I will turn 60 in August 2016. Do I have the option of buying back six years of my military service? Having 20 years of federal service would eliminate the 5 percent per year reduction in my federal retirement pay and also would raise my government retirement pay.

Since you are retired and receiving your military retired pay, you are not eligible to receive credit for any of your military service that was used to compute your military retirement. When you retire from the civil service, you will have the option to waive your military retirement so you can use all 26 years toward FERS, but that also would require paying a military service deposit. You can't pay for only six years of your military career to use toward FERS.

Tammy Flanagan is the senior benefits director for the National Institute of Transition Planning Inc., which conducts federal retirement planning workshops and seminars. She has spent 25 years helping federal employees take charge of their retirement by understanding their benefits.

For more retirement planning help, tune in to "For Your Benefit," presented by the National Institute of Transition Planning Inc. live on Monday mornings at 10 a.m. ET on federalnewsradio.com or on WFED AM 1500 in the Washington metro area.