Buying Retirement Credit

By Tammy Flanagan

February 10, 2006

Of all the federal retirement planning topics, service credit deposits -- involving payments into your retirement fund -- is probably the most technical. You will need to get assistance from your Office of Human Capital (personnel office) if you have a deposit decision to make. To help you get started, we'll look at the three basic kinds of service credit deposits over the next three weeks. Solution The three kinds of service credit deposits are: Within the three types of deposits, there are differences depending on when the service was performed and to which retirement system the service will be credited. Here are a few definitions of key terms that come up in the process: This week, we'll focus on the nondeduction service issue. If such service was performed before Oct. 1, 1982, and is being used for CSRS credit (or CSRS Offset or the CSRS portion of a transFERS benefit), then the service is creditable for retirement without payment of the deposit. The retirement benefit will be reduced by 10 percent of the unpaid deposit amount. The deposit accrues 3 percent interest compounded annually.

Here's an example:

Bottom line: A deposit of $1,450 will result in a permanent increase of $145 per year to retirement benefits. As an added bonus, this increase also boosts the base for annual cost of living adjustments and for survivor benefits.

You should choose not to pay the deposit if:

If the nondeduction service was performed after Sept. 30, 1982, and is being used for CSRS credit (or CSRS Offset or the CSRS portion of a transFERS benefit) the service will count for eligibility only, not computation, unless the deposit is paid. The interest accrues at 3 percent until Oct. 1, 1985, and then switches to a variable rate each year (as high as 13 percent, and currently 4.125 percent).

An example:

Bottom line: Pay $3,500 and receive a permanent increase of $1,600 in retirement benefits-and a boost in the base for annual cost of living adjustments and survivor benefits.

You should choose not to pay the deposit if:

If the nondeduction service was performed before 1989 and is being used for FERS credit, then the deposit must be paid for the service to be creditable for any retirement purpose.

For example:

Bottom line: Pay $725 and receive a permanent increase of $800 per year in retirement benefits-and an increase in the base for annual cost of living adjustments and survivor benefits.

You should choose not to pay the deposit if:

If the nondeduction service was performed after 1988, then it is not creditable under FERS and no deposit can be made. This service will deducted from the service computation for retirement purposes. Nondeduction service performed on or after Jan. 1, 1989, generally is not creditable under FERS for any purpose.

Resources

Checklist Follow-Up

Be sure to review your service to find out if you will need to pay a deposit in order to receive full credit for your federal service. This may require a phone call or an e-mail to a retirement benefits specialist in your agency's Office of Human Capital. Decide early whether you wish to pay the deposit. Make payments during your career, or save enough money to pay the deposit in a lump sum at retirement.


By Tammy Flanagan

February 10, 2006

http://www.govexec.com/pay-benefits/retirement-planning/2006/02/buying-retirement-credit/21146/